What are the Benefits of Cash Back Credit Cards?

Does your credit card pay you? With so much competition in the industry, credit card companies work diligently to acquire your business. This healthy competition has created credit card products that actually pay you back for using them.

Spend but pay it off

The best way to earn cash back rewards is to use your credit card, but pay off the balance every month before any finance charges are applied. However, watch out for credit card offers that require you to keep a balance on your card in order to receive the cash back reward! In order to enjoy the benefits of a true cash back plan, the best strategy is to pay your balance in full each month.

Interest and annual fees

Credit cards that offer cash back rewards, but who also post a hefty interest and annual fees, are also culprits to watch out for. Annual fees can be exorbitant, as much as $50 to $75 per year. And high interest on leftover balances can certainly remove any potential cash back savings. Compare cash back rewards card offers and look for cards with low interest and no or minimal annual fees.

Cash back for all purchases or certain merchants?

Not all cash back rewards cards are the same. Some will offer cash back on all purchases. Some may offer cash back only on purchases at approved merchant locations. Look for the best offer that suits your spending habits. If you can find a rewards card offer that offers cash back on all purchases, but a higher percentage on specific national merchants, like McDonalds or Barnes and Noble, that may be the best option.

How do I get the cash?

Read the fine print of the offer and find out how the company will pay you your cash reward. Some companies will actually send you a check. Others may offer “cash back” in the form of gift cards to restaurants, shopping stores, or gasoline stations. Find out how you need to request your cash back reward and the minimum accumulated balance before you can make a request.

College savings

Regardless of what credit card you use, there are companies that can help you save for your children’s college education. By simply registering the credit card number with companies like Upromise, every time you use the card at approved merchant locations, you will receive a rebate of 1% up to 25% depending on the type of purchase you make. Upromise has partnered with thousands of locations across the country to provide this benefit.

The rebate you receive goes into an IRS 529 plan, which is a type of tax-free savings plan you can spend when it comes time for pay for college tuition.

However you look at it, a cash back rewards credit card is a smart financial decision. But in order to get the full benefit of the reward, you need to read the fine print, know the rules, and be responsible for managing your credit card finances.

Write to Grace Carter at grace@creditdonkey.com