Is it Worth Getting a Cashback Credit Card?
A cashback credit card can sound like a really good idea. It can work well for some people as well, but it is worth finding out more about how they work and thinking whether they are the right thing for you to have. We are all different in our attitude towards spending and money and therefore different cards suit different people. It is good to consider which type of credit card will be the best one for you.
Cashback credit cards can work in different ways but they will generally give you a percentage back of the money that you a have spent on the card. This will only be a small account and it will normally be credited to your credit card for you to spend on it. They are done to encourage people to spend more on their credit cards as the more that people spend, the more lenders can charge in interest on outstanding balances. Some cards will be different having vouchers or points rewards and you need to compare them to see which might be the best for you. Consider whether you would use the vouchers or whether cash might be the better option for you.
If you are the sort of person that will pay all of your credit card outstanding balance off every month, then this sort of card could be ideal for you. With no charges at the end of each month, as you pay off everything, you will gain the cashback each time. It is therefore worth taking a look at the different options and comparing the different types of cashback cards. You do need to be wary though.
Cashback cards need to make their money back somewhere. The way that they normally do this is by charging higher interest rates on outstanding monthly balances. Therefore anyone that is paying interest on their credit card is effectively paying towards the cashback that is being paid out. It is wise to compare the interest rates and if you feel that the interest on cashback cards is significantly higher and think that you will not always be able to pay off the outstanding balance in full, then it could be wise to avoid them. Think about the future as well as now as you may be okay now paying off the full balance but if you think this will not last then consider whether you want to risk it. It is really easy for credit card debt to accumulate as there is no pressure to pay off more than the minimum balance. This means that if you just make a small payment then the debt will stay on the card. By having a card with a high interest rate, it will be harder to pay off the debt as you will be paying more in interest payments and so will have less left over to repay the balance as well.
Another potential problem with a cashback credit card is the temptation to spend too much on them so that you earn more cashback. It is wise to use the card for all purchases so that you can get cashback on as much as possible. However, buying more than you need is not good because it means that you will spend more money that you need to. You may find that you end up spending more money that you can afford or buying things that you do not actually need or want. Your cashback is likely to be around 1% of what you spend or less and so spending more money in order to get it is not good as you will only get a tiny bit back of what you are spending in total.
It is good to put purchases on the card that you would normally buy anyway, but avoid buying more than you would normally need just because you can get cashback on it. You should never try to justify a £100 spend, for example because of 1% cashback – that is only £1. If you think that there is a risk that if you get a credit card like this it may mean that you use it as an excuse for spending extra money, then it could be wise not to have one.
So a cashback credit card can be really good if you pay off your full outstanding credit card balance each month. As the interest rates tend to be high, then they will not be suitable for anyone that does not manage to do this. It is also worth making sure that you are not tempted to spend more than you can afford on the card just because you can justify it because of the cashback. The cash back will be a very low percentage and not enough to support excess spending.