One of the easiest ways to earn rewards or get a little extra spending money is by using a cash-back credit card. Cash-back cards work just like any other credit card, but they offer 1% to 3% back on every purchase you make and sometimes even offer bonus categories where you can earn more on certain types of purchases.
According to SoFi, “Cash-back credit cards are offered by many credit card companies to qualified consumers. Consumers can use these credit cards to make purchases, and a certain percentage of that purchase is returned to the customer as a cash incentive. In other words, cash back rewards can be an easy way to make the most of everyday expenses.”
So what are the best ways to get the most out of your cash back credit card? Here are eight simple steps to help answer the question how does cash back work on credit cards.
Step 1 – Pick a Good Cash Back Credit Card
Look for a cash-back credit card that fits your spending habits and lifestyle. If you’re a big spender, consider getting a high-end rewards card. If you tend to carry a balance from month to month, look for one with no annual fee or one that offers some introductory interest rate reduction period.
Step 2 – Spend Wisely
Think before you spend. Before swiping that credit card, consider whether you absolutely need to buy that item. If you do, don’t forget to do your research and check for cashback and rewards deals with your card.
If you have a cash back credit card, use it for every purchase and check your monthly statement to ensure you’re getting your full rewards. That way, you won’t have a big bill from overspending.
Step 3 – Review Your Spending
To make sure you’re earning cash back on all your purchases, check your credit card statement every few months to make sure everything checks out.
Step 4 – Choose Your Category Wisely
It’s crucial to find a credit card with rewards that you’ll use often. If you don’t travel much, it doesn’t make sense to get a travel rewards card. Choose the card that aligns with your lifestyle.
Step 5 – Never Pay Interest On Cash Back Credit Cards
Keep your monthly spending on a cash back credit card to less than what you earn in rewards. So if you have a 5% cash back card, don’t spend more than $5,000 per month. That way, no matter how long it takes you to pay off your balance (if ever), you won’t pay interest on that money because it wasn’t part of your total spending for that month.
Step 6 – Watch Out for Cash Back Limits and Expiration Dates
While many cash back credit cards don’t come with any annual fees, they may come with limits to how much you can earn in a certain time. If you are earning a lot of cash back rewards, pay attention to these expiration dates.
Step 7 – Don’t Take Too Long to Redeem Your Rewards
In some cases, cards will charge an annual fee after 12 months or if you don’t meet a minimum spending requirement within 12 months. If that happens, make sure to redeem your rewards before that period is up. If not, they could expire and be lost forever.
Step 8 – Give Yourself Some Leeway
Don’t forget to apply for a cash back credit card and use it! If you’re serious about saving money with a cash-back credit card, make sure you do. And if you can’t pay off your balance every month, avoid interest charges by paying at least the minimum amount due on time each month.
By following these steps, you can get more bang for your buck. Just be sure to pay off your card every month. If you don’t, there won’t be any cash back for you to enjoy.