You may have seen that there are some credit cards that offer cash back and you may wonder whether these are something that you should consider using. They can look very tempting but they may not be a good idea for everyone. It is a good idea to think through whether to get one based on the advantages and disadvantages.
Advantages of a Cashback Credit Card
A cashback credit card will give you money back when you use the card. Generally, it will give you a percentage of what you spend on the card. This will then be added to your account balance so will help to pay off some of the card for the following month. This means that you will get a small reward every time you spend money. This can be a great bonus, even if it is small. Free money is always good!
Disadvantages of a Cashback Credit Card
Often it can be the case that a cashback credit card will have a higher interest rate than a traditional credit card. This means that if you do not repay the balance in full and you get charged interest, you will find that you will tend to pay more than you would with a standard card. It is worth calculating whether you will pay so much more that it is better to forgo the cashback and go with a standard card instead. You should be able to check the interest rate with the card issuer. If you do take out a card, it is wise to check the interest regularly and how it compares as you could find that it will change and perhaps get less competitive.
It could also be the case that you will try to use the card more often because you want to get the cashback. Although buying things using the card, that you would have bought anyway, could be sensible as you will get cashback that you would not get if you bought the items using a debit card or cash, but it can be tempting to use it as an excuse to just buy loads of extra things. Some people need very little reason to treat themselves to lots of things, but this can be tricky. If you cannot afford them, then you will have credit card debt and this can be expensive. You may also need to use the money to buy necessary things, perhaps to pay off a loan or maybe you should be saving up towards something. Therefore, think hard about whether having a card like this might just be too tempting for you.
So, the cashback card can be really good for anyone that repays their whole credit card balance when it is due. If they pay it in full each month, they will never be charged interest and so they will profit from the cashback. However, if they tend to leave outstanding debt then it is unlikely, they will profit as interest rates are likely to be higher on these cards. It is also worth thinking about whether you feel that you will get carried away and use the cashback to justify buying more than normal. If you think this might apply to you, then you should be cautious and perhaps avoid this type of card. It is also wise to probably avoid it if you do not intend to repay the balance in full as it is likely that it will be more expensive in interest compared to other cards. But do check to be completely sure, as rates change regularly and you might be surprised.