Getting the most out of Cash Back Credit Cards

The best way to get the most out of your Cash Back Card is to understand the benefits and determine an annual strategy’. Here are three ways to improve your use of your cash back card. Know what the bank or credit union is offering you, think about the banks perspective, and plan on using the card over the entire year.

If your bank or credit union is offering you cash back for purchases, make sure you’re clear on what counts. Some cards only pay back for gas, or groceries and purchases. Find out if your creditor gives you cash back for balance transfers.

Also, make certain you have a full understanding of what your rate of return is. Does the rate increase the more you use it? My card increases my rate of return when I hit a $5,000 and a $10,000 threshold. I use my card for business travel so it doesn’t take long to hit those targets with airfare and hotel bills.

Here are some other finer points to understand. Each month, at the end of your credit card statement will be a running total that indicates exactly how much cash back is accrued.

If you are carrying a balance each month with an APR of 9.9% and you are getting back only 1.25%, the math works in favor of the bank. You will end up paying more than7.75% per month as the balance carried forward will increase each month you fail to pay off the card balance.

Understand the banks’ perspective is based on profit for them. A 1.25% or 2% back when you use your card for gas seems like easy money’. To the bank, it is a hook for fish. They know the habits of credit users. You may only use the card for the gas, but you are much more likely to use it for paying for a quick meal, movie tickets, dinner for two or shopping. All the purchases add up and eventually, become too much to pay off at the end of the month. The balance carries forward and they hit you with the 10% rate or higher. If you are one of the lucky ones that can pay off your card monthly, chances are good you are in the minority. This is one habit that is worth keeping!

Here is a technique. Save money for a summer vacation or a family trip. When it comes time for that holiday, use your card for all the travel, shopping and play time. When the bill comes due, you have the saved money available to pay off the debt and a record of all your transactions during the trip!

Here’s one more. If you have an accelerating rate, you may try to concentrate your travel and purchases for later in the year. Christmas is a little easier to pay for with that nice little pay back in January!

The bottom line with any cash back card is, if you are not paying the card off monthly, you are losing any cash back benefit you are hoping to achieve. Be a smart consumer and avoid the trap the bank is setting for you.