Does a Cash-Back Credit Card Work?
- If you keep a balance on your credit card, even some of the time, you might not see much of an advantage from using a cash-back card. That is because the value of any cash you earn will be dwarfed by the high interest charges and other fees you have to pay. If you run a balance on your card, your primary consideration should be finding a card with a low fixed interest rate.
- To make the most of your cash-back card, you need to watch your mail for special bonus offers and look for other ways to maximize your earnings. For instance, many cash-back credit cards offer higher cash-back percentages on certain categories of spending, such as money spent at grocery stores and gas stations. Using your cash-back card for those purchases gives you extra money and helps you earn those cash-back rewards more quickly.
- It is important to look at the fine print on your cash-back credit card offer. Many credit cards use a tiered earnings structure for their cash and other rewards, meaning that the highest spenders get the highest percentage of cash back on their purchases. If you are a casual credit card user, it pays to seek out a card that rewards all users with a flat rate. But if you spend thousands of dollars a month on your card, it makes sense to look at those tiered cards, since you will probably qualify for the top earnings category.
- Many cash-back cards provide redemption options other than cash, and those options can sometimes be more advantageous than simply taking the money. Discover Card, for instance, allows its cardholders to choose gift cards worth between $45 and $50 when they reach $40 in cash-back rewards. If you like the selection of gift cards offered, it makes sense to look at these alternatives.
