I’ve listened to many of your segments on credit cards, and I know that they should not be used to spend money you don’t have. But if you’re going to have a credit card, which ones top your list?  Michael, Detroit, MI

With there being literally hundreds of credit cards to choose from today — from those with traditional rewards programs to credit cards offering cash-back incentives — this is a great question. While I am not a proponent of carrying a lot of cards to support spending, most people have at least one card, and it is important to choose wisely as not all cards are created equal. 

My favorite card (the only card I carry) is the American Express Green Card — not the Gold or Platinum; just the basic Green card. The reason I love this card is because it is a charge card and not a credit card, meaning you must pay off your balance in full each month, which helps to keep your spending in line. You probably won’t charge $1,000 in a month if you know you cannot pay it off at the end of the month. A couple of things to keep in mind with this card: While American Express markets their charge cards as having no pre-set spending limit, they do impose a personal limit on their cardholders based upon past credit and payment history.  Also, there is an annual fee of $95. 


How about credit cards with rewards programs? What are your thoughts about those?
 
Credit card rewards programs have become quite the norm these days. In fact, 40 to 45 percent of credit cards are linked to some sort of rewards program, according to a 2009 study by Affinity Solutions. And 72 percent of all credit cardholders participate in a rewards program, according to a 2008 study by JD Power & Associates. The problem I have with rewards cards is that people tend to spend more to earn those awards — in fact, having a rewards program attached to credit card doubles the amount of spending done on that card. The irony is that in many cases, each point earned is worth about a penny or less, so it does not pay to spend money you don’t have.  


But if you still want a rewards card, what should you look for?

The most important consideration is choosing a card with a rewards program that will actually benefit you. Interestingly, one study found that 41 percent of all reward cardholders rarely or never use their reward points. So if you do not drive that much, then you probably won’t benefit from a card that offers gas rewards. You also want to choose a rewards program that makes it easy to redeem the points you’ve earned. Many rewards programs are reshaping their reward structures making it harder to earn bonus points or making the point thresholds higher or more difficult to attain, so you need to pay close attention to the process for accessing rewards. You also need to look at the annual percentage rate (APR), annual fees, spending minimums, point expiration terms and other fees and limitations.  Another factor to remember is that rewards cards are usually reserved for people with good to excellent credit, and the interest rates are usually higher than regular cards. For example, according to creditcards.com, the national average APR for a card last week is 13.17 percent compared to 13.47 percent for a reward card and 14.17 percent for an airline card.


What about airline mileage programs?

Credit cards linked to airline mileage programs are the centerpiece of .....

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