The idea of using a credit card that gives you cash back on your purchases can be appealing because it can seem like free money (or a discount) on the purchases you make. However, there are a number of factors one should consider when looking at the available promotions for a cash back credit card.
First, watch out for those promotional teaser interest rates. While an initially low interest rate might be tempting, the fact is those rates are temporary. Instead, look at which ones offer the lowest interest rates after the promotional teaser rate expires, since you will likely be using the card after the promotion has ended.
The second thing one should consider is any monthly or annual fees versus you spending and repayment habits. If you pay off the balance every month, a cash-back card can definitely be worth it, provided you spend enough, (and thus earn enough cash back), to offset any annual fee. If you carry a balance, then the interest rate you pay monthly might wipe out the positive effect of the cash back feature. Moreover, look at any additional fees that may apply. For example, if you travel a lot, earning 2% on an international trip may not be worth it if the foreign transaction costs are above that percentage rate.
So what else should you look for in a cash back card?
One thing you should do is decide how you want to cash in. It may not seem to make sense, but some “cash back” cards do not actually give you cash as your reward. While some may issue you a check, others will offer you a gift card to your choice of retailer or allow you to apply the reward to the balance on your next card statement.
You should also look for a card that offers a high cash back percentage. Not all cards are created equal, with some offering you 1% and others offering you more – or less. However, make sure you read the fine print. Some cards offer you cash back on only certain types of purchases, while others will give you cash back on every item you buy. Also, remember that some cards will cap how much you can earn in a year, so it is best to look for a card that offers you unlimited cash back capabilities. If you choose one that does use categories, pay attention to the opt-in categories that rotate throughout the year and make sure you opt in to receive the cash back benefit.
For front-end promotions, a cash back signup bonus is great too. Many cards will offer you additional, or bonus cash back if you spend a specified amount of money within a certain time frame after signing up for the card. This can be a great way to take full advantage of your cash back benefits right from the start. All though these promotions change from time to time, it is not uncommon to find a signup bonus of $100 or $200 after spending $500 within the first 90 days.
Finally, find a card that offers an easy redemption policy on the cash back reward. Make sure it is easy, quick, and straightforward. Nothing is worse than winding your way through a complicated set of steps or jumping through hoops to get the reward you have earned.
This article was written by Steven Moore, who has been covering consumer finance and the credit card markets since 2006. You can learn more and connect at his Google+ page.