Here are some top picks that will give you the most bang for your buck. June 21, 2004: 12:05 PM EDT
By Jeanne Sahadi, CNN/Money Senior Writer
NEW YORK (CNN/Money) – Unless you actually enjoy taking a sickle and hacking your way through a jungle, chances are shopping for a credit card with the best rewards program is a headache.
Think about it. There's just one of you and about 20,000 different rewards cards to choose from.
So, in an effort to help you cut the most efficient path through the plastic jungle, here are some tips and some top picks.
Are reward cards right for you? Generally, the advice has always been, "If you ever carry a balance, a reward card is not right for you," said Curtis Arnold, founder of CardRatings.com and the spokesman for U.S. Citizens for Fair Credit Card Terms. That's because rewards cards have typically carried higher interest rates than non-rewards cards.
But now, a number have come out with very competitive interest rates (below 10 percent), Arnold said, so if your credit score is good enough to qualify you for that kind of rate, you needn't necessarily rule out a rewards card, unless it hinders you from paying down your balance in any way.
What are potential drawbacks? Getting something back for your purchases (whether it's money, a discount or a free flight to Tahiti) may seem like a good deal, but it's not always if the restrictions to get that reward are prohibitive.
Mind, for instance, the "up to" clause, as in "you can get up to 5 percent cash back on your purchases." Read the fine print to see how you can get that full 5 percent. If you're required to carry a balance, "that's a red flag. You'll fall into a hole you don't need to be in," Arnold said. Here's why: you'll be paying a much higher interest rate than 5 percent on that balance, effectively wiping out the value of your reward.
Beware, too, rewards cards that give you the best deals in the first 90 days of using the card. That's not a very long time, so if you opt for such a card, make sure the rewards that you'll get after the 90 days are still worth it given your spending habits.
Also, brand-specific rewards are only useful if you're a loyal user of the brand. One of the best things about gas rebate cards today is that the newer ones coming out don't tie you to any one oil company.
For cards that offer cash back or discounts for shopping at multiple vendors, don't be too wedded to just two or three of them, because the list may change while you're a card user.
For help figuring out any potential hitches with a card, check consumer reviews of any cards your considering on CardRatings.com.
What makes a great rewards card for most people? Cold cash is the favorite reward category for Arnold as well as Scott Bilker, founder of DebtSmart.com.
The structures of cash-back programs are often simpler than other types of reward programs and the reward is easily quantifiable. "I can track it and follow it and make sure it happens," Bilker said.
For his money, Arnold likes the college savings and retirement investing rewards (a form of cash back) the best. You not only get free money for your purchases that is put into an investment account, but if it's a tax-advantaged account such as a 529 college savings plan or an IRA, you're getting a tax break, too.
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He's less keen on frequent flyer programs for all but the most avid travelers who are dedicated to one or two airlines. The restriction on the use of miles, the potential for expiration of those miles and the hassle of redeeming them leave him wanting.
Still, there are plenty of good reward programs that offer you something other than cold cash (including frequent flyer plans that let you redeem miles at many airlines).
We decided that if we were going to sign up for a rewards card, we'd want the best of all worlds no matter the category of reward: cash back, gas rebate, shopping discounts, travel perks, frequently flyer miles, college savings and retirement investing.
That means the most bang for our buck with the fewest restrictions. We also wanted a card with no annual fee and no required amount to charge to qualify for the reward, or at least a very low minimum that most cardholders could easily meet.
Using our criteria, Arnold gave us a list of top picks for consumers based on his research and the consumer reviews posted at CardRatings.com. (See graphic, inset.)
Granted, there are other boffo rewards cards out there or coming soon to a wallet near you. (And there are some not listed here that are the cream of the crop if you're a big spender -- think $25,000 a month -- and don't mind paying a big annual fee to the tune of $2,500 a year.)
But in a world of 20,000 rewards programs, we figured it's a start.