Credit Cards Gone Wild

As politicians wrangle over the budget and debt ceiling in Washington, credit is flowing freely in the world of credit cards. Just a short time ago rewards credit cards offered few incentives, and getting approved for one was for many as likely as winning the lottery. Today, not only is getting a card a lot easier, but the best rewards cards are offering some crazy incentives.

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Here are a few examples of the latest bonus rewards credit card companies are offering new card members:

--Chase Sapphire Preferred: Considered one of the best travel reward cards available, the Sapphire Preferred card is offering 50,000 bonus points when a new cardholder spends $3,000 on the card in the first three months. Those points are worth a $500 statement credit a plane ticket up to $650.

--Chase Freedom Visa: For those looking for a cash back card, the Chase Freedom is offering $200 in bonus cash if you spend $500 in the first three months. The bonus case is on top of up to 5 percent cash back on purchases.

--Southwest Airlines Rapid Rewards Premier Credit Card: As a final example, Southwest is offering up to two free flights just for signing up for its Rapid Rewards Premier credit card.

These "price wars" among credit card issuers is good news for consumers looking for deals. Virtually all of the major credit card companies are offering incentives for new card members. These rewards, however, do come with a price.

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First, rewards cards are very expensive for the retailers that accept them. Retailers that accept credit cards pay what's called an interchange fee each time a shopper pays with a card, and these fees vary from one credit card to the next. As you might expect, credit cards that pay rich rewards to card members charge retailers the highest fees. Catherine Clifford at CNN recently described how these high fees hit small retailers hard. While consumers do not pay for these fees directly, they surely affect the prices consumers pay.

Second, many rewards cards come with higher interest rates. If you carry a balance from month to month, you could be losing the benefit of the rewards to the interest payments. Notwithstanding these costs, some estimate that up to 70 percent of credit cards in use today are rewards cards.

Rewards credit cards have other pitfalls beyond cost that consumers should keep in mind. First, while bonus cash, miles or points are attractive, it's important to evaluate the other terms of the card. You don't want a one-time incentive to lure you to a card that otherwise has mediocre rewards.

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Second, the rewards rules of some cards can be confusing. For example, while some cards offer cash back of up to 5 percent, it is limited to certain categories of purchases that change every three months, and the amount of cash back is capped. Likewise, some points and miles cards value the rewards differently depending on how you use them. So if you are in the market for a rewards card, it is important to read the terms and conditions carefully.

Finally, you'll want to keep an eye on annual fees. There are many rewards cards that do not charge an annual fee, but some do. Those cards that do charge an annual fee typically offer better bonus rewards and higher rewards each time you use the card. So you'll need to do a cost-benefit analysis to determine if it's worth paying the annual fee. For those cards that do charge a fee, they often waive it the first year.

DR is the founder of the popular personal finance blog, the Dough Roller, and author of 99 Painless Ways to Save Money.