Do Cash Back Credit Cards Help Consumers?
Is it an Easy Way to Make Extra Cash or a Source of Money Problems?
Apr 26, 2009
Cash back credit cards have grown in popularity because they allow consumers to make extra cash on day-to-day purchases. However, some critics argue that credit card rewards encourage impulse buying leading to money problems and unmanageable credit card debt. High interest payments on debt can render any incentives offered completely worthless.
How to Make Extra Cash from a Cash Back Credit Card
A cash back credit card provides customers with the opportunity to typically earn up to 1 per cent of their total expenditure as a cash payment. American Express currently offers customers the chance to make 5 per cent for the first 3 months and 1.5 per cent thereafter. Credit card rewards can be much higher for financial institutions that have secured special deals with merchants.
- If a family spends £100 each month on their card, they could enjoy credit card rewards amounting to £12 per annum. If this customer had paid in cash, they wouldn't receive anything. Paying for all day-to-day purchases on cash back credit card can help consumers make extra cash.
Interest Payments on Credit Card Debt
Whilst cash back credit cards allow consumers to make extra cash, it is essential that the balance is paid in-full each month. According to creditaction.org, the average APR on credit card debt is currently 17.92%. Interest payments will completely negate the benefits of any credit card incentives offered.
- Spending £10,000 will only earn a consumer £100 as a credit card cash back payment but, if not settled in-full, will cost that person £1,792 per annum in interest payments. This means that a consumer is £1,692 worse off in real terms and now face a mountain of personal debt.
Are Credit Card Rewards Always the Best Option?
Customers that don't settle their balance in-full every month will benefit far more from an interest-free credit card balance transfer. Finding a way to avoid or lessen the impact of interest payments on credit card debt is worth a lot more to the consumer than any credit card incentives. It is possible to keep transferring the balance to different interest-free cards until the balance is fully paid off.
A cash back credit card may seem like an easy way to make extra cash, but it has led to many consumers struggling with money problems because of the interest payments on credit card debt. However, individuals that aren't prone to impulse buying and settle their balance in full each month can benefit from credit card rewards.
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