Credit Cards Pd

Competition between credit card issuers is more intense than ever -- and that means the rewards and bonuses offered can be extremely appealing. While there are definitely some good offers to take advantage of, it's important you know exactly what you're getting into before signing up. With that in mind, here are seven little-known drawbacks to many popular rewards cards that you need to know about.

1. Reward limits
Many credit cards limit the amount of rewards you can earn in a particular time period, either on certain categories, or on all purchases. For example, the Discover it card offers 5% cash back in categories that rotate quarterly, and at the time of this writing, the categories include home improvement stores, department stores, and purchases at Amazon.com. However, the 5% rewards are capped at $1,500 per quarter. This may not be a big deal to many people, but if you were planning to charge $5,000 at Home Depot for a renovation project, you could be disappointed when you see your rewards statement.

2. Sign-up bonuses can be great, but be careful
Many cards have lucrative sign up bonuses, but for them to be worthwhile to you as a consumer, one thing needs to apply. Specifically, the required spending for the sign-up bonus needs to be money you were going to spend anyway, and that you are able to pay off quickly. Otherwise, you could end up paying more interest than the bonus is worth.

For example, the Capital One Venture Rewards card offers a sign-up bonus of 40,000 miles (worth roughly $400) after making $3,000 in purchases in the first 90 days. Well, if your interest rate is 18.9%, you only need to carry that balance for eight months before you'll end up paying more than $400 in interest -- negating the bonus.

3. You may have to sign up for certain rewards
Many cards offer lucrative cash-back rewards in certain categories, but only if you sign up. The Chase Freedom card is offering 5% cash back on your spending at Amazon.com and several other retailers from October 1 -- December 31, but only if you sign up to activate it. If you forget to sign up, you'll earn the standard 1% reward rate.

4. Frequent flyer rewards can be tough to redeem
If you sign up for a credit card that offers rewards in the form of frequent flyer miles, know that it can be tough to redeem these miles for tickets at the "economy" rate. For example, I have the Platinum Delta SkyMiles Credit Card from American Express, which allows me to earn miles redeemable on Delta flights. Delta offers round-trip domestic reward travel for as little as 25,000 miles -- but it can be hard to actually get this rate. A quick search on Delta's website shows that a round-trip ticket between my closest airport and Las Vegas will cost a minimum of 45,000 miles for a three-day weekend in October.

Now, it's possible to find good deals. For example, I value my Delta miles highly because they can often be redeemed at an excellent value for international travel. However, if a certain rewards card offers you a 25,000 mile bonus and claims it's enough for a round-trip ticket, don't pack your bags just yet.

One good alternative is to find a card whose "miles" don't commit you to a single airline. For example, the Citi ThankYou Premier card allows you to redeem miles like cash on any airline, and it even gives you a 25% bonus. So, $500 worth of ThankYou points can be redeemed for $625 in airfare.

5. Balance transfer fine print
In an effort to get consumers to ditch their current credit card issuer, many rewards cards offer deals on balance transfers. While balance transfers can be a good idea under certain circumstances, there are a few things to keep in mind.

First of all, balance transfers rarely, if ever, qualify for rewards. If your credit card gives you one frequent flyer mile per dollar, you won't get any miles no matter how big of a balance transfer you complete. And, be aware of balance transfer fees. A 3% transfer fee is the industry standard, even if the card comes with a 0% introductory APR on transfers. The only exception I've been able to find is the Chase Slate card, which actually offers 0% APR for 15 months and no balance transfer fee -- but it isn't a rewards credit card.

6. High (or waived) annual fees
Many credit cards offer to waive their annual fee for the first year, but make sure you won't mind paying it in the future (or you're fine with canceling the card within a year).

And just because a card has an annual fee doesn't make it a bad deal, even if the fee is high. As an example, the Starwood Preferred Guest American Express card has a $95 annual fee. However, if you earn enough points during the year to get $300 worth of hotel stays for free, the annual fee could be well worth it.

7. Beware of intro APRs
As a final caution, be aware that introductory APRs may not be as certain as they seem. After a single late payment, you could lose the remaining 0% APR period, and many credit cards offer introductory rates on balance transfers only.

One thing to be particularly cautious about with retail credit cards is that the introductory APR may simply be deferred interest. In other words, if you don't pay the entire balance within the introductory period, you can get hit with a bill for how much interest you would have accrued from the date of purchase. Make sure to check whether a particular card offers an interest-free period, or simply a deferred-interest period.

Many cards are still worth it
Even if some of these issues apply to a specific credit card doesn't necessarily mean getting the card is a bad idea. For example, I mentioned earlier that I have the Platinum Delta SkyMiles Credit Card from American Express in my own wallet. The card has a relatively high annual fee of $195, and Delta's miles can be tough to redeem for low-level tickets. However, the card offers free checked bags for me and whoever else I'm traveling with, a benefit that alone is worth more than the annual fee because I travel often.

The point is to make yourself aware of the drawbacks of popular rewards credit cards in order to consider the pros and cons, and then make an informed decision.

Matthew Frankel owns shares of American Express. The Motley Fool owns and recommends Amazon.com. The Motley Fool recommends American Express and Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.