Credit-card rewards programs can be worthwhile if you use them wisely. But watch out for these 10 costly pitfalls.

THESE DAYS, collecting points through credit-card rewards programs is something of a national hobby. Cash back, frequent-flier miles, gift certificates: more than 55% of all credit-card offers have some type of reward attached to them, according to the latest survey by Mintel's Comperemedia, a company that monitors direct-mail solicitations nationwide.

Needless to say, the rewards can be great. Every time you use your Chase Disney card, for example, 1% of your purchases goes into an account you can use to pay for trips to Disneyland and Disney World. You get a check for $25 every time you spend $2,500 on your Chase Free Cash Rewards card. Signing up for a rewards program seems like a no-brainer. After all, it's a free perk, right?

Maybe not. Fall into the 10 traps listed below, and your rewards program could prove to be decidedly unrewarding.

1. We don't really give you 5% back
Be careful when you get a pitch for a cash-back card (a credit card that offers cash back based on the amount you spend). While these deals can be good, it pays to read the fine print.

Many cash-back cards use a "tiered" program. So while a credit-card solicitation may state that you can get "up to 5% cash back on qualifying purchases," relatively few purchases actually get that star treatment. Take American Express's Blue Cash program. Here, only "everyday purchases" (meaning spending done at supermarkets, gas stations, drug stores and the like) are eligible for the maximum 5% cash-back treatment. And even then, the first $6,500 spent (on an annual basis) gets just 1% kicked back. Only qualifying expenses over $6,500.01 get the full 5% cash back. Non-everyday expenses are subject to a significantly less favorable scale, with a maximum rate of 1.5% applied to purchases made after $6,500.01 has been charged on the card.

In other words, you're going to have to charge a whole lot of Wheaties to get the full reward. And needless to say, if you don't pay off your balance each month, you could find yourself in a world of hurt. Using a credit card to pay for basic necessities -- like food -- is one of the warning signs that your debt is out of control. Getting a little cash back won't solve that problem.

In other words, these cards aren't for everyone. If you don't typically charge a lot on your card, or if you know you won't use your credit card frequently at the retailers that qualify for the maximum rate, you're better off with a flat cash-back rebate program, says Curtis Arnold, publisher of CardRatings.com, a consumer credit-card information Web site. With these types of programs, you typically get 1% back on every purchase you make. Assuming you pay off your balance each month, that's like getting a 1% discount on everything you buy.

Try the 1% cash-back program with the Citi Dividend Platinum Select card (with a bonus 5% cash-back rate on purchases at gas stations, drug stores and supermarkets), which will mail you a check every time you accumulate $100 in your cash-back account, up to $300 a year.

2. The free ticket you'll redeem isn't exactly free
It used to be that consumers had to pay an annual fee to participate in a credit card's reward program. Not anymore. Some 80% of the card offers that have a reward attached to them no longer carry a fee, according to the Mintel Comperemedia survey. There's one big exception to this rule, however: airline cards.

Is it ever worth it to pay an annual fee? "The only time it would make sense is if it's an airline card, you spend at least $8,000 a year, and you're loyal to a particular airline," says Arnold. Airline cards typically offer better rewards than cards with travel rewards that aren't associated with a particular airline. But airline cards typically come with $75 to $100 annual fees. Now, generally you need to spend $25,000 to get 25,000 miles and qualify for a free domestic flight. So if you only charge about $5,000 a year on a card and don't fly its airline a lot, it would take you five years, or at least $375, to get a "free" ticket. (And you may not be able to redeem your points after five years at all. For more, see Point 9.)

In other words, if you're not a big spender, skip the airline cards and shoot for a no-fee option.

3. Your travel miles may be worth less than you thought
Some cards, like the Chase Flexible Rewards card, offer travel rewards that aren't associated with any particular airline and come with a lower (or in some cases nonexistent) annual fee. But there's a catch. While these programs offer a wider choice of airlines and rewards, they operate independently of the airlines' frequent-flier programs and can't be combined. You can't deposit those miles in an already-existing frequent-flier airline account, says Arnold. "You have to basically use any miles you've earned on that card separately," he says. (One exception to this rule is American Express, which allows you to redeem your points for miles that can go into a frequent-flier account. The catch: You have to spend two points to get one mile.)

The good news is that those cards often have lower redemption thresholds for smaller rewards -- say, a free upgrade to business class. The bad news is, in most cases those miles aren't good for pushing you into elite status with the airline -- something you could get only when you rack up points in its own frequent flier program. Generally speaking, these cards make sense for people who charge enough on their cards to earn a free ticket without combining their points with frequent-flier miles from other sources.

4. You may be charged to redeem your miles...
Since 2002, Diners Club has been charging its members a 95-cent fee for each 2,000 points they redeem. Participants in American Express's Membership Rewards programs got a similar hit in 2004, when Amex started charging a fee for redeeming points for domestic U.S. flights. Say you want to transfer 25,000 points to an airline frequent-flier account: You'll be charged $10. That's 0.0004 cents per point (though the fee can't exceed $50).

The extra charge will cover at least part of the increasing costs of its Membership Rewards program, as well as taxes the company has to pay for each redeemed domestic flight ticket, says Desiree Fish, a spokeswoman for American Express.

"The cost of running these (rewards) programs is very high," says Arnold. "So tacking on fees for redemption -- I think you'll see more of that."

5. And you might not be able to redeem them at all
The biggest problem with travel miles is you may not be able to redeem them if you want to fly during high season, says Howard Strong, author of "Everything You Need to Know About Credit." "Airlines have an allocation of so-many seats for miles, it's not like buying a ticket for cash," he says. So if you're planning to travel during high-season, book well in advance.

Another problem: If your program is discontinued, you won't see your points -- ever. "A lot of these programs don't stick around for very long," says Arnold. In 1997, for example, more than six million Citibank Visa and MasterCard card holders were taken in for a ride as Ford Motor Co. and Citibank discontinued their co-branded program, started in 1993, that used to give 5% rebates towards a Ford car purchase or lease. They did get some time to redeem their points, but it was on very short notice, says Arnold.

The lesson? Once a program shuts down, you can't redeem your points, so be careful when choosing a card. Hedge yourself with a program that's been around for at least a year, or is run by a well-known credit-card issuer (though even that doesn't guarantee anything). Use online resources such as CardRatings.com and CardWeb.com, which track and rank the best credit-card offers. Cardratings.com also runs card reviews, which you can use to narrow down your choices.

6. Good luck negotiating better terms
You probably know that every once in a while, if your credit is good, you might be able to call your credit-card companies and negotiate a lower interest rate or a waiver of your annual fee. That's not likely with any card that comes with rewards. "It's much more difficult with these programs," says Gerri Detweiler, author of "The Ultimate Credit Handbook." "There's less flexibility in negotiations." Why? The company has already locked you in as a customer, and you're less likely to switch once you've racked up significant points.

7. Rewards on debit cards: don't expect a pot of gold
Rewards programs used to be a credit-card specialty until last year, when Visa rolled out Visa Extras, a program offering rewards points for charges incurred on any enrolled debit or credit card. Thousands of banks have signed up for Visa's program, with each bank determining its rewards structure, whether it will charge an annual fee, and how much.

The beauty of the Visa Extras: You don't need to apply for yet another card to get rewards. Simply enroll your existing Visa (if it qualifies) -- or better yet, enroll your debit card and don't even risk piling up debt just to get the points.

The catch: many consumers don't realize that if they enroll a debit card, they'll have to sign for all purchases instead of using their PIN (personal identification number) to get the points. On top of that, many banks' rewards structures are downright stingy, offering only one rewards point for every $2 charged on the card.

That said, if the urge to earn rewards causes you to overcharge your credit cards and carry a balance (see our points 8 and 10) using a debit card may turn to be a rewarding way to stick to your budget.

8. Don't fall for incentives to carry a balance
How about this: You start carrying a balance on your credit card, and you'll get an extra 1% cash back. That's what you get with the Chase Cashbuilder card, on top of its regular 1% rate. So in effect, you double your rewards. Tempted? Stay away from such offers.

"An incentive to carry a balance over is also an incentive to have interest applied to that balance," says Kelly Rote, communications manager for debt-management agency Money Management International. "That interest rate might cost a lot more than the 2% extra cash back." It's a bad idea. Period.

9. Watch out for the expiration date
Think you can pile up your points for good? Not with most airline miles cards. They typically expire in 36 months, says CardRatings.com's Arnold. The good news is, you don't have to worry about expiration dates with most of the other types of programs. With cash rewards, your account gets credited on a regular basis (each month or year), or you get a check or gift certificate for, say, $25 every time you collect 2,500 points.

10. And as always: Spend wisely and budget.
Perhaps the biggest pitfall of any rewards program, no matter how great, is that it encourages you to spend just for the sake of racking up points. Don't fall into that trap. "Getting yourself into credit-card debt just to get a free ticket to a destination is never a good idea," says Rote. "It might be just as simple to set aside $25 a month and have a roundtrip airplane ticket in a year, vs. shopping a lot and having to pay that off each month."

But at the same time, if you see a reward program that encourages you to save, take advantage of it. Enroll your card in the Upromise program, for example, and a penny or two of every dollar you spend goes into a 529 College Savings Account, or sign up for a card that already comes with college savings rewards, such as the MBNA Fidelity 529 College Rewards card.