Making Your Plastic Pay

Question of the week:I get a half dozen credit card offers in the mail every week. I'm tempted to go with one that offers frequent flyer miles, but the annual fee is $60. How do I figure out which is really the best deal? --B. Gonzalez

Dear B.,

Given the Americans are up to their necks in credit card debt, people are smart to get as much as possible in return for all the interest they're paying. According to the Federal Reserve, revolving debt (which mainly includes credit cards) is at an all-time high--we owe a cool $725 billion, at an average interest rate of 12.9 percent.

What to do? When we asked Armchair Millionaire community members for their tricks on getting the most from their plastic, we heard some interesting stories. Here are three:

Go on vacation. "I travel regularly for business and have put over $300,000 in company-paid expenses on my Amex in the last four years. At one point for every dollar spent, the points add up! My wife and I recently spent a week at a Hilton in Hawaii. The entire vacation, including our airfare from our home, cost us nothing more than cashing in some of the points." --David

Pay for college. "I have two credit cards that give me cash back for my child's education that go into her 529 account and her Upromise account." --Shelly

Get bucks back. "I pay for all my work expenses (meals, hotels, materials, etc.) with the Discover Platinum Card, which rewards me 1 percent cash back on all my purchases. If I charge $50,000 a year for company- reimbursed expenses, I get a check for $500 every year. There's no annual fee, and I pay the balance each month so I don't pay any interest." --Josh

To understand if those frequent flyer miles are really worth the 60 bucks a year, you really have to run your own numbers. If you charge enough to get a free ticket every year or so, it could certainly be worth it. If you only earn a free ticket every ten years, however, than clearly the $600 in annual fees that you would have paid over that time would more than cancel out the value of that ticket.

But the gimmicks are not all that you should consider when looking at credit card offers. My checklist provides a complete rundown on everything you should look at to make sure you get the best deal.

The Armchair Millionaire Checklist of Credit Card Features

• The rates. This is the first thing most people look at, but remember to consider more than just the annual interest rate. Does the card offer a lower introductory rate? Or a lower rate for balance transfers? If so, how long do these rates last? And what about the interest rate for cash advances? Also, is the annual rate fixed, or will it go up and down with prevailing interest rates? Finally, what is the interest-free grace period?
• The fees. Of course, you'll want as low an annual fee as possible (or better, none at all), but consider other less obvious fees. These include late fees and fees for charging more than your credit limit.
• The extras. Cash back, frequent flyer miles, and merchant discounts are all well-known, but many cards offer a range of other benefits that may be useful to you. To name but a few, these include travel accident insurance, travel and emergency assistance, auto rental insurance, lost luggage insurance, extended warranty protection, free additional cards, annual account summaries and online account management. Remember that frills rarely come free, however.
• The hidden "gotchas." Some cards charge a fee whenever you transfer a balance to it. Most charge a fee for cash advances (up to 4 percent of the amount). And some will cancel your nice low introductory interest rate if you make a single late payment. Read the fine print carefully.

THE BOTTOM LINE: Regardless of the gimmicks you go for, you should always follow a single rule: Pay off your cards every month. Otherwise the interest you pay will outweigh all those goodies.