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Advantages and Disadvantages of Cash Back Credit Cards?

 Advantages and Disadvantages of Cash Back Credit Cards?

Advantages of Cash Back Credit Cards

  • Understanding your earnings is easy. Tracking how much you've earned in cash back rewards and what those rewards are worth is not hard. Generally, 1% back means you will get 1 cent for every dollar you spend.
  • Redeeming cash back rewards is simple. Your card might require you to have a certain amount of rewards – say $25 – before you can redeem them.
  • Having a range of bonus categories provides many chances for rewards. Some cards pay the highest cash back rate when you make particular purchases. With certain cards, bonus categories change throughout the year, giving you different opportunities to earn extra rewards.
  • Referring friends could get you sign-up bonuses. Cash back credit cards may offer sign-up bonuses ranging from $100 to several hundreds of dollars. You might also be able to receive extra cash back by adding an authorized user to your account or for referring friends who become cardholders.
  • Using cardholder benefits adds extra value. These are not exclusive to cash back cards but often include special event access, zero fraud liability, extended warranty coverage, purchase protection, rental car insurance, roadside dispatch service and lost luggage reimbursement.

Disadvantages of Cash Back Credit Cards

  • Good to excellent credit requirements. The best cash back credit cards generally require a good to excellent credit score, which is a FICO score of at least 670. But some credit cards might require a higher score than that. If you're new to credit and in college, consider getting a student credit card. If you aren't a student and you're building credit for the first time, check out our list of the best credit cards for building credit.
  • Sign-up bonus requirements. If you want to earn a sign-up bonus, then you will have to meet a spending requirement. The spending requirement varies by card but ranges from about $500 to a few thousand dollars, and you'll usually have to accomplish this within three months of opening an account.
  • Monitoring bonus categories. If you want to earn the most cash back using a card with rotating categories, you will need to take time and effort to track the categories and their cash back rates.
  • Potentially less-valuable rewards than other cards. Your cash back card's point value may be locked in at a certain level, which means you won't have a chance to receive more value. This is different from co-branded airline and hotel cards that sometimes allow you to redeem points at different rates.
  • Fewer perks than other types of rewards credit cards. If travel deals and free checked bags appeal to you, then a travel credit card could be a better fit.
  • Fees. You might find that you're spending more on annual fees than you're earning in cash back rewards, depending on how you use a card. And if you think you might carry a balance, you could be better off with a plain lower-interest credit card. Carrying a balance with a rewards credit card can lead to credit card debt.

Are Cash Back Credit Cards Worth It?

A cash back credit card could work for you if you pay off your balance each month. As you consider your options, look at annual fees, bonus category rates and sign-up bonuses. And most importantly, know the rewards program so you can take advantage of spending opportunities that offer cash back.

One note of caution: Don't carry a balance with these cards. They have higher interest rates, and it's easy to get into debt if you carry a balance from month to month. You're also wiping out the rewards you've earned when you pay interest to carry a balance.

Check the terms and conditions of your account to see whether cash back rewards can expire and, if not, how you might lose them.

Many issuers let you keep rewards as long as your account is current. Check the fine print, because this is not universal, and some may require you to use your rewards within a certain time frame.

Generally, try to redeem cash back often because inflation can cause it to lose value. If your points do not expire, be aware that you might risk losing them if your card is inactive for an extended time. You may also lose your rewards if you close your card.

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