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Who doesn’t love a free gift? If you use credit cards wisely, you can rack up enough reward points for anything from designer sunglasses to a gourmet food hamper – perfect for the coming holiday season.

But you’ve really got to know how to work that plastic to the max. A recent US study found that just 59% of rewards card holders fully understand how they work. And 33% don’t even realise what benefits they’re entitled to.

More worryingly, Mozo’s own research shows that the wrong choice of card could even lose you money, costing more in annual fees than you gain back in points. So we’ve identified the essential dos and don’ts to get the best out of your rewards card.

DO choose the right card for you

Not all rewards cards are created alike. Depending on your spending habits, some cards will offer better return on spend than others.

DO check for high fees

Hefty annual fees can eat up rewards value, so look for cards with low fees but good points earning ratios. For bigger spenders, points ratios become more important than fees, but it’s still something to keep an eye on.

DO compare points value

Different programs have different earning rates, but some points are more valuable than others. With a Bank of Queensland Platinum card you earn two points per dollar, but it costs 28,000 points to redeem a $100 gift card. Whereas the American Express Velocity Escape Card only earns one point per dollar, but redeeming a $100 gift card takes only 13,500 points. So you spend $500 less to get the same reward.

DO redeem rewards with care

Some rewards are better value than others. For example, with Westpac’s Altitude Rewards program, a Village Cinema’s Double Gold Class Movie ticket costs 12,925 points (retail value $50) but for just 8,800 points you can get a $50 David Jones gift voucher. That’s $4,125 less you’ve had to spend (on Visa) to get the same value reward.

DO consider bonus partners

Buying things solely for points is not advisable. But if your card’s bonus partners sell products or services that you actually need, it may be worth buying from them to earn points more quickly.

DON’T pick the wrong rewards

There’s no point racking up flight rewards if you don’t plan to travel. Find a card that delivers the best shopping rewards instead. Mozo’s Rewards Revealer can make this easier.

DON’T be seduced by intro bonuses

Introductory bonus points offers can seem seductive, but they don’t always work out as best value over the long term, even in the first year.

DON’T rack up interest

Most rewards cards have even higher interest rates than regular credit cards. So make sure you avoid interest charges by paying your balance in full each month, or the interest will wipe out the rewards you’re earning.

DON’T waste points

Most points expire. So check your balance regularly, and redeem them before you lose them.

Depending on which card you pick, we’ve calculated that the average Australian spend of $17,000 per year could earn you anywhere from over $200 to a loss of over $500. The stakes for choosing the right reward card and using it wisely are high!

About the author: Kirsty Lamont is a director of Mozo.com.au which helps Australians save money by comparing credit cards, loans, insurance and bank accounts. As a consumer finance expert, Kirsty makes sure she get the best out of her own financial products, and wants to help other Australians do the same.