Which credit card is right for you? - evaluating reward credit cards

USA Today (Society for the Advancement of Education), Dec, 1994

Consumers now can get credit cards that will earn free airline tickets; a rebate toward a car or computer; dollars-off coupons toward toys, shoes, other retail items, or long-distance telephone time; help pay for tax-return preparation; give back cash; and put money into an annuity.

They are being used to pay for groceries, fast-food lunches, and even movies, but do these rebate, reward, or enhancement credit cards provide real value? Is it possible to get something for nothing? Which provide the best deals? If you don't use a credit card, should you now? Or if you do use one or more cards that don't offer such services, is it worth switching?

If you are in good financial shape and already use credit cards in a responsible, disciplined fashion, switching to a reward card could be worth it. According to the Institute of Certified Financial Planners, reward cards are worthwhile if:

* You can charge a lot. People who rack up big charges each month benefit the most from reward cards. This is mainly for two reasons: Some cards charge annual fees of $50-60. If it takes you three or four years to earn a free airline ticket because you don't use the card enough, you will have paid $150-240 toward the ticket in annual charges. Second, you need to earn enough within a specified time to take advantage of the offer. Airline cards, for example, often require the free mileage to be used within three years.

* You pay off your card each month. If you do, the only cost of the card will be its annual fee (most reward cards have grace periods of 25 days). If you don't pay it off each month--and 70% of credit-card holders don't--all that interest could cost you far more than the value of the rebate. If that's the case, you probably would be better off getting a simple convenience card with the lowest interest charge and annual fee. Interest rates on reward cards typically are higher than low-rate convenience cards.

* You are disciplined. If using a credit card makes it too easy to overspend, be careful. For instance, consumers who charge at fast-food restaurants spend 80% more there than people who pay cash.

* You actually use what is offered. If you get a United Airlines or a Ford card, you should want to (or be able to) fly United or buy a Ford.

Which cards offer the best deals? Most experts say the car rebates are the best and phone cards are the worst. Cash-back cards aren't particularly good. The typical annual rebate on the best-known cash-back card is $8. You'd save a lot more with a lower-interest-rate card.