Category: Credit Cards

Credit Cards

Pros and Cons of a Cashback Credit Card

A cashback credit card is one that offers you rewards for spending money. This could mean that you get a percentage cashback at the end of every month which is credited to your credit card account ready to spend the next month.

Similar cards may give you points, vouchers or even air miles, it depends which you choose. There are a lot of options out there depending on which company you decide to go for. The reward will be small though. While interest rates remain really low it is difficult for companies to be able to pay out much in the way of rewards as they are not getting much income in by the way of interest payments, but it is still a way of getting a bit of extra money. If you do a lot of shopping by credit card then you will be able to really benefit by getting something back.

There is a major problem with a cash back credit card compared to other credit cards though. They tend to have a higher interest rate. This means that if you do not pay off all of the money that you owe at the end of the month, you will be paying more interest on it than you would do if you were with an alternative credit card that does not offer cash back. You may also find that you are tempted to spend more money on the credit card because you get a reward for doing so. Although this is fine if you are spending the same amount of money, but using the card when otherwise you may have used cash or a debit card, it gets to be a problem when you are spending extra money just because you get rewarded. The cashback will not be very high compared with the amount that you are spending and so you need to try to avoid doing this. Spending more money may also mean that you struggle to pay it off and you may end up leaving a balance unpaid and you will end up paying those high interest rates.

It is therefore worth thinking about what sort of person you are and whether you think a card like this is a good idea. It is perfect for anyone who always pays their balance off in full each month and who is in control of their spending. If you know that you will not over use the card and will be able to pay it off in full then you will benefit from it and you will just need to decide which card is the right one for you. Look at the various rewards on offer and think about which one would benefit you the most. Cash is easy and flexible but you may get more back if you choose a points card or airmiles card, as long as it is something that you know you will use then it will be worth it. Do check though, to make sure that there are no charges associated with the card, anything like a yearly fee or similar. They will obviously be a charge for not paying it back on time, but there may be other fees as well. If you want to draw out cash, use the card abroad or any other specialist services then there will be charges and it is worth comparing those if you think that it is something that you will use in the future.

There are some people that should not have a credit card at all. People that will spend a lot of money on them and then only pay off the minimum. It is not a fault with that person, just that is what they like to do. However, it can mean that anything that they buy on a credit card is very expensive as the interest payments really add up.

Therefore, despite any cash backs offer that tempt them, they should avoid a credit card so that they do not get into financial difficulty. A cashback credit card is also more expensive than non-cashback cards and therefore is even less suitable for this type of personality. Try not to be tempted by the offers and just concentrate on paying back any cards you already have and not spending more than you can afford. It is not easy but is the best thing to do in the long run.