So, how do you choose?

First, know yourself: if you typically carry a balance, rewards cards are likely not right for you—you’ll pay more in interest than the value of the rewards you’ll be able to redeem. Debt planning is the key here. Also, if you are late on a payment, some credit card companies forfeit rewards, raise your interest rates and/or eliminate interest rate grace periods. But, if you pay your credit card balances off in full every month and on time, then rewards cards have a lot to offer you.

Here are 3 Important Steps to Reaping those Rewards:

1. Pick a card that delivers rewards you’ll use… and can redeem.

1. Review where your money Actually goes, not where you think it may go. Chances are that a card that rewards your loyalty with free or discounted gas and groceries and restaurant dining will save you more money than one that give you plane tickets. And what about cold, hard cash?
2. Check redemption rules carefully Before applying for a rewards card of any type. Some cards limit how much you can earn; require you to spend a certain amount before rewards kick in; or offer a tiered rewards system. You’ll need to know which purchases qualify for rewards, and under what conditions those terms can change, to accurately estimate what you’ll be able to earn in a year.
3. Caveat: Be particularly wary of frequent flyer cards if you rarely fly, fly only during holiday “blackout periods”, or fly on short notice. Award seats are becoming an endangered species…especially as the airlines’ merge.

2. Once you’ve determined the category of rewards you want, shop and compare the cards currently offered.

1. All costs. Consider interest rates, annual fees, grace periods. Watch introductory rates. A card that’s set at 3% for 12 months is better than one that starts at 1.5% then pops to 5% after 6 months. Some cards also charge a fee to redeem rewards. Diner Club, for example, charges a 95 cent fee for each 2,000 points redeemed.
2. Any fringe Benefits which have true value. Some cards offer more than cash back, points or miles. They offer AAA discounts, roadside assistance, concierge services, rental car insurance, special hotel rates, etc.
3. Check rewards expiration dates. Some rewards expire if you don’t redeem them within a certain amount of time. Additionally, most frequent flier cards apply blackout dates, seat restrictions, and expiration dates on miles. A few critical restrictions can significantly reduce the value of the rewards you’re hoping to receive.

If all of the above sounds like too much work, you’re not alone. Mint.com was specifically designed to make understanding where you really spend your money, and which credit card is really right for you easy and automatic. Mint compares your personal spending patterns and payment history to the interest rates and rewards offered by hundreds of US credit card companies.

3. After you get your card, remain a savvy rewards consumer

1. Be Alert to policy changes. By law, credit card companies have to notify you if they change interest rates, but not if they change rewards policies. Open those envelopes and read the fine print. If policies change, call and fight back…or repeat steps 1 and 2, above!
2. Be resistant to the temptation to spend more. Some card companies notify you when you’re approaching a rewards threshold or when you’ve just earned or redeemed an award, tempting you to spend more money than you should. Don’t let yourself be led astray (from your budget).
3. Price Check the rewards offered. You may find that the products in the rewards catalogue are not worth what you spend to receive them. Compare one card’s requirement that you spend $2,000 to earn 2,000 points to get a free iron vs. spending $1,250 on groceries, drugstores and gas to earn 6,000 points in your first year with a Citi card which would get you a $50 gift certificate to Target. You could buy a $15 iron, and still have $35 more to spend!

If you’re not certain of your typical monthly spending or what your cards currently charge in interest rates and fees and their grace periods, visit Mint.com, the online financial planner to find out in 5 minutes or less. Our Ways to Save page will provide you unbiased recommendations and quantify your potential savings and/or rewards.

Mint asks: How did you find your last credit card? And did you make a good decision?

Further Reading on the Topic:

Online Financial Planner

Free Financial Planning

Online Financial Planning Tool

Financial planning and debt planning are two of the issues that we care about here at Mint. Learn more with great financial planning tips in our blog article index.

For most young professionals in the lower tax bracket, choosing a Roth IRA (Individual Retirement Account) is generally a no-brainer. As a thrill-filled retirement account, the Roth IRA allows you to grow, accumulate your retirement savings tax-free and avoid hiring a financial planner. If you cash it out during retirement, you won’t owe Uncle Sam a cent!

For those that haven’t considered a Roth IRA (or a traditional one), it’s highly recommended that you take the time out to research more on the topic. Although the deadline for the 2007 contribution has already passed (April 17 tax day), learning more about your choices now will enable you to better allocate your future budget to maximize your 2008 IRA contribution.

To better help you see the process in choosing and opening a Roth IRA account, let’s take a look at the thought process of Trent from The Simple Dollar, who has chosen Vanguard to start his Roth IRA.

When am I going to retire?

I plan on “retiring” (which may involve working a part time job of some sort) as early as possible, which for most of my assets (save Social Security) means at age 59 1/2. I’m currently roughly 28 1/2 years old, which means I’m 31 years away from retirement, and my financial planner says my year for retirement is 2038.

How much risk am I willing to take on?

I’m fine with carrying quite a bit of risk until I get pretty close to retirement, after which I want to shift back to bond holdings rather strongly. This means that I might put my retirement date even a bit later in terms of picking out a “target retirement” fund, to 2045 or so.

How much do I want to micromanage?

Admittedly, not much. I plan on keeping an eye on the funds and expense tracking, but in terms of investigating individual stock picks, I’ll save that effort for my own individual stock investments outside of the Roth IRA, thank you.

Given that I have an approximate target retirement date (2038 to 2045) and that I want to do minimal research for the Roth IRA, I’ve elected to try out the Vanguard Target Retirement Funds — more specifically, the Vanguard Target Retirement 2045 Fund. All of their funds start out aggressively and then gradually shift your assets from stocks into bonds and eventually even into a bit of liquid cash holdings as you enter retirement age.

What’s in the Vanguard Target Retirement 2045?

It’s a combination of five separate funds: four stock funds (Total Stock Market, about 72% of total holdings), European Stock (10.5%), Pacific Stock (5.0%), and Emerging Markets (2.7%)) and a single bond fund (Total Bond Market, about 9.9%). Through 2020, the portion of stocks to bonds (9:1) will remain the same, and then will move about 1.5% a year from the stocks into the bonds until 2045, where the split will be about 50/50. After that, the portfolio becomes more and more conservative as you use it to live out your golden years.

It’s reasonably diversified and has returned 13.84% annually since inception (yes, past is no indication of future), which is a rate of growth that has strong appeal to me. I think I’ll buy this one and just let it sit, reinvesting any dividends and capital gains, and keep an eye on it over time.

There are a few key points you should note from this specific example.

• Be like Trent and start expense tracking. When you have a more specific goal, choosing the necessary investment strategy to reach that goal will become much easier.
• Assess your risk tolerance. Once you figure out how much risk you can handle from your investment, the better you can narrow down your investment fund choices.
• Figure out how much involvement you want with your IRA. Do you want to pick your own stock or do you want to let someone else do the work? Knowing the answer to this question will allow you to better pick the correct institution for you to open your IRA.
• Understand how the fund is allocated and how the assets will shift based on the retirement time frame and risk tolerance (e.g., a fund shifts from stocks to bonds as it reaches the target retirement date to decrease risk to the fund).

Other key notes:

• When you choose an institution to open your IRA, you should consider the account fees and minimums. If you do decide to go with a fund like the Vanguard Target Retirement Fund, you need to consider its expense ratio.

Utilize the Cost comparison calculator from Vanguard to compare and contrast the cost associated with various funds.

The above post contains content written by Trent of The Simple Dollar.

Further Reading on the Topic:

Financial Planner

Expense Tracking