Is a 'rewards card' right for you?

What's your rewards pleasure? Cash back? Discounted airfare? Free earphones? Whatever your fancy, there's a credit card out there designed for you. But before jumping on the rewards bandwagon, ask yourself: Will getting the reward cost me more than it's worth? Which rewards make the most sense for me?

The rewards that banks dangle in front of consumers are tempting. Today, some 85 percent of US households count at least one rewards card among the seven (on average) credit cards they own. In 2006, financial institutions spent $10.3 billion on rewards, a figure that is expected to grow to $18.4 billion by 2010, according to Aite Group, a Boston-based research firm.

But rewards cards can fast become unrewarding if consumers use them as an excuse to buy more. "Rewards cards lull people into spending more than they should," says Ben Woolsey, director of marketing at creditcards.com. "People think, 'It's OK if I buy the TV because I'm getting 2 percent cash back,' but that's not really sound money management." Other things to consider:

1. Do the math. Along with the temptation to buy more comes the risk of carrying a monthly balance and losing rewards to interest or – worse – late fees. "Rewards cards shouldn't be used by people who can't pay them back [in full] every month," says Mr. Woolsey. An unpaid $100 charge at a 14 percent APR costs $1.16 in interest in a month. That's 16 cents more than The $1 earned in a 1 percent cash-back deal.

So If you carry a balance, even for short periods of time, rewards perks are secondary to rates and fees.

2. Be realistic. Think twice about getting a rewards card if you're enticed by MasterCard's American Dream card (where you accumulate points to enter a monthly sweepstakes), or Visa's World Series of Poker card (which offers reward points toward such things as buy-ins to World Series of Poker events).

3. Beware hidden costs. The United Mileage Plus card offers double rewards miles for federal, state, or local tax payments, and the JetBlue card from American Express offers double award dollars for payments of federal taxes. But the third-party processors that take payments on the government's behalf charge a "convenience fee" – typically 2.49 percent – that can be more than the reward itself.

4. Shop around. If you decide rewards are right for you, you have thousands of cards from which to choose.

If you want to research them, credit-card issuers like Chase and Bank of America offer information about their credit cards online, and cardratings.com offers recommendations and consumer reviews. "We pride ourselves on having a card to suit almost any consumer's needs," says Tanya Madison, a Chase spokeswoman.

She's not kidding: Chase's cards range from the mundane (the Academy of General Dentistry Platinum Visa) to the bizarre (Eskimo Joe's Platinum Visa, the KISS Visa).

So should a confused consumer simply settle for the Chase PerfectCard (yes, it exists) and call it a day?

Well, no. The goal is to get the most value out of your rewards as possible, says Curtis Arnold, founder of cardratings.com.

Mr. Arnold follows his own advice: He says he got close to 1.8 percent cash back last year – more than $750 – using the Blue Cash card from American Express, a tiered card that gives a higher percentage of cash back the more you charge.

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