Consumers often see rewards credit cards as better in theory than in practice, as the points and miles they offer are often subject to complicated rules and restrictions. But with a little work, one will ultimately be able to garner substantial benefit from his or her rewards. 

The first step in fully conceptualizing rewards credit cards and, in turn, reaping the greatest advantage from them is understanding the three primary subsets within the rewards credit card category:  airline/hotel rewards, generic miles and points, and cash back.  Each group has certain benefits and drawbacks.  Each holds a utility that makes it best suited for a unique purpose, and if used correctly by the appropriate consumer type, these cards will confer benefits without much consumer effort.  If not, they will represent a wasted opportunity for financial gain and will be rewarding in name only.

Airline/Hotel Cards

Airline/hotel cards are travel rewards credit cards tied to a particular airline or hotel chain that allow users to earn miles and points that can be redeemed for free flights and stays, upgrades, preferred treatment and access, and various other amenities, depending on the card. 

Issuers can change the requirements for claiming a reward at any time, which can be a major drawback for consumers. When this happens, any accumulated points become less valuable.  To overcome this, users should redeem points frequently.  

Who Should Get this Card: These cards also lack flexibility because rewards can only be redeemed with the airline or hotel chain linked to the card. As a general rule: Consumers should get airline or hotel cards only if they rack up at least 30,000 miles with the same airline or 20 nights at the same hotel chain per year. 

Generic Travel Rewards Credit Cards

Credit cards within the generic travel category allow users to accumulate miles and points that can be used more widely compared to those accrued with airline or hotel-specific cards.  Still, devaluation is still a concern because rewards are earned in terms of miles and points.

Who Should Get this Card: Consumers who have regular travel expenses but may use more than one primary airline or hotel chain will be well served applying for a generic travel rewards card. 

One of the best credit cards in this category is the Capital One® Venture Rewards Credit Card because the miles earned with it can be redeemed for purchases made at any travel agency or travel-related Web site.  When used right, this is a travel-oriented 2% cash back credit card.

Cash Back Credit Card

Cash back credit cards provide the most versatile and least risky type of rewards.  Not only can the cash be used anywhere to buy anything, it cannot be devalued by arbitrary credit card company decisions.  Similarly, cash rewards are relatively hassle free because many cards simply send consumers checks in the mail or apply it as a credit to their statement.  Cash-back card holders do not have to ensure they redeem rewards at a certain place or by a certain time; they can merely sit back and receive their money.

Who Should Get this Card: The drawback of cash rewards credit cards is discipline-related.  With travel rewards credit cards, people are forced to use their rewards on a certain type of good, be it business travel expenses or family vacations.  With cash back, rewards could also fund relatively unimportant purchases that could hurt a person’s budget. Therefore, cash back rewards card users must be mindful not to spend the money they earn carelessly.

There are many good cards in the cash back category, but two of the most popular are the Bank of America® Accelerated Cash Rewards American Express® Credit Card and the Chase Freedom® Visa - $100 Bonus Cash Back.

Rewards credit cards are generally suitable only for people with good credit who pay their bills in full each month. Yes, rewards cards have the potential to make travel and various other expenses cheaper, but they can also serve as a distraction if you trying to pay down debt. Still, those people for whom perks are logical should undoubtedly reap the benefits of rewards credit cards.  They must simply take the time to determine which type of rewards would serve them best before applying. This legwork is worth the maximization of reward efficiency that it will lead to.

 

Odysseas Papadimitriou, is the CEO and founder of CardHub.com, an online marketplace for credit card offers and gift cards.