By Jeremy Simon
Published: July 17, 2007

Even though it may seem that reward credit cards are offering increasingly impressive perks, consumers who are not careful with their plastic can end up with less than they might expect.

One of the main dangers posed when using a rewards credit card is the cost. For one, rewards cards frequently charge higher interest rates and annual fees than other credit cards in order to offset the cost of the rewards program. These added costs can outweigh the program benefits if the cardholder isn't careful.

For example, consumers that are charged a 14% interest rate for revolving a balance on a rewards credit card that yields 1% cash back would end up offsetting that benefit. Separately, a late payment can result in the loss of rewards points earned during the prior month. Also, if the credit card charges an annual fee, that cost may cancel out some of the rewards earned each year.

To make sure they come out ahead, cardholders should make sure to pay their rewards credit card balance in full each month before the due date. Also, cardholders that do not use their rewards credit card much would be better off choosing plastic with no annual fee.

Meanwhile, terms for a rewards credit card may be less generous than they first appear. Perks that seem dazzling on promotional material may actually be offset by restrictions that are buried in the fine print.

Additionally, even the best reward terms can change. Experts note that banks can choose to lower rewards or allow a credit card to expire altogether if its perks end up being too costly for the issuer. Also, if the card company changes ownership, consumers could be left with an account that no longer has any points in it.

To avoid such a scenario, cardholders read all the material available on their credit card and should continue to look for mailings from the issuer that may include updates to reward terms. And, by redeeming their rewards as soon as possible, consumers can avoid having their perks vanish when terms change.

Finally, cardholders need to learn if their rewards credit card has a cap on the amount of points that can be earned in a month or year. Consumers should also be aware that reward points can expire if they are not redeemed and if the credit card is not used, often for a time period lasting three to five years.