Cash-back rewards can be a powerful tool

But you must use them correctly — and read the fine print,

Cash-back rewards cards can be a powerful tool for your wallet.

Used correctly, the best cards reward cardholders with the equivalent of a 2% discount on every purchase. Some cards offer beefier cash-back bonuses in special categories such as gas and restaurants, where spending can earn at a rate of 5% or more.

Over time, rewards can really add up. But there are three things you should know before you apply for a cash-back credit card. 1. IF YOU CARRY A BALANCE, IT ISN’T WORTH IT

High rewards and high APRs go hand in hand. Of the numerous cards we’ve reviewed at Fool.com, the lowest APR is currently 13.74%. That card doesn’t have a rewards program. In fact, the cards we consider the best cashback cards of 2017 have a midpoint APR ranging from 17% to 21%. At that interest rate, as little as 45 days of interest completely eliminates any cash-back benefits. We assume that people who are in the market for a good cash-back card will pay the balance in full every month, otherwise the math just doesn’t work. 2. MIND THE MINIMUM REDEMPTION CLAUSE

The best rewards are those that can be redeemed quickly and easily. Depending on the program, some cardholders may be forced to wait months before making their first redemption.

The importance of a minimum redemption amount depends on how much you spend each month. Those who use credit sparingly may have to swipe for months before reaching the minimum redemption amount.

Higher minimum redemptions increase the odds that rewards are left stranded as a cardholder abandons one card for another. 3. THE BIG MONEY IS IN THE NEW CARDHOLDER BONUS

While getting 1% to 2% cash back on every purchase can add up quickly, the big value is in onetime bonuses that card companies use to entice new customers.

Think of the new cardholder bonus period as a period of supercharged rewards. A card that offers $150 in cash back for spending $500 in the first 90 days (Chase Freedom Unlimited) effec- tively earns at a 30% clip on the first $500 of spending. Add the regular 1.5% rewards rate on top, and the cash-back rewards rate grows to 31.5% on the first $500 of purchases.

Use this information to your advantage to consider the breakeven period. For example, the Citi Double Cash Card pays at an effective rate of 2%, while Chase Freedom Unlimited earns at a 1.5% rate. While 2% cash back may appear to be better than 1.5% cash back, this isn’t always the case. Due to the new cardholder bonus, the rewards earned by Citi Double Cash eclipse the Chase Freedom Unlimited only after $30,000 in spending. Reaching $30,000 in credit card spending may take just a few months for high earners and spenders. For others, it make take several years. It’s usually uneconomical to pay by credit card for most major expenses (mortgage servicers, insurers and utility companies often charge a convenience fee for card payments), so it’s unrealistic for most people to assume that every dollar spent can be put on a cash-back credit card. A family with $35,000 in annual expenses may only have $10,000 in potential credit-card spending each year, for example, as big recurring expenses are paid by check or ACH, while others, including medical bills, are paid with tax-advantaged accounts.