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Make An Informed Decision On Whether A Cash Back Rewards Credit Card Is Right For You

by / 1 Comment / Mar 09, 2015

So, you want a rewards card and you’ve decided on the “Cash Back” option. Now you want to know how to earn your cash. The simple answer is: By purchasing merchandise and services with your cash back rewards credit card. Of course, it becomes somewhat more involved if you are committed to earning the most cash back possible. But essentially, you need to spend money to make money with your cash rebate card.

Purchasing Power

Keep in mind that the financial institutions that offer you credit cards are motivated by profit.“ Something for nothing ” is a myth. Despite the hype, the commercials, and all the other advertising that touts the benefits and the rewards associated with credit card usage, the objective of your credit card issuer is to make a profit. Therefore, the only way you will earn cash with your cash back rewards credit card is to use it. Moreover, your issuer places constraints on the type of usage that will earn rewards. Basically, it comes down to purchases. Balance transfers, cash advances, late fees, credit charges and the like may put money in their pockets, but the ultimate goal is to encourage purchases of goods and services by their consumers. Therefore, these activities will not earn you cash back rewards.

The standard cash back rate is 1%. So if you purchase a flat screen TV for $1,500, your cash back amount will be $15. However, many cash rebate credit cards also offer higher cash back rates for specific purchasing categories. For example, Chase Freedom pays 5% cash back on up to $1,500 on eligible purchases in categories that rotate each quarter. So you can earn $75 cash back each quarter when you spend the $1,500 maximum in their approved categories. Any purchases above the max and all other purchases earn the standard 1% cash back rate.

Another popular method for earning cash with a cash back rewards credit card is through an initial signing bonus. More on that here.

Introductory Cash Back Bonuses – Oh Yeah!

Balance Transfers and Cash Advances

Transactions like cash advances and balance transfers most frequently come with a fee, typically about 3% of the amount being transferred or withdrawn. Most cards also charge a higher APR on these balances. It’s quite rare to find a cash back rewards credit card that pays out rewards on this type of card usage. One example is Citi Dividend Platinum Select Visa Card which offers 1% cash back on cash advances. However, the cash advance APR is 25.24% and your cash back is capped at $300 per year, so it’s hardly worth it.

Many cards do offer a lengthy introductory 0% APR period on balance transfers. If you carry a balance on a higher interest card, as a smart consumer you will transfer it to the new card and use this time to pay it down.

No Balance. No Balance. No Balance.

Seriously. This CANNOT be overstated. If your goal is to realize the most cash with your cash back rewards credit card, balances are OUT!

You may be thinking, “Well, if I am planning to use my credit card to purchase things on “time” that I simply cannot afford now, I may as well get a cash back rewards credit card to offset the interest rate payments I will inevitably be making. Here’s the thing. Remember when we told you that card issuers are motivated by profit? When they kick back a percentage of their profit – albeit a tiny one – this impacts their margin. Card issuers are well aware of this and they have put in place terms and conditions to minimize this problem. Rewards cards are more likely to carry annual fees and slightly higher interest rates to offset the rewards they must pay out.

If you want a credit card in order to buy things that you cannot pay for outright, a cash back rewards credit card option is usually not the best choice. You’d be much better off looking for cards that offer lower than industry standard APRs. They are out there. Card issuers who know you intend to carry a balance realize the value you provide. Don’t waste your time with a 1% or 2% cash back option that makes you jump through hoops to realize your rewards. Focus on cards with bigger savings offered through lower APRs, like theBankAmericard Visa and Discover it, which start at a 10.99% interest rate, or the Union Bank Platinum Edition Visa Card and Bremer Bank Signature and Platinum cards with a 9.99% minimum APR. None of these cards charges an annual fee, and they all offer a 0% introductory period ranging from 6 to 15 months. These rates are only available to consumers with excellent credit. Note that Discover It also offers cash back rewards.

About the Author

Elizabeth Boyd is a financial writer and paralegal. She has written extensively for the financial and credit card market for several years and feels strongly about making consumers aware of their choices and rights.

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