Credit Card Cash Rewards Get Harder to Collect

Last Updated May 9, 2010 1:46 PM EDT

Credit card cash-back rewards programs are not the easy money they used to be. Issuers are tightening up their existing rewards programs, and introducing new ones that are laden with limits and conditions. "We are seeing a serious paradigm shift in the credit card rewards system," notes Ben Woolsey of CreditCards.com.

Some of the more generous programs are disappearing altogether. Charles Schwab is no longer offering its Charles Schwab Signature Visa which used to offer a flat 2 percent back on everything. Other cards, including American Express and Diner's Club, will take back rewards points if you make a late payment (and then charge you to reinstate them.)

Even the good-sounding new programs are more complicated to cash in on than they used to be. Chase, which used to offer a straight 5 percent back on money spent at gas, grocery, and drug stores, now has a new Freedom program which offers 5 percent back on purchases in different categories, depending on the season. In the spring, it's home furnishings, garden centers, and drug stores. In the summer, it's airlines, hotels, and gas stations. And each season has a separate spending limit (typically $800) on which the 5 percent reward applies; spending over those limits only gets a 1 percent cash back bonus.

"That can add up, but you need a grid sheet to keep up with it all," says Bill Hardekopf of Lowcards.com, which publishes a list of all card program changes. "What are you going to say? 'I'm sorry, honey, we can't go out to dinner this month, but we can go clean up the yard.'"

Rewards programs won't disappear altogether, says Woolsey, because they attract a bigger-spending, higher-credit-score consumer. But they will continue to get trickier. You can still pull in decent rewards, but only if you take the time to read all of the terms and conditions and plan your strategy carefully. Here's how to beat the banks at their own game.

Don't even read this if you carry a balance. All of the cash-back maneuvers in the world won't save you money if you're paying interest every month. So focus on finding the lowest-rate card and forget about rewards programs until you've burned your balance.

Grab your cash ASAP: Check your card statement regularly to see if you've accumulated enough points to cash in. If so, do it now. The value of points and the rules which govern them can change -- and they aren't paying any interest. So cash in early and often.

Use several cards, but don't go overboard. Using separate cards for gas, travel and restaurant spending, and household expenses makes sense, if you spend a lot in any of those categories. But once you're up to 5 or 6 cards, the complications probably aren't worth the trouble.

Don't be afraid to stop or switch cards midyear. Some cards, like the Citi Platinum Select, offer generous rewards (2 percent on groceries), but only to a point. Once you've hit $300 a year in rewards, they cut you off. Once you've hit your annual rewards limit, switch to another card for the rest of the year, and cut them off. Two can play that game.

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