Cash Back Credit Cards

Recently, I was asked by WalletHub to comment on cash back credit cards.  The post should be forthcoming on the WalletHub site.  Nonetheless, I am also sharing my insights here:

•    Should everyone have at least one cash back credit card?

Not necessarily.  For starters, consumers should always “shop around” and compare credit cards, and be sure to understand what they are getting themselves into before signing up.  One resource consumers my find helpful is on the CFPB credit card agreement webpage. Furthermore, cash back may not be the most important feature for all consumers.  Consumers need to consider their own situations and interests.  Once again, the CFPB provides excellent resources on credit card features. Consumers also may not all qualify for the same types of credit cards, and should be sure that they are in a position to pay off credit card debt in a timely and prudent manner.  Anyone interested in finding out more about credit scores should check out CFPB’s “How do I get and keep a good credit score?”

•    What are the biggest mistakes that people make when shopping for a cash back credit card?

First, some consumers may take on another credit card without truly considering whether they should open themselves up to greater spending power, and falling behind on bills.  Second, credit card offers may be confusing with respect to annual fees.  For example, some credit card offers include a waiver of the annual fee for the first year, thus lulling consumers into ignoring that fee in their decision-making.  However, consumers are usually dismayed when the fee kicks in and dissipates any benefit of “cash back.”  At the same time, consumers may not be able to cancel the card at that time due to the debt they have incurred or the “hit” they would take on their credit scores for canceling a card so quickly.  Third, consumers often fail to read the rules and restrictions on earning cash back.  For example, some cards offer elevated cash back for certain categories of purchases, but then restrict what qualifies for that category. Take the example of “3% cash back on fuel purchases” – with the caveat that fuel purchases from stations that are linked to grocery stores do not qualify (a very common restriction).  Similarly, “big box” and “warehouse” stores may not qualify for elevated cash back on “grocery” purchases.  Again, it is important to read the fine print of any credit card agreement.  Fourth, credit card offers may restrict consumers’ redemptions.  Does the offer allow consumers to redeem cash back at any time and in any amount, or does the offer require that consumers wait until they have accumulated a certain cash back sum?  Does the offer allow consumers to get a check in the mail, or only a statement credit?  These are just some of the questions to ask and consider.

•    Why don’t all rewards credit cards offer cash back?

“Rewards” mean different things to different consumers.  Some consumers prefer to get travel points or other perks.  Some consumers do not qualify for cash back cards, or may focus on low interest rates over any rewards.  Again, consumers must always consider their own situations and interests.  Cash back cards are not right for everyone, and the credit card market has responded.

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