How Does Cash Back On Credit Cards Work?
Cash-back credit cards are rewards cards that allow you to earn cash on eligible purchases. Compared to travel rewards cards, they're a tad easier to use because the value of your rewards is more precise. They still differ in many ways, depending on their type and issuer.
In the following sections, we'll cover everything you need to know about these credit cards' inner workings and how to redeem your hard-earned rewards.
How Cash Back Works On Credit Cards
When you use your cash-back credit card, you earn a percentage of the purchase price back. This may only be a few cents, to begin with, but it all adds up over time.
If your account is open and you have outstanding payments, you will earn cash back on all eligible purchases. Keep in mind, though, that some transactions do not qualify, such as:
- Balance transfers
- Cash advances
- Lottery tickets,
- Gambling-related purchases,
- Cash-esque transactions (i.e., purchases of money orders, cryptocurrencies, or foreign currency).
- On top of that, purchases through third parties like wireless card readers or digital wallets may not earn rewards if the technology cannot provide enough transaction information to classify its eligibility.
Depending on your credit card, you may need to jump through a few hoops to snag a better rate. Regardless, it will issue cash back in one of the following ways:
Flat Rate
As the name suggests, you'll earn the exact cashback amount (typically between 1% and 2%) on every purchase.
When choosing a flat-rate cash-back card, understand that the higher rewards rates offer the most value. That said, always check whether the card has an annual fee or other charges that could offset any rewards you earn.
Flat-rate cards are the way to go if you don't want to spend time managing your rewards program. Comparing flat-rate cards is easy, and you'll always know how much you earn on each purchase.
Higher Rewards In Specific Categories
These cards give you higher rewards in particular categories and a lower overall base rate. Usually, the heightened rates are on everyday categories, like gas, streaming services, groceries, or dining. Some cards limit the amount you can spend for bonus rewards.
Customized Categories
Other cash-back credit cards earn rewards in selected high-spending categories. In other words, you can choose a few categories for which you'd like to earn rewards based on where you spend regularly. The number you can choose depends on your credit card issuer but tends to include grocery stores, wholesale clubs, drugstores, home improvement stores, live entertainment, and fitness clubs.
Extra Cash Back In Rotating Categories
If you don't mind managing your rewards program, you can earn as much as 5% cashback with cards offering rotating categories. To maximize your rewards, you must remain abreast of which categories are eligible before shopping. Failing to activate specific categories tends to leave you with a mere 1% cashback!
How To Redeem Cash Back Rewards
Depending on the particular credit card you have, you may be able to redeem your cash-back rewards in the following ways:
- A check
- Gift cards
- A statement credit
- Direct deposit into your bank account.
Some cards also offer other options, like allowing you to book travel using rewards, donating to charity, or purchasing goods online. Some cards give you points in the issuer's rewards scheme, uncovering even more options.
Regardless, many cash-back cards come with minimum balance requirements. In other words, you can redeem any rewards once you've earned a specific amount.
What If You Need Money For A Financial Emergency?
While cash-back credit cards help you save money that would otherwise be spent, they aren't helpful if you're in an emergency. After all, these rewards cards don't magic cash into your bank account — you must spend to save.
Our loans are a convenient option for handling emergencies. We offer title, payday, and signature installment loans without requiring an exceptional credit score. You need a few documents and some time to borrow up to $15,000 with a title loan, $500 with a payday loan, or $1,500 with a signature installment loan.
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Cash-back credit cards work in various ways — flat-rate, customized, tiered rewards, and rotating categories. While they can be great for long-term financial goals, they won't help if you're experiencing a financial emergency. Contact us at Nevada Title and Payday Loans, Inc. for fast cash by completing our online inquiry form. We'll contact you to help you through the quick and easy process.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.