Posted by Elisabeth Leamy, Sat Jul 17 2010, 12:27am

This week I want to continue our conversation about rewards credit cards

This week I want to continue our conversation about rewards credit cards. As long as you don't carry a balance, you are throwing money away if you don't have one. I divide rewards cards into two categories. First,those that offer "pleasure points" for travel and shopping, which I covered in last week's column. (please link) And second, those that offer cash back. I recently got a cash back card myself.

Why? Because the key to taking advantage of rewards cards is choosing one that truly fits your lifestyle. Before we had a child, my husband and I traveled a lot. So it made sense for us to get the best possible frequent flyer cards we could and charge 'em to the hilt. These days we are home bodies, so I decided to cancel one of our travel cards and replace it with a cash back card.

Cash Back

According to one credit card comparison website, I could earn about $4,500 every three years by switching to a cash-back card that fits my spending patterns. (Groceries, drugstores and gas. Ah, the glamour...). In one quick search I saw that most cash back cards give one percent back on general purchases. Don't settle for a card that pays less than one percent. Better yet, search for cards that give a higher percentage in certain categories that make sense for you. I found one card that offers five percent back on travel, clothing and movie purchases. I also found one that offers five percent back on --you guessed it-- groceries and gas.

If you have no credit card debt and don't carry a balance, you should throw as many of your living expenses as you can on your cash back credit card. Many property management companies even let you pay your rent with a credit card these days. Here's how much money you can get back if three quarters of your purchases earn one percent back and a quarter earn five percent back.
Charge $1000 a month: $240 cash back a year
Charge $2500 a month: $600 cash back a year
Charge $5000 a month: $1200 cash back a year

It would be crazy not to go after this free money. All you have to do is spend whatever you normally would and you earn cash back. If you're enrolled in a program that fits your spending patterns, the money really mounts.

You should know that because of the economic crisis, many credit card companies have been revising their rewards programs. And "revising" always means "reducing," now doesn't it? So, review the rewards cards you already have to see if the programs have changed or are no longer worthwhile to you. And check to see if there are other choices that are more generous or a better fit.
While you're shopping for a card, keep in mind that gold cards often aren't worth it. Why? A quick online search reveals that the interest rates on gold cards are typically higher and most people don't take advantage of the services gold cards offer. There was a time when gold cards were prestigious, but now there are platinum and diamond cards, for goodness sake. Choose a points program that fits your life regardless what color it is.

Resources for Choosing a Rewards Card

There are several great websites that compare and contrast different credit card reward programs. You actually enter your spending patterns and levels and the websites spit out recommendations for you. Here are the best sites: