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Few things make a credit card offer as enticing as the promise of receiving cash back for using it. For those of us who make regular use of credit cards for personal finance, such an arrangement only makes sense since the charges will occur one way or another regardless.But responsible consumers ought to consider why credit card companies would make such an offer to begin with. We live in a free market after all, and while it’d be nice to live in a world where credit card companies act in our best interest, it’s hardly beneficial to rely on issuers to be so kind.
The caveats remain classically placed in the small-font paragraphs printed at the bottom of any paper or e-agreement you sign. Most people who enter into cash back credit card programs don’t realise that, for example, they sometimes aren’t agreeing to actual cash returns, but refunds in the form of gift cards and other “cash value” perks instead. Another common misconception is believing that cash back credit cards specialised for use in particular types of stores apply to any such institution your imagination can classify as such.
The notorious example is the fact that for many cash back cards programs, department stores such as Wal-Mart are not in fact classified as true grocery stores, so any spending there will not count toward any cash back plan catered to grocery purchases.
In addition, remember that just one small misstep is enough to kill any rewards you are getting. Miss a payment? That penalty can wipe away months of cash back rewards. Carry a balance? Your rewards are negated by interest.
The fundamental goal of credit card companies when issuing cash back cards is to encourage people to spend more. Indeed, the incentive to “earn” money back does seem to result in people being more willing to use credit cards to make purchases. The problem with this, apart from the obvious fact that you could wind up spending more money than you otherwise would in order to earn money you otherwise could have saved, is that it could mean you won’t be able to pay off your balance at the end of the month. The obvious result of this is that any cash back is converted into interest, in which case you earn nothing back.
When considering getting a cash back charge card, it’s vital that you possess the cognitive maturity to understand the way in which the issuer expects you to think, in order to preemptively prevent being taken advantage of.
So are Cash Back Credit Cards Worth it?
That depends. For those with hopes of somehow getting their interest paid off at the end of the year via cash back rewards, keep dreaming. But for those who can count on paying off their credit card debt in full at the end of every month, cash back acts as a reward that’s hard to pass up.
Just remember that these programs are not designed to provide credit card users with a way to make money, but rather for credit card companies to make more money.