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The ins and outs of cash back credit cards

Wednesday, August 01, 2012 at 6:59:25 PM

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Rewards credit cards are very popular for many people, most likely for the simple reason that they can provide consumers with a financial benefit just for using the credit cards on purchases they would normally make anyway.

However, cash back credit cards are different from other programs in that the reward you earn is simply cash, which you can use however you want. Here's a quick summary of what to look for with them.

Cash back rewards are easier to redeem than other types of rewards

Compared to other rewards credit cards, which often grant miles or points for each dollar you spend on the card, cash rewards can be much easier to redeem than other accounts.

You will never have to worry about reaching a certain points threshold, since you can usually choose to redeem your cash rewards at almost any time. Some of them will even set up automatic redemption systems which will automatically apply the money toward your balance. That way, your rewards help you reduce debt.

That can also eliminate the possibility that your miles or points will expire, which can happen with some credit card offers.

Check annual fee and rates vs. your spending

Because credit card companies can't give cash rewards away for free, cash back cards often come with some type of annual fee or higher interest rate to make up for it. But that doesn't mean you need to avoid them.

If an account has an annual fee, determine how much it is and how much you will earn in rewards. If an annual fee is $35 and you will likely earn $60 in rewards, then you won't end up paying a fee at all, in reality.

The same goes for interest rates. If you generally don't carry a balance, then you won't have to worry about paying those higher rates anyway.

Read program details

It also pays to read all of the smaller parts of cash back credit card's reward program, since there may be smaller factors which can change which credit card application is right for you.

Many programs can include varied bonuses or restrictions, such as:

• Bonus points for spending in certain categories
• Minimum spending thresholds
• Maximum rewards amounts
• Bonus points with particular stores
• Rotating rewards categories, which can be confusing
• Sign-up bonuses

Narrow down the list of candidates to a few of the most promising credit card applications and review how your spending history matches up with each. Once you do that comparison, you'll know which credit card offer provides the greatest value for you.

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