Credit card companies are eager to earn your business. One strategy they use to achieve this is to provide credit cards that allow you to accumulate cash rebates. These cards function similarly to cards that earn discounts, rewards, miles, and so on. Merchants are charged a fee by credit card companies to process their cards. Many companies in the United States and the United Kingdom now return a portion of the commission fee to the consumer in the form of cash back rewards. When deciding which type of card is best for you and how to use it effectively, you should keep several factors in mind.
Part 1 Choosing the Right Card
1. Learn how cash back rewards work. The cash back on cards that provide this benefit is typically in the form of credit added back to the account. Depending on the card, you will earn varying amounts of cash back in the form of percentages. The Royal Bank of Canada (RBC), for example, offers a card that pays 2% on grocery purchases and 1% on all other purchases and automatic payments.
Different issuers will give you different options for when you can use your earned cash back benefits. For example, the aforementioned RBC card allows you to receive payments every time the balance reaches $25 or once a year, giving you a larger sum all at once.
2. Compare cash-back offers. You can compare the relative benefits of different cards, such as where they earn the highest percentage of cash back and how you get to apply the funds, using websites like NerdWallet or The Simple Dollar (among many others).
Most offer between.05 percent and 2 percent on average, with some offering as much as 5 percent. Other cards provide higher rates for the first few months you have the card, but not indefinitely. Examine the fine print on each card to see which one is most likely to benefit you.
3. Narrow your search based on additional credit card criteria. Cash back cards, like regular credit cards, have annual fees and annual percentage rates (APRs). Take these factors into account as you conduct your research and select an appropriate card for you.
Because APR is influenced by factors such as credit score, it is beneficial to have your current score on hand. Many of the sites that compare cards allow you to narrow your search based on your credit score as one of the criteria.
4. Apply for the credit card of your choice. These cards are applied for in the same way as any other credit card. It will contain your personal information, such as your address and social security number, as well as information about your employment. You will also be required to authorise the company to investigate your credit history. Try not to apply for a card for which you believe you may not be eligible. The number of times you apply for and are denied for a credit card is factored into your credit score.
Most companies allow you to apply online, or you can print and mail an application.
When you receive the card, you will call a toll-free number to activate it.
Sign the back of the card in the signature box, or write “request ID” if you don’t want to sign it. Each time you use the card, you will be required to show identification.
Part 2 Maximizing Your Cash Back Rewards
1. Instead of cash, use the card. The more frequently you use the card, the more rewards you will receive. Rather than withdrawing cash from the bank, use your cash back rewards card for all of your standard purchases, particularly those made in locations that earn you higher rewards.
2. Each month, pay off the card. Because the card has an interest rate, you should pay it off every month to avoid interest charges. This is critical if you want to make a profit from the card. If you fall behind on payments and end up paying more in finance charges or late fees than you earn in cash back, you should use cash instead.
The majority of credit cards allow you to set up automatic payments from a checking account. This will debit your checking account each month to pay off the card. It saves you from having to remember due dates each month, but you must still ensure that you have enough money in your account to cover credit card charges.
3. Before you spend more money, pay off your debts. If you fall behind on your cash back card or another credit card, you should stop using them until you have paid off your debts. All additional interest and finance charges will dwarf any rewards you receive.
4. Cash advances should not be made with the card. Most credit cards do not offer cash back rewards for cash advances. On a cash advance, you usually pay interest from the day you take it out rather than when the monthly payment is due. This means that using the card for cash advances will quickly negate the benefits of any cash back you earn.
5. Maintain your credit limit. If you spend more on your credit card than the line of credit allows, you will be charged an over-limit fee. Even one of these fees can result in you paying more in cash back rewards than you earn over the course of several months.
6. Make the most of your card spending. If you’re approaching your credit limit or know you can only spend so much on the card and still pay it off each month, use it as efficiently as possible. If you only have $50 to spend and you know that gas purchases earn you 2% cash back while everything else earns you 1%, then only use the card to buy gas. This strategy will provide you with the most cash back rewards.
7. Consider utilising balance transfer options. Many cards provide balance transfer options, allowing you to transfer the balance from another credit card to the new card. Before making a balance transfer, calculate the potential benefits. In some cases, you may benefit from transferring the balance on credit card debts that you would have to repay anyway.
8. Profit from accelerated bonuses. Many cash back cards have an introductory or promotional period of one to three months during which the card earns “accelerated” rewards. Because these are limited-time offers, use the card as much as possible for purchases you would make anyway during this accelerated period.
9. Use the card in novel ways. The more you spend on the card, the more rewards you receive. Try to think of creative ways to use the card that don’t go overboard with your spending. For example, if all of your other friends are paying cash at dinner, offer to pick up the tab on the card while you collect the cash. It’s easier for the server than dividing the check, and you’ll be reimbursed for the portions of the bill that weren’t yours right away.
Use the card for business expenses. Many jobs necessitate out-of-pocket expenses for business lunches, travel, and so on. If you don’t have a company card, use your cash-back card instead. Once you submit an expense report, your company will reimburse you, and you will essentially earn free cash-back rewards.
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