Most people these days have credit cards and use them for all manner of things. There are many different types of credit cards and a cash back credit card can be one that looks appealing. However, it may not be the right choice for everyone.
What is a cash back credit card?
A cash back credit card may also be called a rewards credit card. It works by giving you something back when you spend on the card. Usually it is a small percentage of what you are spending. It might be paid in a cash credit to the card at the end of the month or you might get some vouchers or other rewards. It all depends on the specific card that you get.
It is well worth making sure that you choose a card that has rewards that you will make good use of. Everyone can use cash but they may get a better return if they find a card with vouchers or other rewards. However, these will be more restrictive as you will not be able to spend them on just anything. So think carefully and compare the different types.
How much does it cost?
It is worth noting that a cashback credit card may have a charge involved. It may be that you have to pay an annual fee for it or some other sort of charge. Often it will be that the interest rate is higher. This means that if you do not repay the full balance each month, you will end up paying a high charge for this. It is good to compare this as you may find that you will be paying so much in interest on the card and gaining so little in cash back that it would be cheaper to get a conventional card.
The cards do vary a lot though and so it is worth comparing them to see which looks like it has the best deal for you. Do bear in mind that interest charges will change at certain intervals so even if your card is really competitive at the moment, you could find that it will be less so in the future so do compare from time to time to make sure that it is still worth sticking with this particular card.
Who should use one?
If you are thinking of using one of these cards then there are several things that you should think about. You need to start by considering whether you will be at risk of overspending on the card because of the rewards. Remember, this is not like a regular loan where you’ll be making monthly payments off the full balance. It is tempting to think that you should spend as much as possible in order to get more rewards. Although this is okay if you are just using your card for all of your normal spending and making sure that you have enough money to pay it off in full at the end of the month, this is not necessarily what people will do. It might be that they will use the rewards to spend extra on the card, buying so much that they cannot afford the repayments and buying more things than they need.
It should also only be used by people who pay off the full balance of their card each month. This is because it is generally more expensive to have a cash back card as the interest tends to be higher. This may not always be the case and you might want to check, but the issuers of the rewards cards need to make their money back somewhere – they will not want to be giving away more than they are getting back.
You also need to be sure that you will be self-disciplined enough to not use the card too much. Make sure that you will be able to afford to repay the balance in full at the end of the month. You may need to keep a check on the balance to make sure that you are not spending too much. You will also need to think about the purchases that you are making and make sure that you really need the items and are not just buying them because of the cashback. It is so easy to get muddled in the brain and think that if you buy the item for £10 you will get cashback so it is worth doing. However, the cashback will be significantly less than the purchase price, probably just a few pence, so actually you are not gaining those few pence but actually spending £9.98. If it is on something you do not really need then that is a lot of money to waste and if you do it a lot you could end up convincing yourself to buy all sorts of things you do not really need. So be very careful.