A good percentage of consumers who own reward credit cards choose to redeem their points for cash. Cashback credit cards allow you to earn rewards on every purchase you make on your card. Depending on your card type, you may earn a flat rate on all your purchases or get higher cashback rates on purchases in certain categories.
Cashback rewards are straightforward in offering value, easy to understand, and simple to redeem. However, beneath cash back credit card’s simplicity lies little known risks and a nagging question of whether you’ll get the most value from the rewards.
1. Spending Discipline
Developing spending discipline with credit cards is not easy. With the many benefits of the cashback credit card plus so many fun things to buy, it can be hard to have the discipline to use credit responsibly.
Even if you call yourself a budgeting pro, there can be moments where you slip. Little excitement about the furniture you just saw at a store can lead you into turning to your credit card to spend more. With time, such spending can add up, hence the need to take a step back and realize that managing is constant, unlike expenses and income that keep changing.
Unlike travel credit cards that reward you with points or miles of different value, a cashback credit card only offers you a fixed cash value. Cashback credit card rewards are slightly lower than the interest rate charged and have no travel rewards. You can redeem the cashback in the form of online purchases or statement credits.
Earning a few pennies of cashback per dollar spent might seem little. However, your cashback can quickly add up as you continue spending. Your rewards are stored on your credit till you decide to spend them.
3. Annual Fees
An annual fee shows up on your statement as a lump sum charge once per year. Annual fees apply during the same month that you sign up for the card and continually after every 12 months. You will pay an annual fee the same way you pay for regular purchases, as shown on your statement. Do your math to make sure that what you get back is worth the yearly charge.
While paying a credit card annual fee seems not to be a bad idea, be sure to find out if the card’s benefits outweigh the cost of the fee. Annual fees are charged whether or not you have a balance on your card. Credit card issuers are required by law to disclose all annual fees when you apply to open an account.
4. Trapped in Debt
Credit cards offer several benefits in discounts, reward points, and cashback. However, spending carelessly or irresponsibly, missing bill payments, or paying only the minimum can pile up debt. When you spend more than you can repay, you go into debt. Hence, interest costs will become your monthly expense, increasing your debt even more quickly.
If you already found yourself with debt in your name, the best thing to do is to dig yourself out of the situation. Debts can be overwhelming. But the great news is that you can still find your way out with the help of installment loans without credit.
Several financial institutions are willing to lend you installment loans; therefore, make sure that you do due diligence to choose a service provider who accepts your credit score and can be trusted to offer the best rates.
5. Credit Score
Paying your credit card interest on time is a crucial factor that affects your credit score. A credit score is a number that depicts your creditworthiness; therefore, a credit score is an image of you like credit risk to the lender.
Sometimes it’s impossible to pay on time, especially after a job loss or financial crisis. A 30-day late payment can knock off 100 points on your credit score, even with a spotless credit card. If you are rarely late on a payment, you can call your creditor and ask them to forgive the fee. If your creditor mistakenly marks your payment late, dispute the error by asking them to take it off your credit report.
Is a Cash Back Credit Card Good for You?
Sign up for the cashback credit card when you are sure that you are more interested in earning cash and not travel rewards. Ensure that you practice spending discipline to help you earn rewards on your card without racking up debt.
Carry out a proper research, compare different credit card rewards schemes, their parks, and sign-up bonuses and only settle on a card that fits your rewards preferences and spending style.