Cash Back Credit Cards

One of the most popular promotional tactics is the cash back credit card. This is a promotion popularized by the Discover® card, and honestly a category where they still dominate. But as a consumer, what you most need to know is how this product type works, and how it can work best for you. Now that many different providers offer this option, you will want to compare the choices before selecting a specific card.

Credit cards of all types are really just products. We agree to pay an interest rate for the use of a financial organization’s purchasing power. And, just like any product, the credit card industry uses its most ingenious marketing tactics to make their products more appealing. So, it comes as no surprise that the prospect of getting money back for making purchases we would have made anyway is very appealing; just beware of the strings attached.

How Cash Back Credit Cards Work

First, let’s talk about how cash back credit cards work. All cash back credit cards carry higher than average interest rates on balances carried past the billing cycle date. What this means to you is that if you are the type of credit consumer who usually carries a balance forward from month to month, cash back cards may not be for you, or you may need to use them only when you can and will pay off the balance in full when you receive the statement. If you can do this, you can avoid paying interest rates that will far outweigh whatever cash back amount you will receive.

Cash Advances

Another point to remember is that due to the substantial interest rate, you should never use your cash back credit card for a cash advance. Regardless of your ability to pay the advance back before the balance due date, companies usually asses and charge an interest amount even if you do pay off the balance. Also, resist any offers to make balance transfers to your cash back card. Even if the card will give you a high rebate rate on those transfers, most cards follow an order of repayment that applies payments to charges with the lowest interest rate attached to them. This means that there is a higher chance of paying a substantial amount of interest on the most expensive debts on your card.