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How to maximize the value of your rewards card

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Question for the expert

Dear Cashing In,
I have excellent credit. My largest spending categories are groceries, restaurants, gas and retail stores, and my monthly credit card bills average just over $3,000. Which credit card would you recommend applying for to take advantage of my largest spending categories to earn the best rewards? My current Wells Fargo card only gives me one point per dollar spent. I’m interested in the best reward value, whether it is cash back or travel.

I notice that the airline miles only let you book travel through their site, which doesn’t always offer the best price. In those cases, I’m probably better off redeeming for cash and then booking the lower-cost airfare directly through the airline’s website. I don’t think I spend enough to warrant having a card with an annual fee, considering how long it takes me to earn usable points/miles. Spending $10,000 just to earn $100 back and then paying an annual fee of $95 doesn’t seem to be a reward. What are your thoughts? Thanks for your help. — Jess


Answer for the expert

Dear Jess,
If you’re averaging $3,000 per month on your credit card, it shouldn’t be taking that long to earn usable rewards. And you can certainly beat a flat one-point-per-dollar spend rate, particularly if you focus on the spending categories you mentioned. You may also find that a card with a modest annual fee nets you a lot more than the $100 back on $10,000 spent. But let’s work with the parameters you’ve laid out here.

It’s true that booking a domestic fare with airline miles can often seem like a waste of rewards once you compare the required miles to the cost of booking directly. You would probably find your rewards piling up a lot faster with an airline-affiliated card than the one you’re using. However, domestic airfares are still being offered at bargain prices, and if you don’t fly that often and want to spread your rewards around a bit, you may want something less specific.

One possibility is a generic airline miles card that offers points that can be used on any airline. With that type of card, you’re not locked into one airline, so you can choose the best deal available and then use your miles to rent a car or book a hotel as well. To avoid annual fees, a good option might be the Capital One VentureOne, which would give you 1.25 miles per dollar charged and comes with a 10,000-mile bonus — equal to $100 in travel.

If you decide to go with a cash-back card, consider one that offers bonuses on your top spending categories. The Discover More card meets your criteria nicely. It requires excellent credit, which you have, and charges no annual fee. Along with the 1 percent you’re currently earning on every purchase, you can get 5 percent cash-back bonuses in various categories, including the ones you mentioned.

Those categories change every three months, and you have to sign up to get the bonuses. Now through the end of March 2012, Discover More cardholders can get 5 percent back on up to $1,500 in purchases at gas stations and museums. (The maximum bonus you can receive is $75.) From April through June 2012, the bonus will be for  purchases at restaurants. From July through September 2012, it is for gas and theme parks. Finally, October through December 2012, it’s for purchases at department, electronics and toy stores. You can also always get 5 percent back on movies.

The Chase Freedom card offers a similar option, again taking advantage of your excellent credit and charging no annual fee. On top of the standard 1 percent cash back on all purchases, card members can sign up to get 5 percent cash back on up to $1,500 spent at gas stations from now through March 31, 2012, and then again from July through September. You can also earn 5 percent cash back on purchases from Amazon from now until April 2012. Revolving bonuses this year will also include department stores, groceries, airlines and home improvement. Both Discover More and Chase Freedom also offer extra cash-back bonuses of up to 20 percent for purchases made through their online portals.

Your excellent credit qualifies you for other cards with revolving bonuses, by the way, but these seem to focus on your particular spending patterns — and that’s the key to maximizing your rewards.

See related:Cash back or miles? Ask yourself these six questions first, What to consider before applying for a cash back card

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