Cash Back Credit Cards
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Data updated Monday 19th November 2012 04:00:01
A cashback credit card is unique in the sense that you get paid to spend money. It’s like a mini reward system for your service, and many are choosing to opt in to these sort of packages in the hope of receiving a rebate for their spending.
So how does it work exactly? Well, normally, when you make a payment on your credit card, you’ll receive a small percentage of that payment back at the end of the year. It’ll probably only be a tiny fraction of the overall price – we’re talking one or two percent here – but if you’re spending serious money on a yearly basis, those pennies soon add up in to something meaningful.
Spend £1,000 on your cashback credit card with a return rate of 2% and you’ll make £20 at the end of the year. But what about all that interest that you’re accruing? Surely it detracts from the cashback value?
Well, yes and no. Most cashback plans come with an interest-free period on new purchases. This can be anything up to 70 days and it will give you the breathing space to pay off debts so that you can reap the rewards on the cashback. The downside to this is that it only takes a short period of financial trouble to throw your cashback plans in to disarray and leave you paying the full interest whack. Hardly an appealing thought, and one which you should do your utmost to avoid at all costs.
Of course, the idea here is that by taking out a cashback credit card, you should place priority on it and use it whenever you can. As long as you pay the debts off in good time, you’ll receive the cashback bonus AND stay in the clear. It’s possible to get the best of both worlds. Of course, the rewards aren’t overly extravagant, but it’s nice to find a credit card deal where you get paid for using it! Just don’t go overboard and take that as a sign to spend, spend, spend.
Many naïve young shoppers have become distracted by their cashback deals. It isn’t always credit cards, but store chain cards and special loyalty schemes as well. These people have the tendency to buy because they feel as if they’re gaining something through their cashback return. Of course, the reality of this is somewhat different. Would you buy a CD to receive 10p in cashback? It’s pretty unlikely. So be sensible and use the cashback credit card only when you need to. Don’t get distracted by its cool features.
The most important thing to remember is to pay off your debts, without delaying, every single month. This is the only justifiable way of making a return on your cashback card. If you fall behind the repayments, it becomes a lost cause and you might just as well have gone for a 0% purchases deal. Think before you sign on that dotted line. Do you have the restraint to make a cashback package worthwhile?