Cash Back Rewards
Cash back credit cards have been around for many years and they were one of the first reward card programs introduced. Discover launched their reward program to promote customer loyalty, but nowadays almost every major credit card company is offering you cash back on your purchases. But the real question is, and the one most people forget to ask is, how much money are you actually going to earn with your cash back program? The answer may surprise you.
We have to start somewhere and I have always been told that it’s best to start at the beginning so we’ll talk about the basics of credit card cash back. Cash back programs generally give you a percent of return on every purchase you make. The actually percentage varies anywhere from 1% to 5% depending on what you are purchasing and what type of incentives your creditor has going on at any given time. Before applying for your cash back card, make sure that you know if there are any caps on your cash back or reward expiration as these could really diminish your benfits.
The best way to figure out how much cash back you are going to earn is to simply do the math. These amounts are just examples, but let’s say you earn .25% on regular purchases, .50% on gasoline and 5% for selected merchants. You spend 1,000 dollars on regular purchases, 1,550 in gas and 3,500 at selected merchants. Now let’s look at what that becomes. On regular purchases you have earned $2.50. For gas you have earned $7.75 and on your other merchants you earned $175. So in total you have racked up a total of $185.25 for the year. This doesn’t really seem like much, but in today’s economy everything adds up. And if you were going to spend the money anyway that was almost $200 dollars you put in your pocket for free.
But most current cash back program are much more generous. Most of the average ones give you 1% on all purchases and as much as 5% on groceries and gas. So here’s another example for you. Say you spend $6,000 on regular purchases, $2,100 on gas and $3,000 on groceries. Now that gives you 1%, and two 5% categories. That means you are going to earn $60 on regular purchases, $105 on gas and $150 on groceries. That brings your grand total of free money up to $315.
As you can see it takes a bit of work to make the good rewards, but as I have already said, it’s not a waste of time. If you were going to spend the money anyway, the cash back program turns into a little extra free money in the bank. One of the ways that I take advantage of this program, personally, is I use my credit card for everything. However, I do it responsibly. When I make a purchase with my credit card I actually write the amount out of my checking account so that I don’t accidentally spend it. Because of this when my statement comes it is easy to pay because in my mind I have already spent the money so its hiding there for me to use.
Because of the way I do things I avoid high interest charges by paying my balance in full each month, and I earn extra cash back for items I would have just paid with a check or my debit card. If you are smart your spending and more importantly, your available credit, this is a good program to earn a little extra. But be weary, it is very easy to spend too much and fall into a dark hole. Just keep in mind the fact that the reward is never worth getting yourself into serious debt.