Taking Full Advantage Of Cash Back Credit Cards
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Maximizing the Benefits of Cash Back Credit Cards
Introduction
Cash back credit cards are a familiar concept to many. They offer a percentage of your purchase amounts back to you, typically on an annual basis. While this seems like a win-win situation, there are important factors to consider.
Understanding Interest Rates
If you plan to carry a balance on your credit card regularly, prioritize the Annual Percentage Rate (APR) over cash back benefits. The interest rate can impact your finances more than the cash back rewards, which usually range from 1% to 5% annually. Paying high interest can quickly outweigh any benefits gained from cash back. If you find a card offering both low APR and cash back, it's ideal, but such offers are rare.
Interest Rates and Cash Back Cards
Credit card providers profit from interest on balances you carry. Generally, cash back cards have higher APRs than standard cards, though this isn't a strict rule.
The Origin of Cash Back Cards
Cash back cards were introduced in the early 1980s by Discover. They entered a market already dominated by MasterCard and Visa, needing a unique selling point. Their 1% cash back offer helped them gain a foothold and eventually become a recognized name, akin to Visa.
How Cash Back Cards Work
The concept is simple: a percentage of your spending is returned as cash back. Discover initially set the industry standard at 1% on all purchases. Higher returns may be available but usually target specific expenses like groceries or gasoline.
Variety of Offers
Today, most credit card issuers provide various cash back options, including tiered programs. In these, the cash back rate increases with spending: for example, 1% back for spending under $2,500, and 2% for $2,501 to $5,000.
Maximizing Your Cash Back Card
To fully benefit from cash back cards, follow these tips:
1. Avoid balance transfers.
2. Steer clear of cash advances.
3. Always pay your balance in full each month.
Balance transfers and cash advances are usually subject to immediate and higher interest rates compared to new purchases, often with additional fees. These costs can significantly diminish the value of your cash back rewards.
Conclusion
When used responsibly, cash back credit cards can save you money. However, mismanagement can lead to costs outweighing the benefits. Choose wisely and manage your card to ensure you truly benefit from cash back offers.
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