In simple terms, a cashback credit card gives you the opportunity to earn money back every time you spend. Basically, you go to a store and spend some money, then a portion of whatever you spend is given back to you in the form of points or rewards. So, a good example of a cashback credit card would be a card that pays 1% every time you spend money in a certain shop. This particular card would mean that when you spent £100, you would get £1 back.
Although the percentage that you earn with cash-back credit cards might not seem like much, if you know how to use your credit cards properly, it can be a great way to save a little extra money here and there. Usually, cashback is paid on an annual basis, though some will give you what you earned on a monthly basis.
How Cashback Credit Cards Work
Cashback credit cards give you rewards when you shop. Reward points are typically available to be exchanged at any point so long as you have enough to qualify for a certain reward. Cashback credit cards can work in a variety of ways. For example, some cashback cards will pay a flat rate of cashback regardless of how much you’re spending, or where you’re spending your money.
Alternatively, other cards will pay tiered cashback rates depending on the amount you spend. For example, if the amount you spend is less than £5,000 annually, you might only get a 1% cashback. However, if you spend more than that, the amount you get in cashback could double. Additionally, some cards will also offer differing levels of rewards on where you end up spending money. For instance, you might get 1% on the money you spend in certain supermarkets, and 2% on fashion stores.
When Are Cashback Cards Useful
So, when might it be a good idea to get a cashback credit card? The answer is when you are able to pay your credit bill off in full every month. If you can make sure that you pay off your balance every month, then you’re basically getting free money. Simply put, you’re being rewarded for spending money that you would have spent anyway.
However, if you can’t always pay all of your credit card bill, then getting a cash back card is not a good idea for you. While you’ll still earn the cashback you want on the amount you spend, you’ll find that the amount you earn is usually less than the interest that’s charged on your debt.
It’s important to remember that some card providers might attempt to convince you that you should take out a cashback card by coming up with a range of scenarios that will allow you to earn a fortune in rewards. However, if you always pay for your items in cash, and you don’t intend to make a change, then you won’t earn anything at all.
At the same time, one very important thing to remember when it comes to cashback credit cards, is that you shouldn’t let yourself get tempted into spending more money just so you can earn more cashback. Sometimes, people who struggle with their spending habits convince themselves to buy things that they don’t need, or even items that they can’t afford, because they feel like they’re getting a reward for doing so. This kind of behavior can be very dangerous and quickly lead to debt.
What to Remember about Cashback Credit Cards
One good thing to keep in mind when you’re thinking about applying for a cashback card, is that you may need to pay an amount every year for your card. These fees can range from a few pounds, way up to hundreds of pounds for certain premium membership cards. It’s important that you factor these fees into your decision to get a cashback credit card, and make sure that you can afford whatever you’re signing up for. If you only do a very small amount of spending on your card each month, and it’s unlikely that you will increase that spending, then you might find that the cashback you would earn from your card is over-ridden by the fees.
If you want to make sure that you earn the very most cashback possible from your rewards card, then it can make sense to transfer all of the spending that you typically do each month onto your credit card. However, you shouldn’t look at this option as an excuse to spend more than you would on a typical basis. Remember, earning more cashback won’t help if you can’t pay back the money you owe.
The golden rule with cashback credit cards is that you should always make sure that you pay back what you owe at the end of every month, before you can start to generate interest on your account that will wipe out your earnings.