How to Effectively Use Cash Back Credit Cards and Maximize Rewards

The following is a guest post by Kevin Fleming. Kevin runs CreditShout, a personal finance blog dedicated to educating people on how to manage their finances and reviewing cash back credit cards.

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First I would like to start off by saying that credit cards are only worth using if they are used responsibly. The methods I describe below will only work if you pay off your balance in full each month. Never carry a balance. You will end up paying more in interest than you will ever earn in rewards. If you pay off your balance in full each month, you pay nothing in interest which allows you to really reap the rewards that some of these cards offer.

With that said, there are three keys to effectively using your cash back cards. The first involves choosing a cash back card that rewards your specific buying behaviors. The second involves maximizing your cash back by using your credit card as much as possible. The third, as I mentioned above, involves minimizing fees and costs by avoiding carrying a balance or incurring other charges.

Choosing a Cash Back Card

You’ll want to make sure to choose a cash back card that rewards you for the purchases you are already making. For example, some cards provide additional rewards or incentives for buying plane tickets, gas or groceries. Others reward restaurant purchases or movie-ticket buys.

When researching cash back cards (also called money back credit cards), make sure you choose one that makes sense for you. If you live in a large city and take public transportation everywhere, for example, a card that gives a bonus 5 percent cash back on gas would not be a wise decision for you, but perhaps a card that offers cash back for restaurant buys would if you eat out a lot.

If you have multiple categories where you tend to spend more, you can consider a card such as the Discover More Card, which rotates through five popular categories, offering you cash back bonuses in each at different times throughout the year.

Do the research to find the perfect card for you in order to maximize your cash back benefits.

A word of warning, when looking into credit cards in general – You almost always want to avoid retail store cards. Cards such as the Best Buy credit card or Victoria’s Secret credit card may seem like they offer a lot back, but you can only earn a decent amount of rewards points on in store purchases. With a cash back credit card like Discover More – you earn cash back on almost every purchase you make regardless of the store.

Using Your Card

Use your cash back card as much as possible in order to reap the best rewards benefits. See if you can make rent or utility payments using your card. Most cell phone companies will allow you to pay your bill via credit card as well. Any time you are going to spend money anyway, put it on the card. You can even offer to pick up the entire tab for dinner and collect the cash, or see if your boss will let you put your travel and work related expenses on your cash back card and then reimburse you.

Avoiding Fees

Cash back benefits are negated if you have to pay interest on your card. Pay your balance in full each and every month in order to avoid paying interest fees. You can set aside the money every time you charge something to make sure you can pay off the card in full, or even make multiple monthly payments online throughout the course of the month, paying off the amount you charged every time you use the card so no balance ever builds up.

You’ll also want to make sure to avoid late fees and other penalties, such as over-the-limit charges. Set up automatic bill pay to make sure your payment is sent in before the due date and monitor your credit card limit so you don’t get close to going over.

If the card has an annual fee, make sure you evaluate the rewards program to ensure it is worth it to the pay the fee. Since many cash back cards don’t charge a fee, only accept one that does if the extra benefits you will earn on that particular card completely cover the cost of the charge.

Do you use a credit card that offers rewards? What are your favourites?