Points and Perks: 8 Do's and Don’ts of Rewards Credit Cards

Opening a rewards credit card is a smart way to make your money work for you. Rewards credit cards can significantly strengthen your financial position—if you use them responsibly.

Rewards cards are simple to use: For every dollar you spend, you get something in return. Free gas, cash back, discounts at your favorite store or restaurant and travel perks are just some of the benefits you can find with these programs.

This list of do's and don'ts can help you find the best credit card for rewards and maximize its benefits.

1. DO choose a rewards credit card thats right for you.
   Before you apply for multiple credit cards and inadvertently damage your credit score, hunker down and do a little research. What kind of rewards are you looking for? If you love to travel, consider a card that offers air miles or hotel discounts. If your goal is to save money, look for a card that offers good cash back. If you want a little bit of everything, find a credit card that offers more options to redeem rewards.

   Then, think about how much you’re comfortable spending to earn those rewards. If you want to keep your balance low and manageable, look for a card with a lower credit limit. If you’re confident you can handle paying off a higher monthly balance, find one that lets you spend more. Be sure to shop around for a good interest rate!

   Bottom line: Learning how cash rewards credit cards work can help you select the right card that aligns with your spending habits and financial goals.

2. DON’T chase rewards at the expense of your budget.
   While the allure of earning more points or cash back can be tempting, avoid using your rewards card to spend beyond your means. The excitement of watching your points accumulate may encourage unnecessary purchases, resulting in higher credit card debt (and interest fees!) than you were planning on. This can quickly erase any value gained from your rewards. Remember: rewards are only truly valuable when they come from purchases you would have made anyway, not from spending that strains your finances.

3. DO use your credit card for everyday spending.
   Using a rewards credit card for everyday expenses allows you to earn valuable benefits on purchases you'd make anyway. By charging routine costs like groceries, gas and utilities to a rewards card, you can accumulate cash back, points or travel miles without changing your spending habits.

   This approach essentially creates a return on your necessary expenses, giving you extra value that you wouldn't get if you paid with cash or a non-rewards card. Additionally, when you consistently pay off your balance in full each month to avoid interest charges, these rewards become pure financial gain that can be directed toward savings goals, travel experiences or other priorities.

4. DON’T use rewards credit cards if you can't pay off the balance quickly.
   Rewards credit cards can be a useful financial tool. But keep in mind that, like most tools, you’d be hard-pressed to find one that works for everyone. If you typically carry a balance and incur high-interest charges, the cost can quickly outweigh the benefits.

   For example, if you earn 1.5% cash back on a purchase, but you pay 20% APR over several billing cycles, the interest costs more than the rewards are worth. Maximize your perks by using rewards credit cards only when you can consistently pay off the balance in full each month.

5. DO organize your spending.
   Once you choose a rewards card and determine how it works with your budget, take a look at the type of expenses you can pay with your card. Some cards earn rewards with any purchase, while some are specific to a particular product, like gas or groceries. A prudent strategy is to first align your purchases to the rewards credit card that will result in the biggest benefit.

   Then, use your rewards card for regular, recurring expenses. The occasional shopping spree won't necessarily boost your points total—but your monthly subscription services and weekly gas fill-ups, on the other hand, could eventually translate into a future vacation or cash deposit. Again, these are expenses you’ve already budgeted for and plan to pay off before the end of your credit cycle.

6. DON'T let your rewards expire.
   Once you've earned those precious rewards, don't let them go to waste. Read the fine print that comes with your card to determine how long you have to cash in, then set up reminders to make sure you use the rewards before they expire. An unused reward is a very expensive reward.

7. DO take advantages of incentives.
   Often, rewards cards will offer a signing bonus for new cardholders—like waived interest fees, incentive points or low interest rates during an introductory period. Many may also have special promotions throughout the year like double or triple points or extra points for certain purchases. Pay attention to these offers and promotions and plan your spending to get the biggest benefit.

8. DON'T use your rewards credit card for unexpected expenses.
   Your rewards card isn't a substitute for your emergency fund. If you won't be able to pay off a purchase promptly, it's best to avoid making it on your credit card. Credit cards, in general, carry significantly higher interest rates than other financing options. If you must finance a necessary expense, explore options with lower interest rates. Ideally, building adequate emergency savings can go a long way in managing unexpected costs without incurring any debt at all.

Rewards credit cards, when used wisely, are a great way to transform your regular spending into a beneficial financial strategy. By following these simple do's and don'ts, you can maximize your credit card rewards without falling into common pitfalls. Remember, the key to making rewards work for you is maintaining responsible spending habits and ensuring you can pay your balance in full each month.