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How to Use Cashback Credit Cards Wisely

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How to Use Cashback Credit Cards Wisely

December 10, 2022

Let’s be honest, the allure of earning cashback on everyday purchases is incredibly strong. Cashback credit cards can seriously boost your savings, but they can quickly become a tangled mess if you’re not careful. It's easy to fall into the trap of spending just to get the rewards, leading to debt. This guide will walk you through how to use cashback credit cards wisely – maximizing your rewards while keeping your finances in check.

Understanding How Cashback Works

Cashback rewards aren’t a simple percentage. There are a few different models:

  • Percentage Cashback: You earn a percentage (e.g., 1%, 3%, 5%) of your purchases. This is the most common type.
  • Flat Rate Cashback: You earn a fixed amount (e.g., 5backonevery5 back on every 100 spent).
  • Tiered Cashback: The cashback rate increases as you spend more with a specific merchant or across all purchases.

Strategic Spending - Don’t Just Buy Stuff

Here's where the “wise” part comes in. Don’t just use your cashback card for everything.

  1. Match Existing Rewards: Check if you’re already earning rewards through other programs like your bank's rewards program, loyalty cards, or shopping portals. Use your cashback card for the purchases you wouldn’t normally make through those programs.

  2. Prioritize Categories: Many cards offer bonus cashback rates for specific categories like groceries, gas, dining, or travel. If you regularly spend in these areas, make a conscious effort to use your cashback card for those purchases.

  3. Shopping Portals & Offers: Don't overlook shopping portals! Many credit card companies partner with online retailers to offer bonus cashback when you shop through their portal. This can significantly boost your rewards. (Example: Rakuten – formerly Ebates – is a popular option).

  4. Pay Off Your Balance In Full: This is crucial. Cashback is only valuable if you’re not paying interest charges. Always aim to pay your full statement balance each month to avoid interest and maximize the benefit of the rewards.

  5. Track Your Spending: Use a budgeting app or spreadsheet to monitor your spending and ensure you’re actually earning rewards and not overspending. Knowing exactly how much cashback you're earning can help you stay on track.

Common Pitfalls to Avoid

  • Spending Just to Earn: Don't fall into the trap of buying things you don’t need just to get cashback.
  • Ignoring Annual Fees: If your card has an annual fee, make sure the rewards you’re earning outweigh the cost.
  • Forgetting About Interest Rates: As mentioned above, interest charges can quickly negate any cashback rewards.

Resources to Explore

Using cashback credit cards wisely takes a little planning and discipline. But with a strategic approach, you can earn significant rewards and save money – without adding to your debt.