If you’re like most people, you probably use credit cards for most of your purchases. It’s a convenient way to pay and can help you build your credit score. But did you know that there are different types of credit cards, each with its own benefits and drawbacks? One popular type of card is the cash back credit card. Let’s take a look at what these cards are, what they offer, and some of the best options available.
What Are Cash Back Credit Cards?
Before we dive into the best cash-back credit cards, let’s talk about some background information that you will need before getting started with cash-back cards.
The first thing that you will want to know is what exactly cash-back credit cards are. These are simply credit cards that offer you a percentage of cash back on your purchases. For example, if you spend $100 at a store, you may get $1 back in cash.
Another example is Harbor Freight which offers 10% off your first purchase, and 5% cashback on any future purchases in Harbor Freight Money to spend on anything in the store.
While this may not seem like a lot, it can add up over time, especially if you use your card for many of your purchases. Cash-back credit cards are a great way to earn some extra money on the things that you already buy.
Types of Cash-Back Credit Cards
The next bit of information that you might want to know is what types of cash back credit cards are available. There are two main types: flat-rate and tiered.
Flat-rate cards offer a set percentage of cash back on all of your purchases, no matter where you shop. For example, you may get 1% back on every purchase that you make.
Tiered cards offer different percentages of cash back depending on where you shop. For example, you may get 1% back on groceries and 2% back on gas.
Both types of cards have their own benefits and drawbacks, so it’s important to compare cash back credit cards offers and choose the one that’s right for you.
Are cash Back Credit Cards Worth It?
While credit cards are often vilified and seen as destructive, they can have plenty of benefits when used correctly. Here are some of the main benefits of using cash back credit cards.
Earn Free Travel
One of the best things about cash back credit cards is that you can earn free travel. Many cards offer points that can be redeemed for travel expenses like flights, hotels, and rental cars.
If you use your card regularly, you can rack up enough points to cover a significant portion of your travel costs. Just make sure to pay off your balance in full each month to avoid interest charges.
Build Your Credit Score
Another great benefit of cash back credit cards is that they can help you build your credit score. If you use your card responsibly and make your payments on time, you will see your credit score improve over time.
This is important because a good credit score can help you qualify for loans and get lower interest rates.
Get Rewards and Perks
In addition to cash back, many cards also offer rewards and perks. For example, you may get access to exclusive events or discounts at certain stores.
Some cards even offer free extended warranties on purchases or trip insurance. It’s important to read the fine print to see what rewards and perks each card offers.
Drawbacks of Credit Cards
While cash back credit cards have many benefits, there are also some drawbacks that you should be aware of. Here are the 3 main drawbacks of using cash back credit cards.
High Interest Rates
One of the biggest drawbacks of cash back credit cards is that they often have high interest rates. If you carry a balance on your card from month to month, you will quickly rack up interest charges.
This can offset any cash back rewards that you may earn. To avoid this, make sure to pay off your balance in full each month.
Annual Fees
Another drawback of cash back credit cards is that some have annual fees. While these fees are often waived the first year, they can be expensive after that.
Be sure to read the fine print to see if a card has an annual fee and how much it is. You may find that the cash back rewards you earn are not worth the fee.
Minimum Spending Requirements
Some cards also have minimum spending requirements. This means that you need to spend a certain amount of money each month to qualify for the cash back rewards.
For example, you may need to spend $500 in order to get 1% cashback. If you don’t think you can meet the minimum spending requirements, you may want to look for a different card.
Choosing the Right Cash-Back Credit Card
Now that you know a bit more about cash back credit cards, it’s time to choose the right one for you. Here are a few things to keep in mind when choosing a cash back credit card.
Your Spending Habits
The first thing you should consider is your spending habits. If you only use your card for occasional purchases, a flat-rate card may be the best choice for you.
On the other hand, if you use your card regularly, a tiered card may be a better option. This way, you can earn more cash back on the things you spend the most money on.
Your Credit Score
Another thing to consider is your credit score. If you have a good credit score, you may be able to qualify for a card with better rewards and perks.
However, if your credit score is not as good, you may want to start with a basic cash back card.
Your Financial Goals
Finally, you should consider your financial goals. If you are trying to save money, a card with no annual fee may be the best choice for you.
On the other hand, if you are trying to earn rewards for travel, a card with travel perks may be a better option.