Cash back rebate credit card programs are enticing. But while it’s true you can put some cash in your pocket, the amount you can earn is usually quite limited. The standard earn rate for most purchases is 1%. Because of this, don’t expect massive rewards with your cash back reward credit card. In fact, it’s probably a good idea to use a high earning points or miles card in combination with a sound cash back program. When you hit your caps to reap maximum rewards with your cash back card, switch to your points/miles rewards card for purchases in categories that award higher rewards rates of 3x to 6x.
Credit card cash back programs typically reward you an unlimited 1% cash back on most of your purchases. With many good rewards cards, you can earn higher earn rates on some specific categories, such as gas and travel year round. With others, the higher earning categories will change each month. However, these higher rates are capped. In order to maximize on the higher cash back earning rates, you will need analysis and preparation.
The rule you will hear most frequently when it comes to cash back cards is Never Carry a Balance. The only way you will actually see any return on your spending with cash back earnings is to eliminate interest rates and other charges that wipe out your rewards because they are always higher than the percentages that your card issuer pays you in cash back.
The best way to accomplish this often difficult goal is to treat your cash back rebate credit card as though it’s a debit card that pulls money directly out of your bank account. To further this endeavor, it’s a good idea to actually set up a bank account specifically for your cash reward credit card purchases. Set a budget and fund this special account accordingly. Then use it to pay your statement each month.
In order to choose the cash back rebate credit card program that’s best suited for you, it’s vital that you understand your own spending habits. The most effective way to accurately obtain this information is to track your spending for several months – a year at best. Keep a detailed list each month of what you spend and when you spend it. This will help you determine where you can best earn your cash back rewards. If you already keep good financial records and you’re anxious to start earning rewards right away, review your bank statements and receipts to learn how you have been spending your money over the past year.
Most cash back cards offer their highest earning rates on either rotating purchasing categories or specific types of purchases year round. Use your records to compare your spending habits to the categories offered by these cards. This helps you in three ways:
For example, with Chase Freedom, customers earned 5% cash back at gas stations, movie theaters and Starbucks from December 15, 2013 to March 14, 2014. The categories switched to Restaurants and Lowe’s home improvement stores for the March 15, 2014 to June 14, 2014 quarter. In the third quarter, from June 15, 2014 to September 14, 2014, card holders earn the 5% at gas stations and Kohl’s. From September 15, 2014 to December 14, 2014, the final quarter, the categories are Amazon.com, Zappos.com and select department stores. $1,500 in purchases in the maximum on which you can earn cash back each quarter. This is a combined total for purchases on all categories in each quarter. When considering this card, you would look to see how much you spent on these categories during each applicable quarter, keeping the $1,500 limit in mind. Another factor is any big purchases you have planned. If you are looking to buy something in the $1,500 range for your home, the second quarter would be the time to do it. Are you doing holiday shopping at the eligible merchants during the last quarter? This information will help you determine if this card offers the best cash back rewards for you.
However, if your shopping is heavier and steady throughout the year on common expenditures like gas and groceries, then the Blue Cash Preferred from American Express may be a better fit. This card earns you 6% on your U.S. supermarket purchases and 3% at U.S. gas stations and select department stores in the U.S. all year long. The annual gas purchase threshold is $6,000 and the 3% category purchases are unlimited. It drops to the 1% industry standard on all other purchases.
Rotating categories can be frustrating. In many instances you simply will not reach the quarterly $1,500 threshold typical among cash back cards with this type of higher cash back earnings set up. When this occurs, if you believe you will spend the amount you are short on in one or more of the categories, a viable option is to purchase gift cards in those categories.
For instance, let’s assume the current category is restaurants and movies and you have only spent $1,100 during this quarter. Clearly, you go to a lot of movies and eat out frequently. Budget permitting, purchase $400 in gift cards with your cash back card for the restaurants and movie theaters you frequent to use throughout the rest of the year. In this way, you still realize maximum savings on the entertainment spending you will be doing later in the year anyway. Only take this approach if your budget allows, so that you can pay your full balance when you receive your statement.
Don’t forget, once you hit your purchasing thresholds, you still earn 1% on remaining purchases. However, the smart move is to use a dependable points/miles rewards card that gives you a higher earn rate on this type of spending. This way, you are always maximizing your available rewards. Don’t forget annual fees when you do your research. Many annual fee rewards cards waive these for the first year or longer. But once the fee does kick in, you want to be sure that the fee is worth the cash back you will be earning on your normal spending activity. With analysis, preparation, organization and dedication you can offset some your regular spending with a sound cash back rewards program. You won’t get rich doing it, but it will save you money on the things you already buy. How much is largely up to you.
Visit Identifying Cards That Offer the Highest Cash Back Earnings for more details on cash back rewards that offer higher earn rates on select categories.
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