Cash-Back Credit Cards
Many credit card issuers offer cashback on some of their reward credit cards. Cashback simply refers to earning back a percentage of the money you spend on your credit card. Cashback varies from one credit card company to the other. Some give you the opportunity to earn more cashback on purchases made by signing-up in quarterly promotions or even shopping via their online shopping portals. Cashback credits can be very beneficial since they offer huge rewards over time. The normal rate of cashback is between 1 and 2 percent for purchases. However, some even pay as much as 5 percent cashback.
At the end of every billing cycle, your credit card issuer pays you a percentage of your purchase price back. If you choose a credit card that offers cashback, be committed to paying off your monthly balances in full and on time to avoid the expensive interests. Never fall victim to the common pitfalls of utilizing cash make many irrelevant purchases.
7 Key Features to Shop for in a Cash-Back Card
Cashback credit cards can be very appealing. You just make your purchases, and a percentage of your spending is paid to you. Cash-back cards don’t have points and miles that always come with restrictions that can complicate the rewards you can earn with other categories. With this type of card, you get a great opportunity to get money back every time you shop. With all these benefits, it can be confusing to know the best card that suits you.
Always compare various cashback credit cards before you choose one. Here are seven factors to consider while choosing a cashback credit card:
1. SIGN-ON BONUS
A sign-on bonus is a common perk and can be lucrative; however, make sure to read the fine print. This is the best and quickest way to earn extra bonuses. You just need to spend a specific amount in a specific time frame to earn the bonus. To take full advantage of the best sign-on bonuses offered in the market, you need to have good credit as well as the ability to meet the minimum spending needed in a period of time.
Sign-on bonuses are best for people who spend a lot in specific areas of their budget. Cash-back rewards cards are likely to pay off in the short-term when you are able to meet the spending minimum and get a large sign-on bonus in your first year. Cash-back cards will give you more consistent value, which will likely prove simpler to use the rewards earned. For example, the Wells Fargo Cash Wise Visa Card allows you to earn $150 in cash rewards bonus after you spend $500 during the first 90 days.
2. ANNUAL FEE
Cashback credit cards don’t usually charge yearly fees; however, if you are planning to spend enough on your card every month to rack up lots of rewards, then you should consider a card that charges an annual fee.
Also, determine if you could offset it with perks and rewards, then research whether you qualify for no-fee cards with similar reward rates. Numerous cashback credit cards have no annual fee; however, some cards waive the annual fee for the first year and start charging the second year after card opening.
3. ANNUAL VALUE OF THE CARD
The first year of card ownership is the best time to determine the value of your card. The right cashback credit card should meet your personal needs and spending habits. Credit can be very useful. On the other hand, credit can also tempt you to make poor financial decisions. Without a solid budget, it can be very easy to overspend, especially when you have a high credit limit. One of the main reasons that people get a credit card is to make purchases that they cannot afford.
If you have a habit of buying items you cannot afford using your credit cards, you will need to change. Change your mindset from spending to saving. When choosing the right cashback credit cards, look carefully at how they work, keeping in mind your spending habits, and see if they are the best for your needs, you might end up saving and earning more cashback than you can imagine.
4. REWARD LIMITATIONS
Most cashback credit cards have an annual maximum limit. They might offer a generous cash back reward but give an annual maximum limit you can reach. In many cash back cards, there is a reward limit that applies only to the first $1,500 spent every quarter. If you usually use your rewards to pay for flights or goods from a particular store, it will be a good idea to get an air-miles credit card.
5. EASE OF EARNING POINTS
It can be a daunting task to navigate around the world of points and cashback deals since there is a lot of competition between banks to offer the best rewards. You might find credit card companies that offer points and cash backs that have a high-value on various spending. Your budget and spending habits will greatly affect the type of card you should get.
Bonus categories can be both a positive thing and a negative thing too. If you are a frequent traveler, cashback at a supermarket may not have a big value to you. Always keep in mind that some common cashback credit cards offer a small 1% cashback on all your spending while boosting the value by giving bonus rewards on selected categories that change over the years.
6. EASE OF REDEEMING CASH
Some credit card companies require you to have a specific amount of cashback for you to redeem it. On the other hand, some will allow you to redeem your cash backs for any amount at any given time. Redemption policies vary from one credit card issuer to the other. Depending on the type of card, you can redeem cash as:
- A gift card
- A statement credit
- A check or deposit
- A charitable donation
7. INTEREST RATE
It is possible to find a card that offers a low 0% introductory APR offer as well as generous cashback rewards. Evaluate your spending pattern before shopping for a card. Will you be able to earn the best rewards with your spending habits? If no, a cashback credit card is not the best option for you.
If you want a card to make a large purchase that you will need time to pay off, look for a card that has a 0% introductory APR. A card with a low-interest rate can lead to more short term savings as long as you can pay off the balances before the introductory APR expires.
The Best Strategy to Win at Cash-Back Credit Cards
It is always important to play by the rules of credit card rewards. The trick to winning the cashback reward game is to use the right card to make the right purchase. Pay your balances in full and never carry a balance on your card since it can eat away at your rewards. If you want to maximize your rewards, you will carry with you several cashback cards that pay huge rewards on the specific item you are purchasing.
Know Your Plan & Spending Habits
Cashback credit cards are very beneficial; only if they match your lifestyle. Your cashback card should complement your spending habits. Always consider the following factors when choosing a reward card to make purchases with:
- Minimum spending
- Annual fees
- Reward limitation
- Reward categories
There are some credit cards that offer you extra cashback when you spend money on a specific category like gas, while others can give you extra cashback for spending money on groceries. The key here is to use the right cashback card for the right purchases. Your spending should match the rewards for each card. When at a gas station, use the credit card that gives you extra cashback for filing. If you are shopping at a grocery store, use the card that gives you extra cashback for shopping groceries.
Carry Multiple Cash-Back Cards
To many people, one credit card is just enough. However, for those who can handle a few credit cards responsibly, more than one can be lucrative. One credit card can earn you some hundred dollars in cash back per year, but with the right combination of cashback cards, you can earn more.
Take advantage of each card’s offer and maximize your rewards. Some credit card issuers might allow you to combine cards. For instance, you can be able to transfer bonus points from one card to another from the same issuer and redeem the points at a higher value. If you choose to combine the cards, make sure that you read the terms and conditions to see how you can combine them to get more rewards.
One of the biggest mistakes that cardholders make is ignoring the spending caps and carrying a balance on their cards. Do not spend more than you normally do just to earn rewards. Credit card companies offer appealing reward programs that might drive you to increase your normal spending to get the bonuses. When you overspend, you start carrying balances from one month to another.
If you fail to pay the balances in full and on time, you generate more debt. There is no reason to add to the thousands of dollars owed to credit card companies just to get some cash back. Rewards can only be beneficial to you if they support ordinary spending.
Dissecting a Cash-Back Credit Card Offer
Different credit cards offer different benefits and rewards. Whichever you choose, take time to find out the one that works best for you.
Cash-Back Credit Card Questions & Answers
Bruce McClary, the vice president of marketing for the National Foundation for Credit Counseling, provides marketing and media support for the NFCC and its member agencies in the U.S.
What mistakes do people make with credit cards, and specifically rewards programs?
Sign-up bonuses tempt people since they need to meet a specific threshold before earning bonus points. It is okay to make purchases on your card just to earn some bonus, as long as you are able to pay off the monthly balances.
At times, people get very excited about the rewards and start overspending. One rule in winning the credit card rewards game is by never changing your spending habits for rewards. Overspending leads to accumulated balances, which, if not paid fully, might result in higher interest rates. You will have to pay more interests than the points you will have accumulated. Limit your credit card to what you can afford.
What are the gotchas about credit cards in general and rewards programs that are not well understood by consumers?
The most common pitfall people get into is spending more than they can actually have. Overspending leads to debt and high-interest costs and can also damage your credit record. Carrying a balance can be a costly thing that can make it hard to manage the debt you owe. To avoid paying the financial charges, make sure to pay your bills on time.
Reward cards tend to have a higher interest rate; therefore, it is a good idea to avoid them if you cannot afford to pay off the monthly balances. Making impulse purchases to earn point is not a good idea; sometimes; a reward program can transition into a different kind of reward. This may reduce the value of the points.
What advice can you give consumers about managing their credit cards and cash-back rewards cards?
Using a credit card can pay for your day to day purchases, and when responsibly used, it can help you establish your credit score. Some of the best tips on managing your credit card are by paying off credit debt and sticking to a budget among other helpful tips. Always pay your balance in full, because interest charges will eat all your cashback if you fail to do so.
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