Cashback credit cards are popular and there is always a strong demand for them. They are easy to understand and simple to redeem. But what should you do to derive the maximum possible value out of your cashback credit card? There are 5 things you should know even before applying. But, before that, let us know what a cashback credit card is.
What Is A Cashback Credit Card?
A cashback credit card provides you with a fixed cash amount for every purchase that you make. A credit card cashback offer gives a refund to a customer upon spending money on products/services on which the cashback is applicable. So, cashback enables you to earn some percentage of your already spent money back. If you want to win reward points instead of cashback, you can choose a card that suits your preference.
Here Are 5 Things To Keep In Mind Before Applying For A Cashback Credit Card
#1 Check For The Utility of The Rewards
Cashback cards vary from the normal credit cards in terms of the structure of the rewards. So, check whether the rewards on the offer fits your needs. You should choose the card that is right for you based on the utility of the rewards.
#2 Compare Normal Credit Card Versus Cashback Credit Cards
Cashback credit cards were introduced to help you capitalize easily on your spends. They are easy to understand and redeem. People who don’t understand how reward programmes work can benefit from using cashback credit cards. But, sometimes a normal credit card can offer better benefits than cashback cards. So, before you choose a cashback credit card, evaluate the rewards you can accrue over a long period of time rather than evaluating the cashback you get for each transaction. Generally, cashback on regular purchases can vary between 0.2% – 2%, and up to 5%-10% on specific spends, such as with co-branded credit cards. However, certain reward programmes in the market, particularly given by big banks end up offering higher rewards.
#3 Compare All The Credit Cards Before Applying
You must compare various cashback cards available before choosing a card. This will help you choose the right card based on your lifestyle and spends. Evaluating each card will help you maximize rewards.
#4 Check If The Cash Is Credited To Your Card or Online Wallet
Cashback is credited as a percentage of spends instead of reward points. Cashback can be credited either to your online wallet or card. If credited to your online wallet, the customer will be restricted to using the cashback only at select merchants. Thus, customers should always check if the cashback is obtained as a statement credit or credited to an online wallet (Like many co-branded card issuers do).
#5 Do Not Apply If You Cannot Pay Your Bills on Time
Do not apply for a credit card if you cannot pay your bills on time. Defaulting on your credit card bills will have a negative impact on your credit score and credit history. Plus, it will increase the burden of debt also.
Other Helpful Tips For Using Cashback Credit Cards
- Look For A Card Without Annual Fee:
Most cash-back cards do not charge annual fees for use. Thus, you can get the benefits without having to pay. This is also a good way to learn how cashback credit cards work. If you are new to credit cards or at least cash-back cards, you will be able to earn some money simultaneously while managing your credit. But, if you have a cash-back credit card that charges annual fee, weigh the cost against your rewards. If your annual fee is greater than the rewards earned, then the cashback credit card is not worth. But, if you earn more rewards with a cashback credit card that has an annual fee compared to a card without fee, then you can keep it in rotation.
- See if the form of cashback is in line with your needs: Before you sign up for a cash-back credit card, make sure the redemption options are according to your need. Cashback comes in various forms as follows:
- Actual Cashback: This is cashback in the form of cash earned from using your credit card. It will go into the bank account straight.
- Statement Credit: This helps you reduce what you owe on your bill.
- Gift cards: Certain credit cards allow cashback earnings towards gift cards and discounts.
- Travel points: Certain credit cards will allow you to transfer your cash back to travel points. These will be redeemed on flights and hotels.
3. Interest is still there in spite of the interest free period:
Many credit cards have joining bonuses and interest free promotions that may eliminate interest for a certain period of time. But, after that, you have to pay interest. As with any credit card, you should avoid using a cashback card recklessly. Pay off your balance in full every month and avoid spending more than you can afford. The outstanding balance on credit cards attract huge interest charges. In this case, the interest rate will outweigh the rewards earned.
4. Cashback Cap:
Some cards limit the amount of cash-back rewards you can earn. This may not be ideal for high spenders. If you have a cap on earnings, it means that you cannot maximize the rewards you can earn.
5. Other Shopping Perks Exist:
Most credit cards offer larger cash-back rewards through a variety of different shopping ventures including
- Grocery stores
- Restaurants
- Gas
- Wholesale clubs
- Online streaming services
- Amazon
You may have cards that offer bonus rewards which rotate each quarter. For instance, you may earn 5% cashback at restaurants this quarter rather than 2% or 3%. And each time you swipe, you are likely to earn at least 1% on everything else. Also, there are hidden credit card perks like enhanced cashback that could be beneficial depending on the card you choose.
Conclusion
Cashback credit cards are popular and highly beneficial. But, you should know certain things before applying. The tips above will help you.
FAQS of Cashback Credit Cards: 5 things you should know even before applying
1:Is it good to get cashback on a credit card?
A cashback credit card is a great way to use the spends on your credit card. If you pay off your balance in full every month and avoid interest rates and fees, then you can put the accrued rewards to better use.
2:Is it worth getting a 5% cashback?
If the categories of cashback match with your spends, you can take advantage of a 5% cashback card. The bonus rewards you earn with a 5% cashback card could outweigh the cashback earned yearly at 1% to 2%.