Get Cash Back From a Credit Card
Credit card issuers are eager to get your business. One of the strategies they employ to accomplish this is to offer credit cards that allow you to accumulate cash rebates. These cards work similarly to cards that accrue discounts/rewards/miles/etc. Credit card companies charge merchants a fee to process their cards. In the United States and United Kingdom, many of the companies now offer part of that commission fee back to the consumer in the form of cash back rewards. You should keep several considerations in mind when deciding which type of card makes the most sense for you and how to use it effectively.
Contents
Steps
Choosing the Right Card
- Understand how cash back rewards work. The cash back on cards that offer this benefit usually come in the form of credit added back to the account. Depending on the card, you will earn different cash back amounts in the form of percentages. The Royal Bank of Canada (RBC), for example, offers a card that pays 2% for purchases in grocery stores and 1% on all other purchases and automatic payments.
- Different issuers will provide different options regarding when to apply the earned cash back benefits. The aforementioned RBC card, for instance, allows you to receive the payments every time the balance reaches $25 or once a year, getting you a bigger sum all at once.
- Compare cash back benefits. You can use websites such as NerdWallet or The Simple Dollar (among many others) to compare the relative benefits of different cards, such as where they earn the highest percentage of cash back and how you get to apply the funds.
- Most offer between .05% and 2% on average, although some have raised it as high as 5%. Other cards offer higher rates for the first several months you have the card but not permanently. Read the fine print on each card to determine which is most likely to benefit you.
- Narrow your selection based on other credit card criteria. Cash back cards are still subject to annual fees and annual percentage rates (APRs) just like normal credit cards. Make sure you take these factors into consideration as well as you research and choose an appropriate card for you.
- Since APR is tied to factors like credit score, it helps to have your current score on hand. Many of the sites you can use to compare cards allow you to narrow based on your credit score as one of the criteria.
- Apply for the card you choose. The application process for these cards is the same as any other credit card. It will include your personal information, such as address and social security number, as well as employment information. You will also have to authorize the company to look into your credit history. Try not to apply for a card for which you think you might not qualify. The number of times you apply and are rejected for a credit card makes up part of your credit score.
- Most companies will allow you to apply online, or you can print off an application to mail in.
- Once you receive the card, you will call a toll-free phone number to activate the card.
- Sign the back of the card in the signature box, or write "request ID" if you do not wish to have your signature on it. You will then be required to show identification each time you use the card.
Maximizing Your Cash Back Rewards
- Use the card instead of cash. The more you use the card, the more rewards you will receive. Instead of taking cash out of the bank, use your cash back rewards card for all of your standard purchases, especially the ones in locations that earn your higher rewards.
- Pay off the card each month. Since the card is subject to interest rates, you should pay it off every month to avoid accruing interest charges. This is essential to achieving a net gain from using the card. If you fall behind on payments and end up paying more in finance charges or late payments than you earn in cash back, then you’re better off using cash.
- Most cards allow you to set up automatic payments from a checking account. This will directly debit your checking account to pay off the card each month. If saves you from remembering due dates each month, but you still have to make sure you keep enough in your account to cover the credit card charges.
- Pay down debts before spending more. If you do happen to fall behind on the cash back card or another credit card, stop using them until you pay down the debts. All additional interest and finance charges will outsize any rewards you earn.
- Do not use the card to take out cash advances. Cash advances don’t earn cash back rewards on most cards. You usually pay interest on a cash advance from the day you take it out as opposed to when the monthly payment is due as well. This means that using the card for cash advances will wipe out the benefits of any cash back you earn very quickly.
- Stay within your credit limit. Credit cards are subject to over-limit charges if you spend more with the card then the line of credit allows. Even one of these fees can result in paying more than you earn in cash back rewards for several months.
- Optimize your spending with the card. If you’re getting close to your credit limit or know you can only afford to spend so much on the card and still pay it off each month, then use the card as efficiently as possible. If you can only spend $50, for instance, and you know that gas purchases get you 2% cash back whereas everything else gets you 1%, then only use the card to purchase gas. This strategy will earn you the most in cash back rewards.
- Consider taking advantage of balance transfer options. Many cards offer balance transfer options that allow you to transfer the balance from other credit cards onto the new card. Calculate the potential benefits of a balance transfer before doing so. In some cases, you might benefit from transferring the balance on earning cash back on the credit debts you would have to repay regardless.
- Take advantage of accelerated bonuses. The introductory or promotional period of many cash back cards includes anywhere from one to three months where the card earns “accelerated” rewards. Since these are limited time offers, you should use the card as much as possible for purchases you would make regardless during this accelerated period.
- Use the card in creative ways. The more money you spend on the card, the more you get back in rewards. Challenge yourself to find creative ways to use the card that don’t overextend your budget. For instance:
- If all your other friends are paying cash at dinner, offer to pick up the tab on the card while collecting the cash. It’s easier for the server than dividing up the check, and you immediately get reimbursed for the portions of the bill that weren’t yours.
- Use the card for work expenses. Many jobs require outside expenses for business lunches, travel, etc. If you don’t have a company card, then use your cash-back card. Your company will reimburse you once you submit an expense report, and you’ll essentially earn free cash-back rewards.
Tips
- Review and compare your current program at least once a year to new offers, as these are ever-changing. If you find an offer you like, call your current credit card company and attempt to negotiate. It is easier to stay with the same company than to change if they are willing to meet your terms.
- Check if the card is 0% interest and zero fee for the first year only or also for subsequent renewals. They often will trick you here in the fine print.
- Consider cards where you earn miles or points as well. Cards where you earn rewards with specific businesses such as airlines or companies often accrue rewards at a higher rate than cash back rewards. Though these rewards are less redeemable, they can still turn out more beneficial to you if you commonly make large purchases with that specific merchant.
- Use the card for everyday purchases to optimize your cash back reward.
Warnings
- Do not keep a running balance on cards that offer cash back rewards. Typically, these cards have higher APRs (Annual Percentage Rate) than others. Instead of receiving extra money, you will be paying extra interest on that balance.
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