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Benefits of a Cashback Credit Card
25 Mar 2018

What Is a Cashback Credit Card, and Why Would You Want One?

The principle of cashback is pretty simple. Pay money, get a portion of that money back. So, as you may have now guessed, a cashback credit card generates a small amount of cash every time you use it to spend money.

Some will pay a flat rate, some will offer extra rewards the more you spend. You might also get a high introductory rate as a bonus for taking the card out.

A cashback card can be a great way to get something back just for doing your everyday shopping.

Is this type of credit card the one for you?

How Much Can You Earn on a Cashback Credit Card?

Cashback rates vary quite widely, but it’s probably fair to say the “general” range might be between 0.5% and 5%.

The top end tends to be reserved for those bonus introductory rates we mentioned above, though.

Or you might only be able to access the top rate when you spend on certain things at certain stores.

For example, a card might pay 3% back for groceries, and 1% for everything else.

If you go to Walmart and buy $100 worth of groceries, you’d get $3 back. If you spent that $100 on a new microwave in BestBuy instead, you’d only get $1 in cashback.

You might’ve noticed that cashback isn’t going to make you rich. But it’s definitely better than absolutely nothing. Plus, it builds up over the course of the year to amount to quite comfortable sums.

Fees and Limits

Some cards will come with a hefty annual fee, which can make building up cashback a difficult, or fruitless exercise. It depends on how much you spend each year.

For example, say there’s a $100 annual fee for a card that pays 1% cashback on all spending. You’d need to spend $10,000 on the card over the year to break even.

Depending on how much you’re likely to spend on the card, it might not be worth it.

There are also times when a cashback credit card will cap the total amount of cashback you can earn in a year.

Consider your own spending habits when choosing which card to pick.

When Will I Get Paid?

Most cashback credit card providers will keep a running tally of your cashback as you spend.

But they tend to pay cashback on the anniversary of the date you got the card. They’ll credit this amount to the card itself. This means it will sit on the card, ready for you to spend. Or, if you owed money on the card, it’ll cut into that debt.

If you do have a positive balance on your credit card account, you can ask them to pay the surplus into your bank account. And some will pay cashback on request partway through the year if you want the cash earlier.

Be aware that some providers might stipulate a minimum spend before they’ll pay anything for a year. For example, they might say you have to spend $3,000 per year or you won’t receive any cashback at all.

In these circumstances, it can make sense to use the card for all your purchases, and pay off the balance right away using a bank card.

Is It for Me?

Cashback is a nice reward. But that doesn’t mean every cashback credit card will be suitable for everyone.

First, you need to see what the interest rate is. A higher rate could cost you money in the long term, even if you’re getting some cashback on spending. Interest rates are currently on the rise, so be picky when looking for a card.

If you can clear your statement each month before interest gets added to the money you owe, you’ll make the very most of the card.

If you can’t clear your monthly balance though, your cashback could be quickly eaten into or even obliterated before you get hold of it.

It’s also worth thinking about whether this type of card is right for you in other ways.

What Are the Alternatives?

There are other ways to be rewarded for spending besides a cashback credit card.

One alternative to think about is reward cards that give you points instead of cashback. This might be in the form of air miles, for example – that’s quite a popular choice.

Of course, being rewarded might not be at the top of your list. If you have existing debts to pay off, the cashback earned from a new card might not help very much.

You might like to try a 0% balance transfer card instead. With these, in exchange for a relatively small fee, you can pay off your debt without paying extra interest on the credit.

This can take the pressure off you for a year or more, allowing time to cut down what you owe.

Perhaps credit cards aren’t what you’re looking for at all. If you have a poor credit history, don’t worry – you can still get cards.

However, given your circumstances, you might prefer to look at alternative products entirely, such as small personal loans.

Weigh up each option carefully, thinking about what you can afford to pay off, before making a final decision about what to request.

Looking For a New Credit Card?

We can help you find a new credit card from a range of different lenders.

Check out the full listings on our credit card page to see what you’d like to ask for.

If you believe alternative finance might be a better choice, or if you have a credit history which means you find it hard to take out loans, don’t worry.

Bonsai helps you find loans which can be a great solution for such a situation. Use the loan request form on our website to find out how much you could borrow today.