How to Pick a Cash Back or Rewards Credit Card  

Credit cards that offer cash back on all purchases and do not have an annual fee are the best credit cards in the world.  Credit cards that offer cash back or rebates, such as discounts on future automobile purchases, etc., sound great, but they are a very poor deal if the purchases APR is high and you have to jump through many hoops to qualify for the rewards.  Too often the rewards are just another selling point for the credit card issuers, and upon reading the fine print contained in the terms and conditions, one might find that the prizes don't come easy.

If someone came up to you and said, "I'm going to make a deal with you.  Give me the $500 you have in your wallet now, and three years from today, I'll give you back $20."  You would laugh, say "no thanks" and walk away, but consumers naively accept a similar deal with many of these types of credit cards.  This doesn't mean that all cashback credit cards are bad.  One way to win with a cashback card is to pay your balance off each month.  This way you save interest fees while earning points good for free merchandise, trips or rebates (provided that the credit card agreement doesn't require you to carry a balance to accumulate points or earn a reward).

If you do habitually carry a balance on your credit card, then accept a cash rebate credit card only if it offers a decent purchases APR.  Some cashback cards do have above average interest rates to defray the cost of giving away freebies.   If the purchases APR is acceptable to you, and the card happens to offer rewards, too, then it is a good card, but don't let the idea of saving $500 on your car purchase three years from now or getting a free radio, convince you to accept a card with a high purchases APR.

The worst type of reward card:  One with an annual fee, a high purchases APR, say 19% or above, and requires you to maintain a big balance to earn reward points or get cash back.
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Reward Credit Cards vary significantly from each other.  For example, as of December 2013, the Discover reward card forces you to sign up for rewards on a regular basis and you don't really earn that much unless you frequent the stores with whom Discover has an association.  On the other hand, Bank of America has a credit card that will give you rewards on every single purchase you make with the card.  You can add up points quickly and redeem them for cash if you like.
If you have a rewards credit card that does not have an annual fee, you use the card to pay for everything and pay your balance in full each month -- you are actually getting paid to use the credit card.  This is the only way to use a rewards credit card.  Some people are earning $100 or more each month just by paying their regular expenses with a credit card.