Put needs ahead of card's perks

• Article
• Comments ()
• Click-2-Listen
• Videos

By

Q: I was offered a credit card that will offer me a cash rebate from my purchases. Is that better than earning points that can be exchanged for airlines miles or goods and services?

A: Credit cards that offer cash rebates have become increasingly popular in the past three years because Americans have been wary of flying since the September 11, 2001, terror attacks and been frustrated by some of the perk programs, said Robert B. McKinley, chief executive officer of CardWeb.com Inc., which tracks the credit-card industry.

Mr. McKinley said about half of the estimated 670 million cards held by Americans last year offered some kind of reward. He estimated that about 70 million cards offered cash rebates.

Before deciding what kind of benefits you want from credit cards, take a hard look at your spending. If you carry a balance, the first consideration should be the interest rate on the card and not the rewards program, said Greg McBride, senior financial analyst for Bankrate.com, a personal-finance Web site.

"The interest you pay will be 10 times the rate of reward," Mr. McBride said.

He said some low-interest cards offer benefits, but the search for perks should come second to paying off debt.

Your spending habits, personal preferences and price of the card also should be considered when deciding which perk program suits you best. Obviously, people who don't like to travel should avoid airline cards.

But even if you yearn for a vacation, think about how long it will take you to get a ticket. For example, if you charge about $5,000 a year and pay a $50 annual fee for an airline card, it will take five years and $250 to earn the "free" domestic ticket, which typically require 25,000 miles. That might not be such a great deal if airlines are offering discounts, Mr. McBride said. But for someone who charges $10,000 or $15,000 a year, the card might be a good idea.

Overall, though, airline cards do offer a decent value for cardholders, Mr. McKinley said.

He noted that airline mile costs 2.5 cents, so if you get one for every dollar spent, the return is 2.5 percent. But Mr. McKinley also pointed out that General Motors Corp. has a card that offers a 5 percent rebate that can be used toward purchasing one of its cars. That could be a good deal for those in need of a new vehicle and who like GM models.

Those are better returns than those offered by cash-back credit cards, which offer rebates of about 1 percent. Some offer more when spending exceeds a set point, or give more for certain kinds of purchases.

But cash rebate cards do have an advantage -- you can get a reward annually and can use the money any way you choose. And sometimes cash in hand is better than holding out for a perk because the benefits offered can change.

Mr. McKinley said he had been saving points to go on an African safari, but when he closed in on the necessary number, the trip disappeared from the company's perk program.

ASSOCIATED PRESS