Backfired! How to Avoid Losing Money with a Cash Back Credit Card

We have all received multiple offers in the mail for different credit cards. Printed in big, bold letters is always what makes their card better than the rest. With all the various offers, they have to be a great deal. They want you to think you are getting a better deal with them. Using their credit card is going to be a positive experience. While this could be the case, there are a lot of ways that trying to use a credit card for the offer they advertise can backfire. One of the most prominent options we see coming from Credit Card companies is the cash back option. Refrain from using a cash back credit card in these ways, or it may backfire on you!

Debt

The number one way that using a cash back card backfires is the user going into debt. The cash back percentage is usually under 5%. While it is more than getting nothing for a purchase, it is not going to be a significant factor in paying off the card when the bill comes. It is a trick the way they try to entice you to spend more so that they can collect more interest from you. If you are not careful, you will get yourself in over your head. And end up with more debt than you have the ability to pay off. The cash back is a great reward if you can pay off your bill each month and not have any rollover. Going into debt will make it backfire!

Extra Cards

How many credit cards should a person have? The answer is different for each person’s situation. To answer this question, decide how many cards you can pay off each month. Those with balances on multiple cards unable to progress paying them off should not look for new cards. Carrying cards with debt and then opening new cards is a way to have them backfire. Opening another cash back card before you have paid off your current one is a fast way to get in trouble. It does not matter how high the cash back percentage is. Think about your financial situation before opening it up. The cash back will not be much of a reward if you have multiple companies coming after you for payment. 

Annual Fees

In the fine print, the best cash back or rewards cards require an annual fee. The annual fee needs to be considered to see if you are coming out ahead. Is the cost eating all the profits you get from the cash back? Some annual fees can get close to almost five hundred a year. Making that up would take a lot of money back or other perks. So don’t let the flashy rewards cloud your mind. To avoid losing money, the best thing to do is not to choose a card with an annual fee. 

Limits

Cash back on all purchases is what we are all thinking we get when we sign up for a cash back credit card. That is what the bold letters tell us. While it is true, it may not be the whole situation. There is always fine print that you need to sift through. The cash back cards can have limits that are not openly advertised. They could cap you at a total cash back amount. For example, if the cap was a cash back total of $2000 and you spent more, you would not get more cash back. Without this knowledge, you may feel freer to continue spending when you wouldn’t normally. This is a fast way to lose money.

Qualifying Purchases

Another type of limit is what purchases qualify for cash back. Depending on the card and where you use it, it could alter what percentage. You could get nothing back. An example would be if they choose to give 3% for gas stations and 1% for grocery stores. The amount you receive in cash back could range, making it less of a benefit. Especially if you believed you were receiving the same percentage on all purchases. Ask before signing up to ensure you understand exactly how the cash back credit card will work. Not knowing will lead to it backfiring. 

Do all your research on how to use a cash back card properly. The worst thing would be to have it negatively impact your financial situation.