How to Choose a Cash Back Credit Card

By Kevin / October 19, 2016
how to choose a cash back credit card

My friends always ask me for help choosing a cash back credit card. With so many options to choose from, it is often hard to pick the right card.

Some cards offer a flat cash back rate of 1% or more on all purchases. Other cards offer bonus categories - where to can earn 3% or even 5% cash back. Some cards rotate those bonus categories every three months.

With all these different type of cash rewards cards out there, it can often be hard to figure out which is right for you.

Over the years, however, I developed a methodology to help decide which cash back card works best under different circumstances.

Picking a Cash Back Credit Card

If you are trying to decide how to choose a cash back credit card, try using the questions listed below as a basic guideline.

I think they will help you can make your choice more wisely.

1. What is your lifestyle?

Deciding on what type of credit card is best suited for you will entail a close look at your current lifestyle. There are many different kinds of credit cards to choose from, like cash back rewards, frequent flyer miles and point rewards for shopping and cash.

So you need to ask yourself: what type of bonuses and benefits will suit me best?

If you are a person that travels often because of business or pleasure, it would be best to choose the credit card that offers the travel bonuses and flyer miles.

However, if you are the type of person that does a lot of shopping, a cash back credit card would be an excellent choice.

Personally, I prefer cash rewards cards because I like to take a statement credit every month. It helps me save everyday.

2. How much money do you normally spend?

You will need to decide how much that you really use your credit card for purchases when you choose a cash back credit card.

Of course, it stands to reason that the more money that you spend, the more cash back that you will earn.

However, there are some other important considerations:

  • Will you spend enough money (without going over-budget) to earn the welcome reward?
  • Will you spend enough money to justify the annual fee?

Often, the best "return" on your spending is from the bonus offers that card issuers offer to new cardholders.

However, these bonus offers only benefit you, if (1) you can hit the spending target in the time allowed, and (2) you do not end up paying exorbitant credit card interest as a result. (The interest costs will almost certainly be greater than the bonus cash reward.)​

3. Where do you spend the most money?

Many, if not most, people prefer to use only one credit card to pay for anything. 

If that is you, ​you may find the best results earning a flat 1.5% or 2% cash back on all your spending.

However, most credit cards will pinpoint the area in which the credit account will earn the most.

For example, some will give 20% cash back if you shop online, which would be beneficial for the person that shops mostly online. Or possibly allow you to earn bonus points at the grocery store or at the pump.

So there are some enterprising individuals who will use multiple cards to make sure they earn the most points no matter where they shop.

For instance, they may use these cards:

  • The Blue Cash card at the grocery store,
  • The Costco Visa on gas, travel, dining and shopping, and
  • The Double Cash card everywhere else.

If remembering which card to use where and juggling a bunch of different bills sounds like too much work for you, stick with a one card strategy. 

4. Can you pay your monthly payment in a timely manner?

This question must be asked of you because if the answer is no, then a cash back credit card may not be the best bet for you.

Paying your monthly balance is vital in retaining cash back benefits and keeping the low interest rate.

Also, there are late fees involved with most credit cards that will eat up your bonus of the cash back card and possibly put your balance over the limit.

Credit card member agreements will tell you that if an account becomes past due or is over limit, the company has every right to increase the APR to the default standard rate.

5. Other Things to Consider (or Always Read the Fine Print)

Finally, I advise people to always read the fine print. This last bit of advice is in effect a catch-all to help prevent you from being stuck with a "gotcha"!

So, other things to consider when you are going to opt for a cash back credit card:

What are the fees and APRs?

You should be aware of all of the fees that will be associated with the credit card and also any possible penalties in which you might be charged.

An example is when you are not able to pay your monthly balance on time. In this case, you might be charged a much higher interest rate. This will be a downfall when using your card for cash back purposes, since the high interest rate that you will be charged could pretty much take away any accumulated money earned.

The trouble with APR offers

A ton of cards offer 0% APR financing for new cardholders.

One thing to consider before taking advantage is what happens if you have just one late payment.

If this happens, that 0% APR offer is often revoked. On top of that, most issuers reserve the right to charge you interest starting on the date the purchase was originally made. Making 0% financing suddenly very expensive.

Which of the cash back credit cards offer the highest incentive?

Credit card companies offer different percentages of cash rewards from 1% - 20%, but some of them only allow you to earn rewards from shopping with certain merchants.

Is there going to be a limit on how much cash back that you can receive?

Some credit cards have a limit to the amount you can earn and it will be best to choose the one that has the highest limit.

Are the cash rewards going to expire if you don't use them right away?

Most of the better credit card offers will not put expiration on the cash back that you have earned, although there are a few stipulations. One of the common conditions of keeping your cash rewards active is to keep your account active and paid on time.

When you are going to choose cash back credit cards the best piece of advice is to read the details, such as the terms and conditions of the agreement. Make a mental note of the above provisions and choose wisely; you'll be on your way to earning cash back rewards with your new credit card.

Are there limitations on redeeming your points?

Can you redeem your points right away and at anytime? Are there limitations on how you can redeem your points?

Sometimes you must have a minimum threshold of points to make a redemption.

Some cards will only allow you to redeem your points for the fullest value against certain spending.

For instance, many travel rewards cards will give you 1.5% or 2% back when redeemed for flights or hotels, but less than 1% back when taken as a general statement credit.​

Sounds Like Too Much Research?

If sorting through tons of different offers sounds like too much work for you, then you might want to check out Card Match from CreditCards.com. 

CardMatch is a free service that helps you identify credit cards with great rewards that fit your credit profile.

The results you are shown are the best credit cards available to you based on your credit profile. 

To learn more about CardMatch, check out our detailed review.

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