A cashback credit card can seem like a really good idea. Each time that you make a purchase, you will be able to get a percentage of that back, credited to your card the following month for you to spend. This sound great, the company paying you to use the card and it can be, but there are a few things to be aware of.
Firstly, you will find that the percentage of cashback is extremely small. You will only get a very small amount of money, even if you use the card a lot. It is worth comparing different cards though as this will vary. Some may pay out in loyalty points or shop vouchers or even air miles and so you should consider which might be most useful to you, considering where you shop. Check regularly as well as you may find that different cards become available or change the percentage cashback that they offer. You may also change your shopping habits and so you may find that a pay out in loyalty points, for example, may become less useful to you. It should be often enough to check this every six months, when you should really be checking all of your finances anyway to check you are paying competitive rates.
One thing to be very careful of is how much you spend. The fact that you get cashback on spending could mean that you are tempted to spend extra money so that you can get the cashback. It is a good idea to use the card as often as possible to buy items that you need and would have bought anyway. However, if you are buying more than normal just to get the cashback then this is not wise. The amount that you save is very small and it is just not worth it. If you find that you are tempted to do this, then it could be wise to not have a card like this as you could end up spending a lot more money that you can actually afford and you may even find that you start to find it hard to afford to pay it all back in one go.
It is really important to make sure that when you have a cashback credit card, theta you pay off the full balance each month and avoid paying any interest on the card. This is because the cost of interest on cashback credit cards is often high compared to some other cards. It is worth comparing the rates and you will probably find that the cashback card is not worth having if you do not pay off all of the outstanding balance each month. The amount of cashback you get is very little compared to the interest that you pay on the card and you would be better off getting a cheaper card than receiving the cashback. It is worth doing the calculations and working it out. Just take the interest amount and take away the cashback amount and compare that to the interest amount on other cards and you will be able to compare. It is very likely that you will find it cheaper to have a card without a cashback facility if you are not intending on paying it back in full each month.
Of course, if you pay back your card in full each month, then you will find that a cashback card can be really advantageous. Make sure that you have a direct debit set up so that you know that the full amount will be paid when it is due and there is no chance of you making a mistake and forgetting to pay it off. You do need to be confident that you will always have the money to pay it back. More people do pay back the full balance than do not and so you may very well fall into that category. However, it is worth thinking hard and making sure that you are confident that you will be able to pay it all back, every single month. It can be hard to predict what might happen in the future but do think about what may change and whether having a card like this is a sensible idea for you.
