Are Cashback Credit Cards Worthwhile?

Credit Cards

There are some credit cards which will offer the user cashback. These can seem very attractive but it is a good idea to understand how they work and make sure that they will suit you.

How Cashback Cards Work

The cashback credit card will normally offer a small percentage of what you spend on the card, back again. The money is credited to the card and you are able to use it to offset future spending on the card. The percentage tends to be very small – usually less than 1% but it is still some money that you will not have to spend and free money is always worth considering. The more that you spend on the card, the more cashback you will receive.

Interest Rates

It is often the case that a cashback card will have higher interest rates than some more standard cards. The card issuer will need to get back the money that they are paying out in cashback and therefore they will tend to charge higher interest. If you normally pay interest on your credit card then it is wise to be aware of this. You should do some careful calculations to find out how much you will be due to pay in interest based on what you normally have outstanding on your card and work out how much you will get in cashback and then calculate whether you will be better off looking for a card with lower interest rates. It will take a bit of working out and you might be wise to get some help with this, perhaps using the financial advisor at the bank that issues the card as it is likely that they will have different types and will be able to help you work out which will be the best for you.

Who Should Use Them?

So, these cashback cards are really most suited to people who repay their whole outstanding credit card balance when they get their statement. A majority of credit card holders do this and have an automatic payment set up to pay it off when needed so they never need to think about it. However, it is still wise to be wary of this sort of card. This is because it could make it more tempting to use the card because you know that you are getting cashback on it. This is fine if you are keeping a track of your spending, only buying things that you would have bought anyway but just using a card rather than cash or debit card and if you are confident that you will be able to repay it. However, if you think that the cashback on the card will tempt you to spend more money than you can afford because you have an excuse to use the card a lot, then it might be wise to not get this type of card in the first place. It is good to have a think about what might be most suited to you and whether you might find that you spending gets out of control as a result of having this sort of card available for you to use. If you have never had a card before then the decision could be more difficult, but it is a good idea to still think about whether you feel you are likely to use the cashback, as an excuse to spend more money than you were intending to and also whether you are going to be able to repay that money and stay in control of your finances or whether you need to find something with a lower interest rate.

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