Cashback Credit Card Pros and Cons
Cashback credit cards can provide lucrative rewards on spending through percentages of money back on purchases. But cashback cards also come with risks and drawbacks to consider. Weighing the key pros and cons allows determining if cashback cards fit your financial habits and goals.
How Cashback Credit Cards Work
With cashback credit cards, you earn cash rewards equal to a percentage of total spending on the card:
- Typical rewards rates of 1-5% back
- Higher rates in select spending categories
- New applicant bonuses for initial spending
- Cash rewards redeemed for statement credits, deposits, or gift cards
Savvy use earns passive recurring cash rewards that can add up substantially over time.
The Pros of Cashback Cards
Here are the major advantages that cashback credit cards offer users:
They Save You Money on Purchases
The cashback percentages directly reduce the net cost of purchases you make by earning passive kickbacks.
Rewards Never Expire
Unlike points and miles, unused cash rewards do not expire. Your earnings continue growing with ongoing usage.
Unlimited Earning Potential
There are no caps on total lifetime rewards so long-term diligent usage really pays off.
Great Sign-up Bonuses
Lucrative new applicant bonuses like $200 back on $500 spent provide quick rewards.
Flexible and Universal Redemption
Cash rewards never go out of style – you can redeem them directly for cash deposits, statement credits, or gift cards with no blackout dates or seating classes to worry about.
The Cons of Cashback Cards
The potential disadvantages or risks to weigh include:
Rewards Encourage Overspending
The incentives provided by earning may encourage you to spend more than you otherwise would to maximize kickbacks.
Paying Interest Negates Rewards Value
If you carry balances month-to-month, high credit card interest rates exceed any cashback earned, quickly negating its value.
Complex Reward Tracking
Maximizing category bonuses requires diligent tracking of eligible purchases and constantly monitoring caps.
Security Deposits for Poor Credit
Those with poor credit may need to apply for secured cashback cards requiring refundable security deposits to open accounts.
Some of the top premium cashback cards have annual fees, reducing the net rewards value earned each year.
Weighing Cashback Pros and Cons
When evaluating cashback cards, consider factors like:
Your Spending Habits
Do you spend consistently in bonus categories like dining and groceries to maximize rewards? Paying interest negates value.
Do you want simple cashback returns or prefer travel rewards instead? Compare all the redemption capabilities.
Credit Score Requirements
Does your credit score qualify you for the best uncapped cashback card sign-up bonuses? Check eligibility before applying.
Are you willing to track bonus caps, quarterly category activation, and redemption deadlines? Passive flat-rate may be easier.
Alternatives to Cashback Cards
Compare cashback to other types of card rewards programs:
Travel Rewards Cards
- Earn points and miles for free flights and hotels instead of cash
0% Intro APR Cards
- 0% interest for 12+ months offers savings without rewards requirements
Store Credit Cards
- Provide discounts at specific merchants you frequent rather than all-purpose cashback
Look at your goals and habits to determine if these alternatives may fit your needs better than cashback rewards cards.
Enhancing Cashback Card Value
Follow these tips to maximize value from cashback cards:
- Pay balances off fully each month to avoid interest
- Use automatic payments to never miss payments
- Check cashback earning activity and expiration dates frequently
- Redeem cashback into financial goals like debt repayment
- Be cautious of overspending just to earn more rewards
Proper usage habits and redemption strategies enhance the benefits cashback cards provide.
Key Cashback Card Takeaways
- Passive savings on purchases add up substantially over time
- Focus on paying balances in full and redeeming rewards wisely
- Compare sign-up bonus values and category reward caps
- Ensure bonus categories match your common spending
- Alternatives may better suit some spending habits and goals
When used deliberately, cashback cards provide high returns through money back on the purchases you already make. Just avoid overspending and negating rewards value with interest accrual. Evaluate if a cashback card best aligns with your financial habits and needs when compared to other reward programs.