Rewards sound like such a great concept, who would not be in favor of receiving a reward? When you pay for your purchases in cash, you almost never receive a discount or anything back. On the other hand, a reward card offers you something back such as cash, airline miles, hotel points, or points in a proprietary reward system. Fortunately or unfortunately, there are so many point systems that it is easy for any reasonable person to be confused as to which card will maximize their reward.

While I will be explore this subject into greater detail in the future, here are some simple rules to guide you to the best reward card:

Reward cards are only for people who do not carry a balance.

It can’t be stressed enough that any reward you receive is only going to be a fraction of your interest payments if you do not pay off your balance in full every month. If you carry a balance, you should always be selecting a card for the lowest interest rate, not rewards points or cash.

Stay Flexible

Some reward cards accumulate points only towards purchases with a single company, such as an automobile manufacturer’s reward card. These are the least flexible. You could save for years towards the purchase of a new vehicle, only to realize that you would prefer one from another manufacturer. The same can be true with airline points, hotel points, and other rewards. Some of the best reward cards, like the American Express Starwood card allow you to stay flexible by offering redemptions to dozens of airline programs.

Cash is King

In the world of ever changing airline award availability and redemption rates, let alone mergers and bankruptcies, a cash reward card has several distinct advantages. Cash be spent immediately or can earn interest, while reward points only depreciate over time as companies invariably raise redemption rates and/or reduce award availability. Cash never expires, as do points in many programs. Finally, there is always the risk that your favorite airline or hotel chain will go out of business.

Find out for yourself what a point is worth to you.

There once was a time where airline points were worth 2 cents a mile or more. I fondly recall ten years ago having no trouble flying last minute on a major airline for a mere 25,000 miles, a benefit worth far more than $500 at 2 cents per mile. Those days are long gone as the last time I was able to redeem 25,000 for a coach ticket on a schedule that worked for me was for trip to Buffalo in the winter. To determine how much a point is worth, simply divide how much you would have spent on the benefit by the number of points the benefit cost. Also, subtract value if you had to re-arrange your schedule to redeem the benefit. Once you have that that value, in cents per mile or point, only then are you ready to begin choosing the card that maximizes your rewards.

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Keep Reading:

• Best Credit Card Recommendations
• Guide to Business Credit Cards with Rewards
• American Express Platinum Domestic Companion Ticket Test

This entry was posted on Monday, September 8th, 2008 at 22:00 and is filed under Maximize your Credit Card Rewards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.