Cashback Credit Cards - Consumer Tips
 by Amy L. Cooper-Arnold

Cashback Credit Cards - Consumer Tips

How does a little extra cash in your pocket sound?  Maybe you could use it for a nice dinner out on your birthday, a movie night with that special someone, a rainy day shopping spree, college savings for you or your child, or even to pay down your mortgage. Keep dreaming because if you had a little extra cash you could use it for anything--donate it to your favorite charity, compensate for high gas prices, pay down other debt, or buy a discounted airline ticket. For all these reasons, and the thousands of others you can dream up, a cashback credit card may be the perfect fit for your wallet.

Cashback Credit Cards are great IF ...

...you don't carry a balance from month to month. Credit cards offering cash back tend to have a higher interest rate, which usually wipes out any reward you might receive if you carry a balance. According to CNNMoney.com statistics, interest rates on reward credit cards are, on average, approximately 1% higher than standard no-frill platinum credit cards. So if you plan to carry a balance your best deal is to look for the credit card with the lowest interest rate. Keep your financial health in mind and don't be lured by cards offering rewards that end up costing you more money.
 

...not all cards are created equal either. You will need to do some shopping around and maybe even pull out your calculator or utilize our online calculators to determine the best card for your spending habits and lifestyle. Consider it an investment of your time with the payout being a little monetary freedom. Here are some things to keep in mind:

• Is there an annual fee? This is a huge red flag. With all the different cash back reward cards that do not charge an annual fee, you should not have to settle for one that does. If a card with an annual fee seems too good to resist, then it is time to do some calcuations in order to compare the rebate to other cards without an annual fee.
• Does the card require you to carry a balance or offer enhanced rebates if you carry a balance? This is another red flag because any interest you pay will most likely be more than the amount of cash you get back. Determine how much you will charge for the year, how much it will cost you in interest, how much you will pay in fees, and how much you will receive in cash. If you do end up still receiving more cash than you pay in interest and fees, then you need to compare it to other cards to see which will give you the greatest rebate. But remember, reward cards tend to have higher interest rates and carrying a balance on any credit card is generally not advisable.

You've considered the basics, NOW...

    ...it's time to consider the particulars.

• What is an Everyday Purchase? Some cash back cards offer a higher rebate for common consumer purchases, such as supermarket, gas station, and drug store purchases. The definition for these type of purchases is usually clearly defined in the terms and conditions.

For example, the Citi Dividend Platinum Select MasterCard (featured card) states it this way, "Supermarkets are defined as stand-alone merchants that primarily sell a complete line of food merchandise for home consumption. Drugstores are stand-alone merchants that primarily sell prescription and proprietary drugs and nonprescription (over-the-counter) medicines. Gas stations are merchants that primarily sell vehicle fuel for consumer use." Other terms and conditions make it clear that supermarkets are not departments of superstores (i.e. Wal-Mart) or warehouse clubs (i.e. Costco).

Typically it is up to the merchant to make sure the purchase is coded correctly to qualify for an enhanced rebate. The bottom line is to read the fine print to know exactly what merchants qualify and who is responsible for making sure transactions are coded correctly.

In addition to reading the fine print, you may want to post a message on our message board to find out if the store you shop at qualifies for your particular card. This is a great way to get real information from people who use the card you are considering. Visit CardRatings.com's message board to post your question.

• Other qualifying merchants you need to be aware of. Sometimes cashback credit cards will have a list of specific merchants where you will earn a higher rebate and/or have no cap on the amount you can earn. If you shop often with the merchants on this list you will earn more cash.

• Do you have to reach a threshold before receiving any cash? If you charge less than $10,000 each year, the best deal in cash back cards is usually one in which you earn a flat rebate percentage with your first purchase and with every purchase thereafter. A flat 1% rebate on all purchases is the industry standard.

• You get great rewards for 90 days, but then what? You may come across a card that is offering an amazing rebate, but when you read the fine print it only applies to purchases within a set time frame (the first 30, 60, 90 days, etc.). Pay close attention to the terms of the cards after the set time is over. Does the rebate drastically decrease? Does an annual fee apply? Will the interest rate increase (hopefully you will pay your balance in full each month, but if not, this is an important consideration).

• there a limit to how much you can earn? There is usually an annual limit, but it depends on the card. Some cards earn cash at a higher rate, but have a relatively low cap on the amount of rebate. Other cards earn at a lower rate or have rate tiers (the more you spend the more you earn), but there is no limit to how much you earn. You'll need to figure out how much you plan to charge and how quickly you can get to the higher tiers to determine which card will benefit you most. Cash reward card user Ira Stoller, a senior member of our credit forum, likes to have more than one card so if he does reach the rebate cap on one, he can start earning cash with another.
• How is the cash issued? Occasionally the credit card issuer will issue a check, but more often than not, a credit will appear on your next statement. Also keep in mind that some cash back credit cards require you to request a check, while others will send the reward out automatically. In some cases you will have to earn a set amount (usually around $50) before you can receive a check. Know the details before signing with any card; after all, if your goal is to pay your mortgage down, a credit on your card may not be very helpful.
• What do they mean by a year? A year is a year is a year...right? Not necessarily. It could be a calendar year or an anniversary year that starts when you are approved for the card. Know how the credit card issuer defines your year so you can reach the yearly thresholds needed for reward levels because at the beginning of your year you will start at zero again.
• The terms and conditions can always change. Credit card issuers reserve the right to change the agreement at any time for little or no reason. This includes the merchant list where you can earn a higher rebate, the rebate itself, interest rates and grace periods, along with any other details of the card. Ira Stoller, who uses only reward cards, says it is vital to read all those fine print notices you receive in the mail. It's all about staying what he calls "eternally vigilant" so that what the credit card issuer gives you with one hand is not taken back with the other.

...a type of cash back card where your rebate is directly applied to your mortgage, deposited into a brokerage account, or deposited into a college savings account.
 

Start saving today. We've all been told the importance of setting aside money for emergencies or retirement. But when it comes right down to it, at the end of the month there may not be much left over. These cards offer a great way to help set aside a little more money at the end of the month. Your rebate can be put in taxable brokerage accounts or tax-deferred retirement accounts. Keep in mind that if you choose to contribute to a tax-deferred account, the rebate normally counts against annual limits set by the IRS. At the same time, if the account is a tax-deductible IRA, then you may be able to deduct the rebate as a contribution to the account (consult your tax professional for more info.).

When all is said and done, in the END...

...keep the fear--the fear of losing your reward because of penalties for charging over your limit or interest for not paying your bill in full and on time. Campbell says if you start charging more to earn higher rewards, you need to know that if you are unable to pay the balance in full each month you have gone too far. On the other hand, if you remain aware and responsible, then you should be fine and be able to enjoy cash back reward cards. More importantly, you can feel really good about managing your money well.

Article Source : : : http://www.cardratings.com/cashbackcreditcardrewards.html

Amy L. Cooper-Arnold has been a staff writer for CardRatings.com since 2004. Amy's articles have been republished by respected publications throughout the country, including Young Money Magazine and Central Arkansas Women's Magazine. Amy recently graduated with honors from Austin Peay State University with a degree in English.

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