How could you find anything but favor in a deal in which you get some of the money you spend back? This is what credit card issuers are hoping you will think when they offer you cash back deals in exchange for using one of their cards.
However, you should always remember and never forget; credit card companies are in business to make a profit. If they’re giving some money away, you can bet they stand to make a whole lot more.
With that in mind, let’s look at the pros and cons of credit card cash back deals.
How They Work
Right off the top, these offers are reserved for people with strong credit histories. The ways these deals are structured are based on a wide variety of strategies. However, the gist of them is if your expenditures using the card reach certain levels and in certain categories, a percentage of the spend will be returned to you.
As we’ve been touting throughout this article, the biggest upside is the cash back. This can total as much as six percent of your aggregate spend, again — in certain categories.
The good news is this usually includes restaurants, grocers, certain department stores and other retailers. This can be absolutely brilliant for you if those are the merchants with whom you already do business.
You’ll be paid to do something you’re currently doing for free.
Some issuers will even remunerate you with a cash bonus if you rack up a certain amount of charges within a certain time period.
Bottom line, if you are in the habit of paying off your credit card balance each month before interest is applied to the cost of your purchases you can make out pretty well.
Of course, that last sentence is key to the functioning of the entire deal. If you’re someone who carries a balance from month to month, you’ll pay more in interest than you’ll earn from your spending. What’s more, the APR on these cards, when allowed to apply, is typically higher than for standard no-rewards cards. In other words, if you don’t pay it off in full every month, you’ll lose.
Another trap into which a lot of people fall is balance transfers. If you’re in a financial pinch, but your credit score is still strong enough to qualify you for one of these cards, you might be tempted to take a balance transfer deal. However, this can be a bad option. You’ll encounter transfer fees, plus the interest rate will likely be higher and there will likely be penalties attached if you don’t pay off the debt within a certain time period.
All of this, by the way, is on top of the annual fee you’re expected to pay to keep the card — even if you make no purchases. If you’re looking at one of these offers as a way to deal with debt, you might be better off with credit counseling, debt management or debt settlement from a firm like Freedom Debt Relief.
By the way, if you start doing too well with these rewards, issuers will place a cap on your annual earnings. What’s more, for a lot of those bonus earnings to apply, you’ll have to register your card online to qualify to get them
Most importantly though, you must be debt-free going in to really see a benefit here — or at least in a position to pay off your debt in full before signing up. Otherwise, you’ll be better off seeking a low-interest credit card. Cash-back card interest charges will always exceed the rebates you earn.