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How to Use Cash-Back and Rewards Cards Without Overspending

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    David Botha

How to Use Cash-Back and Rewards Cards Without Overspending

Cash-back and rewards cards are incredibly tempting. The allure of earning money back on everyday purchases, racking up points for travel, or getting discounts makes them a powerful tool for savvy shoppers. However, these rewards can quickly spiral out of control if you're not careful. It's fantastic to earn rewards, but spending to earn them isn't a win if you end up with a hefty credit card bill.

This guide will help you harness the power of cash-back and rewards cards without overspending. Let's dive in!

1. Understand the Card's Terms & Conditions

  • Annual Fee: Many premium rewards cards come with an annual fee. Weigh the benefits (higher rewards rates, better perks) against the fee. Make sure the rewards you'll earn significantly outweigh the cost.
  • Reward Categories: Most cards offer bonus rewards in specific categories (e.g., groceries, gas, dining). Focus your spending in these categories to maximize your earnings.
  • Spending Thresholds: Some cards require you to spend a certain amount per month or year to qualify for the full rewards rate.
  • Redemption Options: Understand how you can redeem your points or cash back. Some redemption options (like travel redemptions) may have restrictions or minimum spending requirements.

2. Create a Realistic Budget & Track Your Spending

  • Know Your Limits: Before you start using your rewards card, determine how much you can comfortably spend each month. Stick to this number, regardless of the rewards you might earn.
  • Track Everything: Use a budgeting app (Mint, YNAB, PocketGuard) or a spreadsheet to meticulously track every purchase made with your rewards card. This is crucial. You need to be aware of where your money is going.
  • Categorize Your Spending: This will help you identify areas where you're overspending and maximize your rewards in the right categories.

3. Don’t Chase Rewards – Prioritize Needs

  • Don't Buy Unnecessary Items: The biggest risk is being tempted to buy things you don’t need just to earn rewards. If you wouldn’t buy it without the rewards, don’t.
  • Use It for Purchases You Would Make Anyway: Ideally, use your rewards card for purchases you were already planning to make. This ensures you're not adding unnecessary spending.
  • Be Wary of “Limited Time Offers”: Promotions can be enticing, but be realistic about whether you truly need the product or service being offered.

4. Set Spending Limits Within Your Budget

  • Category Limits: Within your overall budget, set specific spending limits for each reward category (e.g., 200/monthongroceries,200/month on groceries, 100/month on gas).
  • Alerts & Notifications: Many card issuers offer alerts when you reach a certain spending limit. Enable these alerts to stay on track.

5. Pay Your Balance in Full Every Month

  • Avoid Interest Charges: Interest charges can quickly negate any rewards you’ve earned. Always pay your balance in full by the due date.

Resources:

Do you have any tips for responsibly using rewards cards?