Cash-back credit and debit cards pay you for using them, and savvy users can accumulate sizeable sums with them. Whether you’re new to rewards shopping or a seasoned cash back user, here’s how to make the most out of cash back cards.
Step 1: Avoid Carrying Credit Card Balances
No matter how you earn cash back, make sure you never carry balances on credit cards beyond the end of your billing periods. The amount of interest and fees charged on credit card balances can easily exceed any rewards you might earn.
If you struggle with paying off your credit card balances each month, you might consider a cash back debit card instead. These cards provide the benefits of cash back without the risk of accumulating large balances that will rack up interest. Because debit cards draw money from your checking account, you’re spending money you already have rather than money that you’ll have to pay back in the future. Just be sure to keep track of how much money you have in your checking account before using a debit card, as some banks charge overdraft and insufficient funds fees that can quickly add up.
While cash back debit cards aren’t as easy to find as rewards credit cards, several banks do offer them – including Bank5 Connect.
Step 2: Select a Team of Cash Back Cards
One strategy to consider is building up a portfolio of cash back cards, since no single card will be best in every situation. Having a few different cards can help you maximize your cash back benefits, but you must be sure to keep track of all of your card balances and make payments on time, so your credit score is not negatively impacted. Specific card types to consider include:
- All-Around Card: A good all-around card should be the foundation of your portfolio. This card may not offer the highest cash-back rates, but it should offer cash back on every purchase. Having an all-around card will ensure you can earn something each time you make a purchase, even if it falls under a category not covered by one of your other rewards cards.
- Niche-Specific Card: You may also want to consider a rewards card that’s specifically targeted toward what you like to do. This card might offer higher cash back rates on specific categories such as travel, dining, shopping, gas, or groceries. It might offer higher rewards for specific merchants as well.
- Special Offers: A cash back card with special offers could allow you to earn higher rates on specific purchases. You won’t use this card everywhere, and perhaps not every day, but when you do, the cash back it offers could be significant.
If you’re interested in creating a portfolio of rewards cards, you should consider at least one of them being a debit card. Some merchants offer slight discounts if you pay with a debit card instead of a credit card, and using a debit card for some of your shopping will also help you to keep your overall credit card balances down.
Step 3: Have a Plan for Your Cash Back
Like all money, the cash back rewards you earn can disappear quickly, especially if you don’t have an intentional plan for them. Before you receive your first cash reward, decide how you want to use the funds.
Here are some options to consider:
- Apply your cash rewards toward extra credit card payments or loan payments to help pay down debt faster
- Grow your nest egg by adding your cash rewards to a high-interest savings account, retirement fund, or other investment account
- Save up your cash rewards for a special purchase that you’d otherwise not make. And remember, if you do decide to splurge on a special purchase, do it with one of your cash back cards!