Understanding Cash Back Credit Cards

Cash back credit cards are a fantastic way to earn rewards on your everyday spending. But to make the most of them, it’s essential to understand how they work and the different types available.

What is Cash Back and How Does it Work?

Cash back is a type of credit card reward that gives you a percentage of your purchase amount back as cash. When you use a cash back credit card for eligible purchases, you earn a percentage of the amount spent, which can later be redeemed for cash, statement credits, or other rewards. The cash back percentage varies by credit card company and rewards program, typically ranging from 1% to 5%. For instance, if your credit card offers 2% cash back on all purchases, you’ll earn $2 for every $100 you spend. It’s a simple and effective way to get a little something back for your spending.

Types of Cash Back Credit Cards

There are several types of cash back credit cards, each designed to suit different spending habits and preferences:

• Flat-rate cash back credit cards: These cards offer a fixed percentage of cash back on all purchases, such as 1.5% or 2%. They are straightforward and easy to use, making them ideal for those who want a simple rewards structure.
• Category-based cash back credit cards: These cards offer higher cash back percentages in specific categories, such as grocery stores, gas stations, or restaurants. If you spend a lot in these areas, a category-based card can help you maximize your rewards.
• Rotating category cash back credit cards: These cards offer higher cash back percentages in specific categories that change quarterly. For example, you might earn 5% cash back on gas stations or grocery stores for one quarter, and then on dining or travel the next. These cards require a bit more attention but can be very rewarding.
• Sign-up bonus cash back credit cards: These cards offer a one-time bonus of cash back or rewards for new cardholders, usually after meeting a minimum spending requirement within the first few months. This can be a great way to earn a significant amount of cash back quickly.

By understanding the different types of cash back credit cards, you can choose the one that best fits your spending habits and financial goals.

Redeeming Cash Back Rewards

There are several options when it comes to redeeming your credit card’s cash back rewards. And sometimes, it can be overwhelming. But if the goal is to pay your monthly bills, there are specific options you should consider to redeem rewards effectively.

Statement Credit

Credit card rewards can be applied to your statement as credits. This will reduce the balance owed on the card.

Cash back rewards are typically applied as statement credits. This means when you redeem cash back, your balance is reduced, allowing you to pay your monthly bills with your credit card without inflating your balance.

Cash Back Credit Cards with Direct Deposit

Some credit cards allow you to direct deposit your cash back rewards into your checking or savings account. Cards that offer this perk include:

• Chase Freedom Flex
• Citi Custom Cash Card
• Citi Double Cash Card
• Capital One

With the cash back rewards going directly into your bank account, you’ll have the funds to pay your monthly bills.

You can also use a credit card to make a direct deposit cash advance. This allows you to deposit cash from your credit card into your checking account.

Cash Back for Groceries and Gas

Two large monthly bills are groceries and gas. Many credit cards let you earn high cash back rewards on these purchases.

You can turn around and apply earned cash back toward these recurring expenses. This way, you’ll reduce your spending on these vital areas.

Streaming Services

If you have Netflix, Hulu, Disney+ or others, you probably have them set up as a recurring charge on your credit card. If it’s on your debit card, consider moving it to a credit card. Many credit cards offer higher cash back percentages on specific purchases through a bonus category, which can include streaming services. You should be able to earn cash back on the charges.

Go on to use the cash back to pay your next subscription price and the cycle of paying and cash back will begin. This diminishes the monthly bill.

Recurring Transfers to Bank

Check to see if your cash rewards credit card allows recurring transfers. If so, consider setting up a monthly transfer of these rewards into your checking account.

This will keep the process simple and guarantee a steady cash flow toward covering your bills.

Choosing the Right Credit Card

One way to earn cash back is to pay all your bills with a credit card. This includes:

• utilities
• groceries
• gas
• streaming
• rent

You’ll want to ensure you choose a rewards card that gives you a flat-rate cash back percentage to earn rewards on all purchases.

Check for Fees

If you’re using your credit card to pay your bills, you’ll want to be aware of fees, including the annual fee. Some businesses or utilities will charge a transaction fee for using a credit card.

These fees can eat away at the cash back you’d receive. Only use your credit card for purchases that don’t charge fees.

Strategies for Earning More Cash Back

Maximizing your cash back rewards involves more than just using your credit card for purchases. There are several strategies you can employ to boost your earnings.

Using Cash Back Portals and Apps

Cash back portals and apps are excellent tools for earning additional rewards on top of what you get from your credit card. These platforms offer extra cash back when you shop through their links, effectively stacking rewards. Here are some popular options:

• Rakuten (formerly known as Ebates): Offers up to 40% cash back at over 2,500 stores. Simply sign up, browse the available offers, and click through to the store’s website to make your purchase.
• TopCashback: Provides up to 40% cash back at over 3,000 stores. Like Rakuten, you just need to sign up and shop through their links.
• Ibotta: Specializes in grocery purchases, offering up to 10% cash back. You can earn rewards by uploading your receipts or linking your loyalty accounts.
• Fetch Rewards: Another great app for grocery shopping, offering up to 10% cash back. Simply scan your receipts to earn points that can be redeemed for cash back.

Using these portals and apps is straightforward. Sign up for an account, browse the available offers, and click through to the store’s website to make your purchase. You’ll earn cash back rewards from both the portal or app and your credit card, effectively doubling your rewards.

Additionally, you can combine cash back credit cards with other rewards programs, such as loyalty programs or rewards apps, to maximize your earnings. For example, use a cash back credit card for your grocery purchases and also earn rewards from the grocery store’s loyalty program.

By understanding how cash back credit cards work and using strategies like cash back portals and apps, you can maximize your rewards earnings and get the most out of your credit card.

Important Considerations

Be careful that you don’t chase points. In other words, don’t spend money on what you don’t need just to earn cash back. If you inflate your balance, you’ll defeat the purpose.

Credit card companies offer various options and incentives for redeeming cash back, such as different percentages and rewards. This leads to the second consideration: pay your credit card balance off each month. At least don’t let it go for more than two months.

If you don’t pay off your card, you’ll diminish or even negate the points. They just won’t be worth anything because the credit card interest will eat them away.

The average bank credit card APR is 24.7%. That’s a hefty amount to pay. So, if you receive $20 in cash back but pay $30 in interest, you’ve lost money.