There are plenty of credit cards floating around in the credit card universe today, each offering you some level of reward or incentive to choose their credit card over their competitor. Things like frequent flier miles and cash back are often two of the rewards programs you see flashed in front of you on an almost daily basis.
But what are these programs and how do they work? Do they truly give you cash back? Not only can a cash back card deliver on its name, but many people strongly prefer this type of card.
You must first understand, though, that a cash back card is very much dependent on the fine print. To understand this, though, you must first understand what a cash back card is and why it's at your disposal. Credit card companies offer consumers incentives to give them incentive to purchase things on their credit cards instead of their competitors.
When you head out and spend $200 on your next wardrobe refresh, they want you to be conscious of which card you are putting it on. They want you to reach into your wallet and go "I can get cash back if I use this card," then pull that one out instead of their competitors.
So how can they afford to finance the incentives on a cash back card? If we are honest with ourselves, many of us don't pay our credit cards entirely off every month. The money they will rake in off of interest on your purchase far exceeds that small percentage they had to kick back to you to get you to use their cards.
But this is where the small print comes in as well. Many financial institutions have been known to charge massive annual fees or high interest rates that are far above the fair market value.
This is why it becomes extremely important to read everything when shopping for a cash back card. There are plenty of legitimate card issuers out there that may charge you an annual fee or a slightly higher interest rate but that's par for the course.
It's when these annual fees climb into the hundreds of dollars or your APR is 10% higher than their competitors that you need to be concerned. By doing a little homework beforehand, you can rest assured you got the best deal.