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If you’re going to spend money, why not get some of it back? A cash back card won’t make you rich, but saving two or three percent here and there will add up over time. If you’re using cash or a debit card instead of a credit card, you could switch over and start earning rewards every time you make a purchase.
By Brendan Harkness
The right cash back card for you will easily fit into your spending and shopping habits, without being a hassle to use and pay off. Consider these key features if you’re in the market for a new card.
By Brendan Harkness
When used responsibly, cash back cards are a great way to earn rewards and enjoy extra perks when shopping and traveling. Most people can benefit from carrying at least one cash back card, for a number of reasons:
Some cash back cards have annual fees, but this shouldn’t necessarily stop you from getting one of them. You’ll just need to make sure that you’ll get enough out of the card to justify that fee, from the cash back and other benefits.
An easy way to figure this out is to calculate how much spending it would take to earn enough cash back to offset that annual fee for one year. If you’ll spend at least that much with the card, it may be a good choice for you.
You’ll want to spend more than that to make the card actually profitable, of course, rather than just offset the fee. And you should also make sure that you won’t be able to get more value from a different card with the same level of spending.
For example, consider two hypothetical credit cards:
Which card is more rewarding overall? That would depend on how much you spend.
To offset the $100 fee of Card A, you would need to spend $5,000, earning at the 2% rate. That would give you $100 in rewards, completely offsetting the annual fee, and leaving you at zero profit. That’s because $100 is 2% of $5,000.
If you spent that same $5,000 with Card B, you’d only get $75 in cash back, earning at the 1.5% rate. But that would be all profit, because there’s no annual fee to pay.
This shows how you’ll actually earn more profit overall with Card B if you spend $5,000 per year, even though it offers a lower cash back rate. You’ll need to factor in annual fees like this when considering the value of a card.
If you do the math, you’ll find that you actually need to spend $20,000 per year before you’ll earn an equal amount of cash back with these cards, after subtracting the annual fee. If you spend less than that per year, Card B is the more profitable choice. If you spend more than that, Card A finally becomes more profitable.
|Amount Spent Annually||Cash Back Earned (Card A)||Cash Back Earned (Card B)|
This is a simple example, and it doesn’t take into account any value you might get from the other card benefits. But some calculations like these will work to compare cards in most cases, including most of the cards on this page.
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