Dear Credit Care,

Are there really such things as 'free miles'? My wife and I use a credit card to accrue flight miles which we then use to fly -- mostly overseas without actually paying for a ticket. "We're flying for free," we tell our acquaintances with not a little smugness. Of course, the $50 yearly credit card fee suggests we're not. But what else might be "wrong" with our claim? Thanks very much for your response! 

-Gavin

Dear Gavin,

Credit cards that offer airline rewards are a great perk for people who use them wisely. The trick is to make sure that you are getting more benefit from the rewards than what you pay in annual fees, interest charges or both. For example, if you earn enough miles to make your overseas trip with your wife in three years, you have paid only $150 in annual fees for your card,but obviously are getting a great return on your annual fee investment with your airline tickets.

Many people with rewards cards use the card for purchases that they would otherwise make with cash or a debit card and then pay off the balance each month. In this way, the purchases ring up rewards, but don't add any interest charges. Where the problem can come in is if you don't pay off the balance each month.

Credit cards that offer rewards tend to have a higher interest rate than cards that don't offer rewards. Therefore, if you regularly carry a balance, you need to do the math and make sure you are getting more benefit in rewards than you are paying in interest charges.

So, the answer to your question about "free" miles is it depends on what you are paying in fees and finance charges on your card each year. As long as you are not carrying a balance and paying the fairly low annual fee of $50, I'd say you are getting about as close to "free" miles as you can. Technically, you are paying what should be a nominal amount for the miles, but "almost free" miles just doesn't have the same ring. Particularly when you are smugly mentioning it to friends!

In addition to perks such as free miles or other rewards,using a credit card for purchases and then paying them off at the end of the month provides additional benefits including:

*Positive payment and credit usage information is added to your credit report each month.

*Purchases made with a credit card are typically protected from loss (fire, flood, etc.) and damage.

*The monthly statements provide a great accounting tool to keep track of your budget.

*Utility, cell phone and other household bills can be paid automatically using your credit card.

*Added security because you are not carrying cash and are protected with a $50 liability on most cards if they are lost or stolen.

Handle your credit with care!

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