How does a little extra cash in your pocket sound? Maybe you could use it for a nice dinner out on your birthday, a movie night with that special someone, a rainy day shopping spree, college savings for you or your child, or even to pay down your mortgage. Keep dreaming because if you had a little extra cash you could use it for anything--donate it to your favorite charity, compensate for high gas prices, pay down other debt, or buy a discounted airline ticket. For all these reasons, and the thousands of others you can dream up, a cashback credit card may be the perfect fit for your wallet.
CashBack Credit Cards are great IF...
...you don't carry a balance from month to month. Credit cards offering cash back tend to have a higher interest rate, which usually wipes out any reward you might receive if you carry a balance. According to CNNMoney.com statistics, interest rates on reward credit cards are, on average, approximately 1% higher than standard no-frill platinum credit cards. So if you plan to carry a balance your best deal is to look for the credit card with the lowest interest rate. Keep your financial health in mind and don't be lured by cards offering rewards that end up costing you more money.
President of Money Magic, Inc. and money educator Mary Ann Campbell (CFP) says, "The way for cash back to be a good option is if you are truly managing your credit cards where you are literally earning cash back but not turning around and paying it back in any other form." The cash you receive from a rebate card should be viewed as a reward for all the hard work you have done in lowering your credit card debt and paying your balance in full each month.
Which Cash Back Credit Card to apply?
And if you happen to be wondering how credit card companies can pay you cash for free, here's the answer-the merchants you shop at are charged a fee for every credit card purchase. So let them pay for you to get a well deserved reward!
You don't carry a monthly balance BUT...
...not all cards are created equal either. You will need to do some shopping around and maybe even pull out your calculator or utilize our online calculators to determine the best card for your spending habits and lifestyle. Consider it an investment of your time with the payout being a little monetary freedom. Here are some things to keep in mind:
Is there an annual fee? This is a huge red flag. With all the different cash back reward cards that do not charge an annual fee, you should not have to settle for one that does. If a card with an annual fee seems too good to resist, then it is time to do some calcuations in order to compare the rebate to other cards without an annual fee.
Which Credit Card to apply?
Does the card require you to carry a balance or offer enhanced rebates if you carry a balance? This is another red flag because any interest you pay will most likely be more than the amount of cash you get back. Determine how much you will charge for the year, how much it will cost you in interest, how much you will pay in fees, and how much you will receive in cash. If you do end up still receiving more cash than you pay in interest and fees, then you need to compare it to other cards to see which will give you the greatest rebate. But remember, reward cards tend to have higher interest rates and carrying a balance on any credit card is generally not advisable.
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