That rewards plan that lets you get ‘cash back’ or ‘points totaling a free cruise’ is a huge rip off. Turns out credit card companies are just trying to earn a profit and are not in the business of giving stuff away for free!

Most rewards plans (which range from offering free gas, cash back, free gifts, a reduced grocery bill, etc.) may sound like some great incentives, but they come with higher annual percentage rates in the 9% to 19% neighborhood. They also include some high annual fees you may not be aware of.

According to an article in CNN Money, Consumer Reports helps a brotha out by giving some advice on how to tackle the reward plan dilemma:

Consider where you shop. Look for some rewards plans at the places you frequent the most. If you spend a lot of time in Victoria’s Secret (I won’t ask any questions. Your business is your business, dude), then you should look for a rewards plan that gives back purchasing power for something you will actually use.

Project your spending. Do a little math and add up how much you’re likely to put on this card. Will it be enough to get you a roomful of jet skis? If not, look somewhere else.

Favor cash back. Cash back does give you more bang for your buck. Compared to most other rewards plans, the reward equivalents usually come out to being less than the cash value. So look for a sweet cash back program that doesn’t have a killer rate.

Skip credit if you carry a balance. These plans only really help out those lucky bastards who can pay off their balance in full each month. If you’re a johnnie-come-lately type of deadbeat, maybe you should stick to dangerously carrying around huge wads of cash?

Do the math on do-good programs. Hard to believe, but those credit card plans that give to charity might be screwing you over. They’re pocketing most of the money while only giving a very small portion to charity. If you feel inclined to donate a lot (whether it’s to impress the ladies or placate your weak spot for cleft palates), you might be better off getting the cash back reward and donating yourself.

Use airline miles fast. The airline industry is in a world of hurt right now. Forget about what frequent flier redemption rules they have now, much less which airlines will be in business in a few months. So if you’ve got ’em, use them quick.

Avoid temptation.Obviously, don’t spend beyond your means just to get that free camera. Let’s do a little math – Unnecessarily charging $5,000 on your card to earn enough points to get a free digital camera worth $300? I don’t think that adds up, unless you use logarithms or derivatives.

Hope these tips help, but if all else fails, you can easily just shred up those cards and move to Alaska. The interest rates on fresh air are at 10 year lows.

CNN Money: Credit card rewards are a rip off, June 2, 2008