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Success with a credit card may seem like a pipe dream, but there are many people who receive hundreds (or even thousands) of rewards without accumulating debt. The key to maximizing your credit card cashback is simple – only charge for scheduled purchases that you can afford to pay each month, and never, ever keep a balance.
Cashback credit cards reward consumers with “free” cashback for every dollar spent. This cashback is added to their rewards account when they use their credit card to pay for purchases, usually as a percentage of every dollar spent. Typically, cardholders can exchange cash for a check in the mail, credit statements to their account, gift cards, and other options.
If you think you need a cashback credit card, there are a few important decisions you have yet to make. Since cashback credit cards can be so different, consider what works best for your spending habits, consider the following:
Choose between a simple flat rate or bonus categories
A fixed rate cashback credit card offers one rate of reward for everything you buy, such as 1.5 percent or 2 percent for every dollar spent. Generally speaking, fixed rate cashback credit cards are best for people who don’t want to deal with changing reward categories or earnings caps.
Fixed Tier Rewards Credit Cards offer a higher Flat Reward Rate in some categories and a Standard Reward Rate in everything else. For example, you can earn up to 6 percent for grocery shopping or a higher than average rate for meals or transportation. In the meantime, you’ll still get the standard rate on everything else you buy, usually 1 percent. Fixed bonus category cards are best for people who spend a lot on certain categories and want to maximize their rewards as a result.
Changeable tier cashback credit cards typically offer a 5% cash back on up to $1,500 you spend in certain tiers each quarter when activated, after which you get the standard 1% rate back. Some cards have other bonus categories in which you can maximize your reward throughout the year. Like other cashback credit cards, revolving bonus cards typically offer welcome bonuses, 0 percent APR offers, or both.
Generally speaking, you should focus on bonus credit cards that offer the highest possible cash back rate, whether you’re looking for a card with a flat rate, bonus tiers, or spinning bonus tiers. A common and effective strategy is to get a card with bonus categories that fit your lifestyle, as well as a 2 percent cash back credit card to maximize cash back on your other purchases and accounts.
Seek rewards for spending the most
Your spending habits should play an important role in the cashback credit cards you end up applying for. For example, if you spend a lot of money each month on categories like restaurants, groceries, or gas station purchases, there are plenty of cards that offer a lucrative reward rate for those spending.
If you’re not entirely sure which categories you’re spending the most on right now, this can help track your spending over a few weeks to see where your money is going. If you already use a credit card, you can review your statements to see which categories you typically spend the most in.
Be aware of any limits on potential rewards
Pay attention to whether the reward credit cards you are considering set limits on the amount of cash back you can earn. Some of them do, and these limits are worth keeping an eye on if you’re the kind of person who spends a lot of money on plastic every month.
For example, credit cards that offer a 5 percent refund on quarterly expenses up to $1,500 only allow you to earn $75 in bonus money in rotating categories every three months. This does not mean that they are useless; you just need to be aware of the limits you are dealing with and how they can affect your rewards over time.
Learn about repayment options
Finally, you should figure out how you can redeem the reward with the cards that interest you the most. While some cashback credit cards offer a variety of repayment options, others only allow you to use your cashback to make loans to your account.
There is no right or wrong answer here; your rewards should match your personal preferences, and that’s all that matters. If you’re looking for flexibility, check out cash-back credit cards that allow you to use at least two or three options, including gift cards, travel, merchandise, cash back, and statements.
Optimize cashback with multiple credit cards
Know that you don’t have to limit yourself to just one cashback card. There are many consumers who successfully manage multiple cashback credit cards that they use to maximize rewards across different categories as well as different purchases. With the right combination of credits, you can earn hundreds of dollars in daily shopping rewards and easily double your cashback rewards.
bottom line
Cashback credit cards do offer the prospect of “something for nothing,” but you’ll only win if you’re disciplined enough to stay out of debt. Make sure you have a responsible rewards plan in place and that you have an idea of the type of card you want to subscribe to.
With some research and planning, you can earn a lot of money back in no time.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.