Understanding the Cash Back Credit Card

Understanding the Cash Back Credit Card

Cash back credit cards are cards that reward the cardholder with cash back incentives for purchases made with the card. But, believe it or not, not all cash back credit cards are created equally. In addition, there is a lot to understand about cash back credit cards before deciding if they are the right choice for you.

How Cash Back Credit Cards Works

The precise system used by cash back credit cards varies with each card and with each lender. For the most part, however, cash back credit cards provide cardholders with a certain amount of points for every purchase made. Or, they provide cardholders with cash back in the form of a certain percentage of the total purchases made.

Many cash back credit cards provide extra incentives for making purchases with certain companies for making certain types of purchases. For example, a gas cash back credit card might pay out a higher percentage for purchases made at gas stations. Or, it may be even more specific and only pay a higher percentage if the gas is purchased from a particular gas station. The way you receive the cash back reward can vary, as well. Obviously, the best cash back credit cards are the ones that fit the most naturally and easily into your own personal spending style and habits.

The Straight out Cash Reward

Some cash back credit cards will simply reward you with checks. These might be issued to you at the end of each month, quarter, or year. Or, they might be sent to you after you have accumulated a certain amount of money. In some cases, you might have to actually request the money on your own rather than having it automatically sent to you. No matter when the money is sent to you, you are free to do as you please with the money you receive.

The College Plan

Other cash back credit cards will automatically put the money you receive into a savings plan for college. These cash back credit cards are best suited for parents looking for an additional way to save for college for their children.

The Card Pay Off

Yet other cash back credit cards simply add the money back to your credit card. In this way, the cash you receive back helps pay off your bill. While you do not get to actually decide what to do with this money, it still benefits you in that it helps pay off your debt. In addition, it reduces hassles because you don’t have to worry about cashing a check.

The Savings Plan

Many cash back credit cards also have special savings plans that are unique to the card. For example, some provide cash back that can be applied later toward the purchase of a car or of a home. Once again, you don’t get to decide where this money will be spent because it is already determined by the cash back program. But, these programs can be a great way to help save toward a major purchase without putting any extra effort into it.

Considering Interest Rates

No matter what type of cash back credit card you choose to apply for, it is important for you to consider the interest rates. If the card has a high interest rate, and you will be unable to pay off the balance each month, cash back credit cards are usually not a good idea. Financially, you might end up paying more in finance charges than you will receive in cash back rewards. A cash back credit card with an annual fee might also cost more than its value to you. So, be sure to take a look at your spending habits to make sure a cash back credit card is right for you and your lifestyle.

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