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7 ways to spot unrewarding rewards cards

Rewards credit cards can offer some pleasant savings that nonrewards cards can't. How much you'll make back depends on the card you choose and your spending.

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Before you shop, find out what kind of rewards card makes the most sense for you. Then you can start comparing credit cards on sites such as Bankrate, LowCards and CardRatings.

As you examine different rewards cards, look for the following "gotchas" in the terms and conditions.

Annual fees
Some rewards programs impose annual fees that could eat into the benefits of using the cards. For instance, airline cards branded with a particular carrier can have steep annual fees in the $80 or more range, says Curtis Arnold, founder of CardRatings.com. Typically, he says, you have to earn 25,000 miles to get a free ticket. Assuming you spend $8,000 a year on the card, and get a point for every dollar spent, it would take you more than three years to earn the free flight, and by then you'd have spent $240 in annual fees. You can get a round-trip ticket with a discount carrier for $250, Arnold says.

Go beyond the bold print
Rewards cards typically have higher interest rates than other cards, so only people who pay off their balances every month should use them. Look for these other pitfalls when combing the terms and conditions of different cards:
7 rewards card traps
Annual fees
Expiration dates
Low caps
Low returns on cash-back cards
Tiered return rates
Merchant restrictions
Cumbersome rewards redemption

The advantage of paying that steep fee is the ability to combine earned miles through the card with frequent-flier miles, but it may make more sense to go with a straightforward cash-back card and simply buy a ticket through a discount carrier.

As for other cards, if they charge an annual fee, consider whether the benefits outweigh the cost. Looking at your current spending habits, do you anticipate charging enough to offset that yearly $49 pinch? If not, look for a card without an annual fee.

Expiration dates
Some rewards cards put expiration dates on rewards earned. Comb the fine print for that important restriction, because it may mean you won't have enough time to earn and use the points.

Take the example of a Visa card that Consumer Action surveyed a couple of years ago. The program advertised up to 4 percent cash back on purchases. "However, when you look at the fine print and run the numbers, it's actually possible to spend, over a four-year period, up to $50,000 on this card and not get back a penny in rewards," says Consumer Action spokesman Joe Ridout.

With this card, points expired after two years, and if purchases didn't fall into special categories that earned higher returns, you only earned one-quarter of 1 percent on the first $10,000 for a year.

"Say in year one you spend $12,000, you'd get back $25 on the first $10,000, then you'd start getting 1 percent after that," he says. "In the first two years you'd ring up about $60, plus or minus a couple dollars. But then those same points begin to expire because it's been two years and points expire after two years. You're accruing more of these points, but the ones from year one are expiring. This is the other catch: You cannot redeem these rewards until you've built up $100 equivalent. So you would never actually get to the point where you could redeem these rewards."

 
 
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