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Credit Cards Offer a Variety of Reward Programs

Francine L. Huff
LoanBiz Columnist

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Credit card reward programs have proliferated in recent years. Credit card companies offer rewards such as airline tickets, cash back, hotel stays, and contributions to retirement accounts for using their cards. Before signing up for a reward card, smart consumers should familiarize themselves with the card's terms and conditions. Some rewards don't justify the expense.

Why Use Reward Cards?

In 2007 about 84% of credit card purchases used reward cards, according to business consulting and research firm Aite Group. That's more than double the users in 2001. Much of the appeal of these programs is that customers like the idea of getting something back when they spend money. Usually the card holder receives a point for each dollar spent. During special promotions credit-card companies may offer additional points for purchases.

Upscale Credit Card Reward Programs

Credit cards marketed to wealthier customers may offer one-of-a kind experiences such as meeting a favorite celebrity. For example American Express offers a sub-orbital spaceflight costing 20 million points. For 500,000 points high-end clients can take a zero gravity flight. Some companies even allow card holders to customize their rewards for a unique experience.

How to Compare Credit Card Offers

People who carry a balance each month may end up paying more credit card interest than they would with a traditional card offering a lower interest rate. Accepting the first offer in the mail without comparing to other credit card programs could prove costly. Careful spenders determine how rewards are valued and the best way to use the cards to their advantage before signing up. Those planning to buy a new car may benefit most from cards that offer money toward the purchase of a new vehicle.

Will Points Expire?

It's also important to know when and if points expire. For instance, if it takes a long time to earn enough airline miles to redeem for a ticket, a card that awards miles with no expiration is a sensible choice. Conversely, airline miles aren't a great reward for someone who rarely flies. Some cards limit the number of points spenders can accrue each year. Consumers planning to acquire loads of points redeemable for big-ticket items should be aware of this.

Crunch the Numbers

When comparing cards, the annual fee, the monetary value of the points, and the interest rate all determine how desirable the card is. Paying a $50 annual fee and a high interest rate to get a $200 reward after 4 years makes little sense.

By looking at their spending history and estimating the value of the rewards versus the cost of the credit, consumers can correctly decide which offers to jump at and when to say "no thanks."

Sources:
U.S. News & World Report
U.S. News & World Report
American Express
MSN Money


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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