4 Ways You’re Missing Out if You’re Not Using a Cash Back Credit Card
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Written by
Emily Sherman
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Edited by
Amen Oyiboke-Osifo
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Reviewed by
Jasmin Baron
Free money is the kind of thing that sounds too good to be true. But when it comes to rewards credit cards that earn cash back, that is essentially what you stand to earn if you use your card correctly.
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Spending on a credit card can be scary, especially if you are worried about payment discipline. Interest rates are high, and debt can be difficult to pay off. If you use your card strategically, though, cashing in on everyday purchases and paying off your balance in full each month, you can quite literally reap the rewards. Here are four ways you’re missing out by not using one of the best cash back credit cards for your spending.
1. You Aren’t Earning a Rebate on Every Purchase
What would you do if someone told you that every purchase you made could be 2% cheaper? In a way, cash back credit cards offer that opportunity. There are some restrictions, of course — some purchases come with credit card transaction fees that are costly and negate rewards — but the right card can help you earn a return on almost all of your spending.
Some credit cards offer as much as 2% cash back on all spending, with even higher rates available for some purchase categories. That can equate to quite a bit in savings over time.
For instance, let’s say you spend $3,000 a month on expenses, not including your rent or mortgage payment. If you put all of those purchases on a cash back credit card that earns 2% on spending, and pay off your balance in full to avoid interest charges, you’d earn $60 per month in cash back. That’s $720 over the course of a year. Then, you can use that cash back to fund future spending or even treat yourself to an expense you couldn’t afford otherwise.
2. You Aren’t Maximizing Your Highest Spend Categories for Rewards
For some of your top spending categories, cash back cards offer the opportunity to maximize credit card rewards even further. That’s because credit card issuers frequently offer bonus earning rates in certain categories that are much higher than the card’s base rewards rate. Common examples include groceries, gas, dining or streaming services.
These categories can represent some of your largest budget line items every month, which means the opportunity to bring in even more rewards. If you spend $500 per month on groceries, you could earn $10 per month with a 2% cash back rate. But if you found a card with a bonus category on grocery spending for 5% back, that number jumps to $25 per month.
3. You’re Sacrificing Payment Flexibility
Cash back isn’t the only benefit credit cards offer. One of the primary appeals of a credit card is the additional payment flexibility. Most credit cards offer what is known as a grace period between the end of a billing cycle and when your payment is due, during which you won’t accrue interest on purchases made in that billing cycle. This is usually about 21 days. Additionally, your billing cycle typically lasts around 30 days.
That means you could make a purchase on day one of your billing cycle, then have the remaining 29 days of that period, plus the 21 days of your grace period, to pay it back before you have to worry about interest. That extra time can make a big difference when you’re strapped for cash.
4. You’re Missing Out on Free Credits
In addition to cash back on purchases, many cash back credit cards offer additional perks in the form of credits for shopping with particular merchants. That could be something like a $7 monthly credit toward your streaming subscription or $5 to use on Lyft rides. These perks may seem nominal, but the savings can add up.
Cash Back Cards Are Valuable, But Proceed With Caution
Cash back credit cards offer a variety of options for saving on expenses, building a pool of rewards, and unlocking payment flexibility. These benefits are not too good to be true, but they don’t come without necessary precautions either. Chief of these is to be careful to avoid overspending in order to chase rewards.
If you’re earning 2% back on your purchases, it can be tempting to spring for a bigger expense to earn more in cash back. Plus, the payment flexibility of a credit card may convince you that you have time to pay back something you can’t afford. But if you don’t pay off your balance in full by the time your bill is due, you’ll be saddled with interest charges, and those are high. They are high enough to essentially negate any reward earnings.
Cash back cards are valuable, and you can access savings and rewards by using them, but always make sure you can pay back what you owe.
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