One of the most popular promotional tactics is the cash back credit card. This is a promotion popularized by the Discover® card, and honestly a category where they still dominate. But as a consumer, what you most need to know is how this product type works, and how it can work best for you. Now that many different providers offer this option, you will want to compare the choices before selecting a specific card.
Credit cards of all types are really just products. We agree to pay an interest rate for the use of a financial organization’s purchasing power. And, just like any product, the credit card industry uses its most ingenious marketing tactics to make their products more appealing. So, it comes as no surprise that the prospect of getting money back for making purchases we would have made anyway is very appealing; just beware of the strings attached.
How Cash Back Credit Cards Work
First, let’s talk about how cash back credit cards work. All cash back credit cards carry higher than average interest rates on balances carried past the billing cycle date. What this means to you is that if you are the type of credit consumer who usually carries a balance forward from month to month, cash back cards may not be for you, or you may need to use them only when you can and will pay off the balance in full when you receive the statement. If you can do this, you can avoid paying interest rates that will far outweigh whatever cash back amount you will receive.
Cash Advances
Another point to remember is that due to the substantial interest rate, you should never use your cash back credit card for a cash advance. Regardless of your ability to pay the advance back before the balance due date, companies usually asses and charge an interest amount even if you do pay off the balance. Also, resist any offers to make balance transfers to your cash back card. Even if the card will give you a high rebate rate on those transfers, most cards follow an order of repayment that applies payments to charges with the lowest interest rate attached to them. This means that there is a higher chance of paying a substantial amount of interest on the most expensive debts on your card.
Rebate Programs
The vast majority of cash back credit cards pay 1% on purchases made on the card. The better card products will offer a standard 1% rebate with 2% to 5% rebates paid on specific types of purchases like gas, groceries, travel, or even utilities. Pay close attention to the specifics of the card’s rebate program, lots of credit consumers rush to apply for cash back cards that offer 5% rebates on all purchases. Unfortunately, they often miss the fine print stating that this rate is introductory and expires after the first one to three months. There are a few products out there that offer great introductory cash back rates, then allow you the option to switch to a reward points program that might offer you a better payoff after the intro period expires. Analyzing your credit usage and lifestyle can help you decide if this type of hybrid cash back/reward credit card is a good fit for you.
Some cards will pay rebates based upon a tiered formula. That is, you qualify for a higher percentage rebate only after spending a certain dollar amount. Review these formulas with care as some cards will actually pay you a smaller rebate percentage after spending a certain dollar amount, this is called a reverse tier formula.
Some credit cards will allow you to earn an unlimited amount of cash back. However, there are many cards that will place caps on the amount of cash back you can earn in a year or even within any billing cycle. This might not be a factor in choosing a particular product depending on how much you will regularly spend on the card relative to the cap on the cards cash back potential.
Some other fine print you will need to evaluate is how your rebates will be paid to you. Some cards will send you annual checks, or you may get a check issued every time you reach a certain cash amount. You might find a card that only pays rebates in the form of automatic statement credits. Other cards will only authorize rebate payments if you call in to customer service and make a formal request. Still other products will offer you a variety of options for receiving your cash back, including direct depositing into a selected account on a scheduled basis.
Compare Credit Cards With Cash Back Now!
Selecting the right credit card for you can be quite an involved process. If you’ve decided to choose one of the many cash back credit cards out there, remember these few facts and compare your options carefully and you are sure to find a product that fits your credit needs. Take the time to review and compare your choices right now. You can do this easily, and for free, by using the credit card chaser above before leaving your computer!
