Take Advantage of Rewards Cards

I read your column about strategies for lowering your credit-card rates. Isn't it even better if you don't carry a balance at all?

It sure is. Although many credit-card companies increased their rates recently (see Coping With Credit-Card Rate Increases), the rates don't matter if you don't carry a balance. In that case, you can shop for other features instead.

David Schechter, a reader in Wilmette, Ill., has a great strategy. "I treat my credit cards as though they were debit cards," he says.

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He keeps track of his credit-card charges throughout the month on a financial spreadsheet and makes sure he always has enough money in his bank accounts to pay the bill in full when it comes.

Because he never carries a balance, "I never consider the credit-card interest rates when I acquire then," he says. "I look for rebate programs."

His favorite type of rebate is cash. “Beware of ‘points' because these can be easily devalued by simply raising the ante to obtain the same reward that required fewer points a year ago,” he says.

He has several cards to meet different spending needs -- and to make the most of a variety of rebates. He uses a Discover gas card to get a 5% rebate on gasoline purchases. He and his wife use the Chase Freedom card for buying groceries and receive a 5% rebate on groceries and pharmaceuticals.

"This year we have received over $900 in cash rebates and have about $200 more pending," he says. "We did this without paying a cent in credit-card debt."

And he just started using a Chase Professional MasterCard, which provides a 3% rebate on all purchases made at office supply stores -- and will be quite valuable when his wife buys a personal computer soon.

Kiplinger's recently named the American Express Blue Cash the best cash-rebate card, which provides a 1% rebate on everyday spending, such as gas, grocery and drugstore purchases, until you reach $6,500, after which you earn 5%.

We also named the BP Rewards Visa the best gasoline card, which provides a 5% rebate on gas you buy at BP stations, and 2% on airline tickets, lodging and rental cars.

Also see The Right Rewards Card for a no-fee card that can be used abroad without charges and earns airline miles.

When shopping for a rebate card, be careful of fees, which can eat up a lot of the rebates you receive. None of the cards listed above carries an annual fee. And you don't need to worry about the interest rates, as long as you're like David Schechter and pay the bill in full every month.

See Pocket the Best Credit Card section for more information about finding the best card for you, and our Search for Cash-Back Cards tool for details about several cards that provide cash rewards (you can also search for other types of rewards cards). And see the Kiplinger's 2007 Best List for Kiplinger's favorite picks in credit cards, investing, saving and spending.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.