Choose your credit card rebates wisely

(This post was published originally on August 26, 2005, and has been updated.)

Banks compete for your credit card business. Consumer debt is very lucrative for them.

As such, there are bonuses, perks, and rebates that they'll throw at you to get their card in your wallet or purse.

But first some words to the wise

Like all other financial information on this site, this is not to be construed as financial advice. That's what professionals are for.

Credit cards are tools, but like most tools, if used incorrectly they can harm you.

Any credit card rebates you get will be paltry compared to the default rate of interest if you miss a payment.

The techniques in this post will do you absolutely no good if you carry a balance on your card.

The net result will be that your interest rate is slightly lower, but still big. Not a path to riches!

In other words, this information is worth considering only if you pay your balance off each month — that is, use your credit cards for convenience rather than credit.

Credit card rewards for those who pay off their balance

A lot of credit cards come with rebates or rewards of some kind:

• airline miles
• cash back
• free hotel stays
• store credit or gift certificates
• etc.

It bears repeating that these can be good deals, but only if you use your credit cards only for convenience and not for consumer loans.

The credit card issuers hope that you'll screw up and carry a balance, go over your limit, etc., so they can snatch that rebate right back, but if you're careful they won't get you.

It makes sense to choose a card that offers the kinds of rewards you're likely to use. If you like to travel, then an airline miles card gets you more flying, and a hotel credit card gets you more hoteling.

We have an Amazon rewards card because we love us some Amazon.

Sus out the gimmicks they to get you to sign up

Rewards cards have a number of gimmicks that they use to get you to sign up. These typically are one-time bonanzas, or short-term high rewards.

After those bonuses run their course, what's left is what you'll be using (until the issuer changes the rules, which is always a possibility).

Then look at the extent and percentage of your credit card rewards

If you do a fair bit of spending, you'll want to estimate how much you spend where. This will inform you as to whether the card (or cards) will give you a good benefit for carrying them.

For example, we have two store-based rewards cards: Amazon and Costco. Each of these is worth carrying for us because they're attractive cash back for purchases at those stores. The Costco rebate regularly pays our membership fee, effectively making it free.

For non-Amazon, non-Costco purchases, we use a more generic cashback rewards card that gives us a higher percentage back on dining and other things, and 1% on everything else.

Then play the credit card game as much as you're comfortable with

I've found that I value simplicity more as I get older, and don't get the same adrenaline rush from playing rebate games as much as I used to.

The extent to which we play the game now is this:

• Use our Amazon Prime Visa for Amazon purchases, and little else
• Use our Costco Visa for Costco purchase, and little else
• Use our Chase Sapphire for the rest

This is relatively boring but still gives a better rebate than using a single credit card.

If you're more adventuresome then you can break things down by purchase types that give a higher percentage cash back. This can be a moving target with some credit cards. It also may mean tracking the total amount spent in a given category over a given period of time to avoid running into caps.

Other factors to consider with rebate credit cards

As I mentioned above, we've gotten more boring in our chase for credit card rewards.

I know, for example, that there are credit cards with better rewards than the Chase Sapphire. But that is a card we've had for a long time, so removing it would shorten that part of our credit history, which is one factor in determining credit score.

Also, in general, more cards means more complexity — more accounts, more payments, more things to get hacked, and so forth.

It's certainly reasonable to have a relatively small number of good cards that will serve you for a long time.

One last reminder: Don't spave

Spaving is spending to save, and it's not a wealth habit.

Spending is still spending. A rebate is but a small fraction of that spending.

But if you treat your credit cards with the same respect that you would treat cash, you'll be fine.

Photo by Nathan Dumlao on Unsplash