When you use your credit card, you are merely borrowing money from your credit card issuer when making a purchase, which in turn you have to pay before your bill’s due date. While credit cards are primarily instruments of debt, there is actually a way for credit cardholders to earn money while using their credit cards—and that is through a cashback credit card. What is a cashback credit card and what makes cashback credit card the right one for you?
What is cashback program?
A credit card’s cashback program is an incentive given by credit card providers to cardholders that allow them to earn a fraction of their net expenditures back to their accounts. In layman’s terms, cashback begets the cardholder a portion of their spending for every purchase.
With a cashback credit card, you can earn points that can either be converted to actual cash or use these points to purchase items at shops accredited by your credit card provider. In addition, you can also use the points you accumulated via the cashback program to purchase airline tickets and gift cards, similar to other credit card features like miles and rewards points.
How does cashback work?
Cashback credit cards work by getting the net expenditure of the credit cardholder. For every purchase, your credit card computes for the amount that will be “returned” to your account. Depending on the percentage included in your credit card’s contract, you will get a percentage of your spending back to your account.
Typically, your credit card provider will only allow you to redeem your accumulated cashback once you’ve reached the threshold set by your provider. To get your cashback, the banks will either deposit the money to your savings account or issue you a check every now and then as scheduled by your bank.
Is cashback credit card good for you?
The cashback feature is a good way for credit cardholders to get back a certain fraction of their expenses back to their accounts. However, how will you know if cashback is good for you? And what are the factors that should make you get a cashback card over other credit card types?
Cashback credit cards, as opposed to other credit cards, tend to have a higher annual percentage rate as well as a higher annual fee. However, your credit card will be a waste, along with the amount you paid for the annual fee if you don’t use your credit card more often.
Why do you need to use your cashback credit card? With a high annual fee you need to shoulder every year, you need to maximize your credit card to make the annual fee worth it. Aside from making the annual fee worth it, regularly using your credit card will also allow you to rake in more cashback points.
When getting a cashback credit card, be mindful of the expiration date of your points. Some cashback credit cards have an expiration date for the points if you do not claim them for a certain period. Be mindful of the expiration date and cash in your points before they turn to dust.
Cashback credit cards are good for you, especially if you’re regularly using them for your purchase. Just be aware that when you use your credit card frequently, pay your bill on time and in full to avoid penalties.