Cash back credit cards are an excellent way to earn money on purchases you would have made anyway. Untangling credit card reward terms, on the other hand, can be almost as difficult as figuring out how your interest charges accumulate. While some cards provide a flat rate of cash back on all purchases, others provide a higher percentage of cash back on specific purchase categories, different percentages back based on your total spending over a specified time period, or a set cash back bonus after spending a certain amount. Fortunately, understanding how to use a cash back card effectively is less difficult than deciphering the terms.
Part 1 Choosing the Right Cash Back Credit Card
1. Discover how cash back credit cards work. Users of cash back credit cards can earn points on qualifying purchases. These points are calculated as a percentage of net expenditures (total expenditures minus any refunds). Different types of qualifying purchases may earn different amounts of points. In most cases, points can be redeemed for other benefits such as airline miles or gift cards.
Depending on the card agreement, cash back may be received at the end of a period of time, when the cardholder reaches a points threshold, or at any time.
2. Compare different types of cash back cards. Cash back credit cards are broadly classified according to how cash back points are earned. All cash back cards earn points based on a percentage of net purchases, but at different rates and with different rates for different purchases. The major types of cash back cards are as follows:
The price is fixed. These cards provide a flat rate of cash back on all purchases. The best cards in this category typically offer 1.5 percent back.
The rate is variable. These cards provide points at varying rates depending on the type of purchase. Grocery purchases, for example, may earn you 2 or 3 percent back, whereas other purchases may only earn you 1 percent. These cards are only useful if your spending habits correspond to those of the higher-earning categories.
The rate of rotation. These cards provide high cash back rates on monthly purchase categories that vary. For example, a card could earn 5% back on gas purchases in May and 5% back on entertainment purchases in June. Other purchases may still earn a flat rate, such as 1%.
These cards are only useful if you have the time to keep track of the high-rate category for the current month and adjust your spending accordingly.
3. Look for cash-back credit cards. All of the major credit card companies offer some kind of cash back credit card. Begin by determining what kind of cards, if any, your current bank provides. Then, contact major credit card companies such as Capital One, Citi, American Express, and Discover. Among the most popular cash back cards are:
BankAmericard Cash Rewards Card.
Discover it Cashback Match.
Capital One Quicksilver Cash Rewards Card.
American Express Blue Cash Preferred.
Citi Double Cash Card.
4. Cash back categories should be matched to your spending habits. Different credit cards focus on different types of purchases and provide greater rewards for those purchases. Some cards, for example, provide greater rewards on travel expenses such as airfare and foreign transactions. Look for credit cards that correspond to what you spend the most money on. For example, if you spend the majority of your money on gas and groceries, look for a card that offers 2 or 3 percent back on these purchases.
You should also consider how frequently you will use the cash back features. If the cash back features are for travel and you don’t travel more than once a year, the card is probably not worth it.
5. Look for signup incentives. Some credit cards offer a points bonus or a cash reward if you spend a certain amount in the first few months. Look for a card that offers a signup bonus that you can earn through your normal spending habits. Just make sure you’re not going overboard in order to get the required number of points; doing so would defeat the purpose of earning the bonus.
6. Check that you can use the cash back however you want. Check the fine print to ensure that you can get your money back in the form you want. Many credit cards provide cash back in the form of a statement credit, a gift card, or a check. Some, on the other hand, are more stringent. Some cards, for example, only allow earned cash to be deposited into a qualified retirement account. Before purchasing a cash back card, ensure that you will be able to receive the cash back in the form of your choice.
Part 2 Making Purchases
1. Determine all recurring bills that can be paid with a credit card. Gas, electric, cable, and telephone bills are examples of such bills. If possible, enrol the cash back card in automatic payments to these bills. Set aside one or two days each month to pay your bills with the card if you prefer not to. This will assist you in remembering to pay these bills.
2. Make a list of the purchase categories for which your credit card offers the highest cash back bonus. This should be stated in your credit card agreement, or you can inquire with the credit card company. Gasoline, groceries, and household goods are common high-percentage cash back categories.
Some cards provide a higher rate for fixed categories, while others may provide rotating high-rate categories that change every few months. Remember to sign up for these cash back rewards each month if your credit card requires it (as many do).
3. Keep an eye out for spending caps and exclusions. Many credit cards limit your qualifying cash back purchases in specific categories to a set dollar amount per year or month. If you frequently reach this limit, consider switching cards to maximise your cash back potential. Look for cards that exclude purchases at specific establishments from cash back rewards. Some cards, for example, may bar purchases at Costco or Sam’s Club from earning cash back rewards. Make sure your card includes retailers where you will be doing a lot of shopping.
4. Each month, pay off your entire balance. Most credit cards offer an interest-free grace period for new purchases if your balance is paid in full. However, this time will come to an end. Interest costs can quickly eat into your cash back rewards returns. To avoid racking up a large credit card bill and accruing a lot of interest, keep track of your cash back card purchases in your chequebook ledger and pay your credit card bill in full each month.
If you have to carry a balance, use the card with the lowest interest rate; cash back is a drop in the bucket when compared to interest charges.
5. Don’t buy just to get points back. It may be tempting to move on to the next level and earn cash back by purchasing something you don’t need. This is precisely why credit card companies offer cash back rewards in this manner. In most cases, doing so will result in you having less money in the end than if you had not reached the points threshold. Spend only what you normally would and let the points accumulate without thinking about it.
For example, if you are $50 short of a $25 reward and spend $60 on something you don’t need, you have effectively spent $35 and lost $35.
6. To keep your points, use store credit. If you need to return an item purchased with your cash back credit card, consider getting store credit instead of a credit back to your card. This allows you to keep the points earned on the purchase. However, do not pursue this option if you do not frequently shop at the store and will not use the store credit.
Part 3 Getting Your Cash Back Rewards
1. Examine your credit card agreement to learn how to get your cash back. Some cards, for example, allow you to request a rebate check when your cash back balance reaches or exceeds a certain amount. If you want to receive cash back rewards, you must understand when you can access them.
2. Configure automatic cash back features. Some cards allow you to set up features that will automatically return your cash back rewards to you or deposit them into your account. Check with your credit card company to see if your card has any of the following features:
Automatically applying the rebate to your balance as a statement credit.
Automatically sending you a check at the end of the year, or once you reach a set rebate amount.
Automatically depositing your rebate directly into the bank account of your choice.
3. Check the terms of your cash back. Check the fine print to see how cash back rebates are paid, how many rebates you can claim in a calendar year, and what happens to any unclaimed rebate balance at the end of the year. You should also sign up for email notifications to stay up to date on changes to the card agreement. Cash back terms are subject to change at any time.
4. Make use of your points before they expire. Most cards have rules that require you to use your earned points within a certain amount of time. If you don’t, they’ll expire and can’t be redeemed for cash back. Others have points that expire after a certain amount of time if the card is not used. Make sure to redeem your cash back points within the time limit so they don’t expire.
Points may also be deducted if you fail to make credit card payments on time.
5. Get your money back. To avoid letting your points expire, try redeeming your current cash back allowance at the same time each year. You could, for example, use your cash back rewards to buy holiday gifts, celebrate your spouse’s birthday, or celebrate your own birthday each year. This way, you can make the most of your earned points each year.
6. Make use of your cash back points to make purchases. Some cards allow you to use your cash back balance to make purchases directly. For example, a card may allow you to use your points to shop at a retailer such as Amazon.com. This allows you to use your points balance for everyday purchases without having to wait for a statement credit or a check in the mail.
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