So, you want to sign up for a credit card that gives you cash back on your purchases? That's an excellent idea. After all, as long as you can be disciplined about your credit card use, paying your bills on time and not charging more than you can afford, a cashback card will essentially give you free money every time you make a purchase.
5 Things to Consider
When shopping for a cashback card, naturally, you want to seek low interest rates and favorable terms and fees. Below are some more considerations related to cashback cards:
1. How much will each dollar of spending earn? Obviously, the percentage of each purchase you'll get back in cash is of great importance. So, look for the best rates you can find. A card that will pay you 1% is nice, but know that you can very likely do better.
2. Do some purchases pay off more than others? Some cards will pay you a flat percentage rate on all purchases. Others offer tiered rates with different rewards for different kinds of shopping. As of the time of this writing, there are some cards that will pay you 6% back on all supermarket purchases and 3% back on all gas station transactions. Some cards are explicitly tied to a particular retailer or business, giving you a big rebate on purchases there, and a small one on all other purchases. And some cards rotate categories, so you might earn 5% back at home-improvement stores in one quarter, and 5% back at restaurants in another quarter. Think hard about how you spend money, and where you spend it. Weigh all of these options, and see which kind of cashback structure will pay you the most.
3. Is there an annual fee? It may seem like a no-brainer to seek a card with no annual fee, as there are many of them. But don't dismiss fee-charging cards too hastily. Some of them offer fatter cashback percentages, which might more than make up for their cost.
4. Is there a sign-up bonus? Some cards will pay you several hundred dollars just for signing up, and then using your card a certain amount in the first few months. Go ahead and seek a big sign-up bonus, but don't make it the most important factor. Settling for a lower one can be worth it in the long run.
5. What's in the fine print? Always get the low-down on card details. Many cards, for example, limit how much you can earn in a given period. Depending on how much you charge, that might or might not affect you. If you're a big spender, seek a card with high or no limits.
Narrow Down Your Options
Once you have a list of contenders, you might be tempted to get two or three cards in order to maximize your cash return in different categories. For instance, maybe one card offers 3% off groceries but another offers 5% back on home improvement supplies.
Be careful: Applying for too much new credit in a short timeframe will hurt your credit score. Plus, you don't want to overly complicate your life. Choose the card whose rewards align closest to the things you buy and the places you shop.
Don't Go Crazy
Once you start using your cashback card, don't get carried away with it. It's nice to receive rebate checks, but don't trick yourself into thinking it's OK to spend more than you need to because you're getting something back. You're not getting that much back, and any expenses you can avoid will leave more actual cash in your wallet.
Selena Maranjian owns shares of American Express and JPMorgan Chase. The Motley Fool recommends American Express. The Motley Fool owns shares of Capital One Financial. and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.