Cash Back Credit Cards Can Turn Out Expensive

by : Melissa Kellett



There are many different types of credit cards on the market, each one with different benefits and advantages. There are so many options that it is sometimes very difficult to decide which one is more appealing. Cash Back Credit Cards, for example, seem very attractive. However, you should know that these cards can turn out to be very expensive because of how the cash back system works.

As with most credit card products, cash back credit cards are not exactly what credit card issuers promote. There are some terms that are concealed deep within the credit card contract and that turn these cards into an income eater. Thus, you should be very careful when selecting your card, especially if it will be your only credit card or if you plan to use it a lot.

Cash Back Credit Cards

The cash back program works the following way: Depending on the credit card terms, every purchase you make on any store or on certain predefined stores will earn you points or dollars based on a percentage rate. For example, certain purchases may earn you 3% of the amount you spend. By the end of the month or by the end of the year (long term cash back) the accumulated savings are credited to your account or you can get a check and cash it.

Limited Stores, Limited Choices

The problem is that the number of stores where you can purchase goods so as to earn the cash back points is very limited and then, so are your choices. These stores tend to be really expensive. Thus, though you may earn back a 3% of your purchases, you are probably paying up to 50% more for something you could have purchased elsewhere at a lower price.

Of course, you can always purchase at other stores without earning cash back or earning only a smaller amount (usually 1%). However, many clients are tricked into buying at these stores with the promise of high cash back amounts. Truth is that by purchasing at those places you are probably overpaying. But even if you decide not to buy there, there are other terms that may turn a cash back credit card more expensive.

Higher Interest Rates

With the excuse of cash back programs, these cards tend to carry higher interest rates than other credit cards. While some cards carry interest rates below 12% APR, these cards can sometimes reach up to 18% or 20% APR. As you can see, the difference is quite significant and is not justified at all by a 3% cash back rate.

Issuing And Renewal Fees Waived?

Also, though these credit cards usually promise not to charge issuing or renewal fees. This waiver is provided on condition of spending certain amount of money every month. Thus, they are forcing you to purchase goods or services up to certain amount in order for them to exclude issuing and renewal fees. This requisite alone implies thousands of dollars over the year and definitely turns these credit cards into an expensive option. So, if you want to consider applying for a cash back credit card, make sure the contract's stipulations do not turn your card too onerous and actually earn you money by the end of the cash back term.