Rewards Credit Cards Aren't Right for All

Consumers must realize that their credit cards are not tiny, plastic arcades. Racking up points and rewards is not requisite to credit card use, though the emphasis placed on it in the industry might lead them to think so. In fact, only certain types of consumers should even consider choices in the rewards credit card category.

This may be disappointing, but it's true, and for good reason. Credit cards should be chosen to meet a particular consumer need. Specifically, people should select their credit cards to accomplish one of three strategic purposes: improving credit, lowering the cost of debt or maximizing the value of rewards.

Southwest airlines
Brand loyalty makes you a good candidate for a rewards credit card. But it also means a dedicated Southwest Airlines flier, for instance, cannot score free airfare when flying United.

You might argue that you can improve your credit or lower the cost of your debt while accruing rewards, but it is far cheaper and more efficient to focus on one goal at a time. If you are trying to improve credit, for example, you want the lowest fee structure possible, which will not necessarily be found with rewards credit cards.

If you do not have exemplary credit, your priorities should lie in building or rebuilding your credit and paying off balances, not in accumulating airline miles and hotel points. Likewise, if you carry a monthly balance, a credit card with low interest rates will be far more beneficial than one with traditional rewards. Therefore, if you are not a model credit user, exploring options outside the realm of rewards credit cards is surely the way to go. You essentially need the ice cream before you can put the cherry on top.

Still, consumers with excellent credit who pay their bill in full each month must also consider their options carefully when dealing with rewards credit cards. For various reasons, certain people should opt for travel rewards cards and others should consider cash-back credit cards.

Travel rewards cards may appeal to people who take their families on a vacation or two per year, but they actually work best for those who travel extensively, are extremely brand loyal and redeem rewards often. Accumulating 30,000 air miles with the same carrier or staying 20 nights in the same hotel chain annually is a good litmus test.

These factors are essential because most major airlines and hotel chains have their own credit cards, and travelers who own such cards can redeem rewards only when they use the services of these particular corporations. For instance, a Southwest Airlines ( LUV) credit card holder cannot score free airfare when flying United ( UAL). Variety means you will not efficiently earn the rewards from a travel rewards card and should instead consider a cash-back credit card.

If, however, you are brand loyal and travel significantly, a travel rewards credit card is a great option. You will earn points and miles that can be redeemed for upgrades, improved status and free flights and hotel stays, among many other things.

Additionally, because you regularly accumulate benefits, you have the opportunity to redeem them routinely, thus minimizing the detriment of reward plateau changes. Credit card companies -- Discover ( DFS), American Express ( AXP), Chase ( JPM) and Citi ( C) -- have the power to alter rewards benchmarks at their own discretion, devaluing points and miles already earned. Such action will have a relatively minimal impact for the frequent traveler, but will essentially represent a rewards stock market crash for the traveler who accumulates and does not use significant point or miles amounts over time.

If you have excellent credit but travel sparingly or with different providers, get a cash-back credit card. You will not have to navigate loopholes and restrictions, and your rewards cannot be devalued because you are not trading in points or miles for goods; you are systematically accruing cash.

Ultimately, your choice of credit card depends on what utility you require from a card. If you need to build your credit, you should use a secured credit card or an unsecured credit card for bad credit. If you need to mitigate the effects of interest on a balance, find the credit card with the lowest interest rates possible.

If, on the other hand, you have good credit, no credit card debt and want rewards, you must consider your travel. Those consumers who travel infrequently should look into a cash-back credit card while people who travel often and use the same airline or hotel, should by all means explore the game-show like excitement of racking up points and miles. Above all, practice credit self-awareness and the places your credit card takes you will be positive, whether you are using a travel rewards card or not.

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This guest post comes from Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers.