Cash back Credit cards
When buying via credit cards, merchants usually pay a part of the transaction as commission to the credit card company. The credit card companies share the commission with the end customers, by giving them points, gifts, or money. The final sort of benefit, called a cash back allows customers to get back about 0.5 % – 2% of their net expenditure or get a rebate.
The money can be credited to the card used to make the purchase or sent to the buyer as a cheque. Recently, there have been really high cash back returns by major card companies, up to 5 %. This serves as an incentive for many people to sign up for cash back credit cards, but this usually falls after 6 months and is only applicable at select outlets.
Reward based credit card products, also known as reward programs are useful for customers who have a habit of paying their bill in full at the end of each month. If the bill is left unpaid, the reward earned is overshadowed by the interest. Due to the recent increase in the price of gas in the United States, gas cards have become very popular as people have to buy quite a lot gas every month, and with the amount of cash back being quite significant.
Pros of Cash back credit cards:
A return on expenditure – Expenditure is a necessity, and therefore getting a bit back on all those daily expenses proves easy on the pocket.
Makes credit card comparison possible – Some credit card companies give a higher cash back rate than others and thus it pays to use a credit card comparison facility and find which one is the best for you.
Improved credit rating – In an attempt to redeem all of one’s reward points, people usually tend to pay off their balance in full at the end of each month, which does help in combating bad credit ratings.
Cons of Cash Back Credit Cards:
Debt – Once carried away by the fanciful offers and fine print, credit card users find it hard to settle their bill, if at full, should they overspend.
Higher interest rates – To add fuel to the fire, the APR rates are quite high for most credit cards, and if balance is not paid off fully at the end of each month, it rapidly multiplies itself and is hard to contain.
Limits – Fine print tricks the user into seeing what is not.
Gambling – Is a source of cash advance that does no more than incurring new charges.
Low rates – The average rate of cash back is only 0.72 % (according to Moneylenders)
Reward schemes are a pretty good idea to earn money from what one spends. However it is very important that one goes through what one is in for and pay everything needed by the end of each month, lest the high APR rates leave them drowning in the seas of debt.