What is a Cash Back Credit Card?

December 31, 2009

It seems that every day we hear about the evils of credit cards. We hear horror stories about consumers who rack up mountains of debt, and can’t put a dent in it because of high interest rates. We hear about people having to pay outrageous fees for making late payments. And we hear about card issuers changing terms and interest rates in ways that are unfavorable to cardholders. It’s enough to make you wonder if there’s anything good about credit cards.

But credit cards do have some redeeming qualities that we should consider. They make it easy to dispute a charge if you can’t return a defective product to the merchant, they offer protection if your card is lost or stolen, and they sometimes provide insurance on rental cars and certain other purchases. And then there are those cards that offer cash back.

Cash back credit cards offer cardholders rewards for each dollar in purchases made with the card. Some award points that are converted into cash or other rewards, while others award a certain percentage of the amount spent. Some cards offer increased rewards for purchases in certain categories such as groceries, gas or travel. The awards must usually accumulate either to a certain amount or for a certain period of time before they can be redeemed.

There was a time when card issuers automatically sent out reward checks or put the amount of the reward toward the cardholder’s bill in the form of a credit. But today, most reward programs require the cardholder to request the reward. What form the rewards take depends on the card issuer. Some offer rewards in cash form, some allow cardholders to redeem them for plane tickets, gift cards or other items, and some do both.

Using Cash Back Credit Cards Responsibly

Credit card companies offer cash back rewards in an effort to get their customers to use their cards more. This makes it more likely that the cardholder will carry a balance, and that translates into more interest paid to the card issuer. However, if you’re carrying more of a balance than you would otherwise, those interest charges could negate the benefits of the cash back.

If you really want to experience the benefits of a cash back credit card, you need to pay your balance in full each month. That way you’ll get money back for each purchase, but you won’t have to pay interest. This is the only way that you will truly come out ahead.

Cash back credit cards offer some worthwhile rewards. But if there wasn’t something in it for the credit card companies, they wouldn’t offer them. If you get a credit card, it’s best to have one that charges as few fees as possible and offers rewards. But even with the best credit cards, if you carry a balance from month to month, you’re paying more than you would have to if you just paid cash.

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