6 Ways to Get More Out of Rewards Points

Paying with plastic -- even when it offers bonus points, miles and other perks -- is rarely a rewarding endeavor these days.

Not only are card issuers jacking up interest rates and taking a hatchet to credit lines, but the thin silver lining that was earning reward points is also vanishing. Credit card reward programs now come with plenty of added strings attached, whether it be hard-to-get application bonuses, lower earnings capability or inflated prices for rewards.

“There’s definitely a trend toward consumer-unfriendly policies,” says Samir Kothari, co-founder of Billshrink.com, an online program that helps consumers find the best credit card deals based on their spending habits.

Chase (JPM) recently reduced rewards on its popular Chase Freedom card to one point per dollar spent on all purchases, a far cry from its earlier offer of triple points per dollar spent on purchases in a cardholder's top three spending categories (and then one point for everything else). Citibank (C) recently tacked on a requirement that its Premier Pass cardholders must spend $300 in three months in order to claim its initial bonus of 10,000 points. Even the American Express (AXP) Delta SkyMiles card’s 20,000 bonus miles leave you stranded thanks to Delta’s new three-tier reward program, where many domestic round-trip tickets require 40,000 or 60,000 miles instead of the usual 25,000.

Despite all of the hoops cardholders have to jump through, rewards cards can still be profitable. Here’s how savvy consumers can get the most out of their card:

By getting a cash-back card any changes to your rewards program, such as the percentage you'll earn, will be more readily apparent. Cash-back programs carry low administrative costs -- the issuer doesn’t need to manage a redemption site or cut in airline and retail partners -- so they are also less likely to experience major adjustments, says Curtis Arnold, founder of CardRatings.com, a credit-card comparison site.

Be cautious about investing in a program that requires months of building up points before you can redeem rewards, cautions Kothari. The longer you have to save or the more points you need to rack up, the greater the risk that the program will change in some way that de-values your earnings -- or cease to operate altogether.

Most cards offer reward bonuses for spending in certain categories, either as a regular feature or a temporary promotion. Seek out and use a rewards card that lines up bonuses in categories where you spend the most, says Jenn Stoddard, a spokeswoman for Utah-based Family First Federal Credit Union. When shopping online, link to your favorite retailers through the card issuer’s rewards mall to earn extra rebates. U.S. Bank (USB), for example, gives an extra 6% for purchases at Gap (GPS).

With few exceptions, redeeming points or miles for merchandise is the worst way to spend your rewards. Through Bank of America’s (BAC) program, for example, it takes 25,400 points for a blue 8GB iPod Nano. Or for 25,000 points, you could get $250 cash, enough to buy the player yourself at Apple.com for $149, with $101 and 400 points left over.

Redeeming rewards for gift cards can be among some of the best deals, says Arnold. Discover (DFS) offers bonuses on its cash-back cards for accepting gift cards from affiliated companies like Border’s (BGP) (get a $25 gift card instead of $20 cash) and Kohl’s (KSS) ($45 instead of $40).

“If you’re carrying a balance, going for rewards is the wrong approach,” says Kothari. Cards with reward programs tend to have APRs that are 1% to 2% higher than those that don’t, so interest charges can quickly add up and outstrip any rebates, points or miles you earn. Focus on getting cards that offer lower interest rates and fees instead.