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Cash Back Credit Cards - Solutions With "Catches"

Aug 17, 2007
Cash back credit cards are now being made available in a variety of new options. However, it is important for consumers not to skip over the process of researching all details of a card before applying. Cash back credit cards, although useful credit card solutions, also frequently carry with them several "catches" (targeted reward categories, high credit necessary to apply, potentially capped rewards) that consumers need to inform themselves about in order to maximize their effective use of the cards.

In a world of rising gas prices and falling employee compensation, it's more true than ever that a small amount of cash can go a very long way. This, at least, is the logic behind the variety of new cash back credit cards that now flood the market from many major providers. These cards offer a number of different cash back plans for several types of purchases: cash back for retirement, for charity, for affiliate products. All are designed, at least in part, to encourage credit card use by returning some percentage of the purchase price to the consumer at the end of the year. It sounds like--and can be--a good deal, the literal truth of the classic adage "spend money to make money."

But in addition to the good deal, cash back credit cards carry with them hidden hooks and lines. The card application always lists these plainly, but customers who just want to cash in on the promise of quick percentage rewards can often overlook the most crucial caveats of all. More savvy customers, however, should ask themselves maybe the most important question anyone can ask when considering a new credit card: what's the catch?

The first catch is that the high-end cash back rewards don't usually apply to entertainment, housing, or luxury items. Since these make up a large portion of most people's paychecks, anyone who believes that a hypothetical 5% cash back guarantee will apply to everything purchased with that cash back credit card will be in for a rude surprise. The higher fees are typically targeted toward fundamental goods in our society: supermarket purchases, drugstore runs, gasoline. Most of the best cash back credit cards offer a flat 1% fee on other purchases, which can be substantial by the end of a year, but still possibly not what the customer who only glanced through the brochure expects.

Another big catch is the high credit rating necessary to get one's hands on any of the best cash back credit cards. The most popular cards all require at least a good credit rating, with many asking for excellent. The effect of this is to push the target market of typical cash back credit card consumers toward two groups: first-time credit card applicants and the very financially prudent. And it is a nice bonus for people with good credit (or at least no bad credit) to be able to earn typically 1% of the purchase of price back on most goods, but for anyone in dire financial straits looking to put together some extra money through cash back rewards, it would be wise to look elsewhere.

The biggest catch of all, though, is that the promised rewards may run out sooner than the uninformed customer thinks. Depending on the individual card, percentage rewards in some cases only apply after a certain amount of money has already been charged to the card in a given year ($2000 and up, in the low range), or more alarmingly: rewards may stop applying after a certain amount of money has been put toward the products that generate the highest percentage of rewards ($1,200, to quote one of the high figures.) If a customer spends a large amount of money on fuel in a year, expecting cash back options to alleviate some of the sting of current high gas prices, that customer may find the rewards less rewarding. In some cases, the number of cash back rewards earned through using a cash back credit card can even be capped at a certain figure, at which point what the customer has left is just a credit card like any other.

So yes, the percentages sound good, initially, and do help to offset typical expenses. But, as always, it's wise to look carefully at the fine print of an agreement before signing, and to remember that there is no hook without a string attached. Cash back credit cards can be a powerful tool for consumers to get something back for what they put into the economy, but without informing themselves and doing the research, they may just find themselves caught up in trouble of their own making.
About the Author
For more information on cash back credit cards available in the marketplace, Robert Alan recommends that you visit CreditCardAssist.com
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