Cash Back Credit Cards: Guidelines For Optimal Use
Credit cards that offer you cash back rebates every month are probably some of the most useful and practical cards for most individuals. A cash back credit card allows cardholders to benefit from using their cards by getting back a percentage of their total amount spent each month.
These credit cards are a popular subset of rewards card; they offer rebates that arrive as a credit on your account statement. It's one of the more convenient ways to get rewarded for the use of your card. But in order to maximize its use, you'll want to know these important aspects of this breed of card:
- Revolving spending or shopping categories. A lot of cards in this group will advertise high cash back percentages, and this may very well catch your eye. But in reality, those percentages (usually up to 5% cash back) are only offered on certain spending categories that rotate and change each quarter. The implication here is that if you happen to be a big spender in certain areas such as dining or apparel, you may only be receiving the 5% in savings during a particular time of the year. If you don't time your spending during that quarter, you may not be optimizing your rewards. Note that special spending categories revert to 1% cash back categories (by default) after their designated quarter is over.
Tip: You'll need to be a pro at timing specific expenses during particular months or times of the year in order to maximize your card earnings.
- Limited cash back categories. Take a hard look at the purchase categories in question as there may be exclusions involved: for example, your card may grant a 5% rebate to utility expenses but may exclude phone bills in this group. Or the grocery spending category may only apply to proprietary stores and participating retailers, and not to discount warehouses. There are some programs that may strictly limit cash rewards to very narrow or specific categories that may or may not be relevant to your spending habits.
- Purchase ineligibility. Not all purchases may be subject to cash earnings or savings. You'll have to read the fine print to find out which items or transactions qualify for the program and which don't.
- Specific enrollment periods. When a card promises you great cash rewards, you'll need to check whether your card is automatically enrolled for those rewards or whether you still need to manually enroll your card in order to receive the stated benefits. The onus is upon the customer to participate in these programs. If you miss out, you may be stuck with the default 1% terms. Of course, you're welcome to complain to customer service about this. Based on your track record as a customer, you may still be able to claim any missed savings that you bring to your issuer's attention.
- Cash back tiers and thresholds. In some cases, the rewards and benefits come with a catch. Watch out for spending tiers, levels, grades or minimums that may impact how much you can earn back from your card. Contrary to what you may expect, your rebate may not kick in until after you meet some thresholds. As an example, you may be required to spend at least $500 a month before you can begin enjoying higher rebate rates. Credit card companies justify this by saying that they simply reward those customers who use their card more actively.
- Rebate and reward limits, annual ceilings. Be aware that there may be reward caps in place. Note any limits that may be attached to the special rotating categories with higher cash back savings. For example, some cards may limit your earnings each quarter or year, while others cap the purchase amount that qualifies for cash back (during a given period). There are a few cards that don't have reward limits.
- Cash back bonus forfeiture. The bonus you receive may be revoked or lost under certain circumstances. For instance, if the customer is unable to make minimum payments on time for a certain number of cycles, they may end up forfeiting their bonus.
- Lengthy waiting period. Some cards won't give you what you've earned until you've been a customer for a certain length of time. In other words, some of these rebates may only end up in the accounts of loyal customers.
- Card APR. Relative to other card types, the cash back category tends to sport higher interest rates. This makes sense, given that they are meant to focus on improved benefits, and are a best fit for those who don't maintain a balance. Typically, the cash back you receive won't be enough to offset interest rate charges paid for long term balances. If you intend to keep a balance, it might make sense to sacrifice a cash rewards percentage in exchange for getting a lower interest rate. You can check these lower interest rate card options. But if you know that you won't carry card debt, then apply for the card with the highest cash bonus percentage.