Credit cards are a very popular way for people to make big purchases, providing a number of benefits over other transaction methods. However, some credit cards offer something extra, whether discounts on specific services or advantages with how your money is handled.
One of the more popular benefits a credit card company can offer is cashback, where you are given a percentage of your money back from each purchase. This money comes directly from the credit card company directly, offering a great way to get a little money back for all of your everyday spending.
However, not every credit card provider offers it, and there can be some heavy limitations on where and how these payments are approved. So, what do you need to know about getting a credit card that offers cashback, and how is this different from a normal credit card?
Understanding Cashback Credit Cards
Cashback is designed to give you a percentage of your spending back, usually at the end of each billing cycle. This feature is offered as an incentive to help encourage the cardholder to spend more on their card – each time you make a qualifying purchase with that card, you will get a percentage of that money back.
How Cashback Credit Cards Work
Cashback is typically earned based on the amount spent using the card. For example, a credit card might offer 15% cashback on all purchases, which means that any purchase made using that card will effectively be 15% cheaper because you are getting that 15% back as extra money.
Some cards might offer higher rates for specific categories like dining, travel, or groceries. In other instances, a card might only provide cashback on certain purchases or even limit the cashback to buying from certain companies and online platforms.
How much you can earn will depend on the specific card, but some cashback can be quite high – especially for credit cards geared towards people who already make large purchases. For example, if you have a $ 1,000-a-month spending habit and use a credit card that gives you 5% cashback on every single one of those charges, you will get a bonus of $50 a month, or $600 per year.
Of course, many cards offer cash-back amounts that are a little lower, and focus on it being a long-term benefit that slowly builds up over time. Either way, the more you use your card for purchases instead of e-wallets or debit cards, the more money you will earn back.
Types of Cashback
There are generally three types of cashback structures: flat-rate, tiered, and varied-rate. Understanding the differences can be important since they impact the way that cashback works as a whole.
Flat-Rate
With a flat-rate reward, you will earn the same percentage of money back for every single purchase. For example, you could have a credit card that provides a flat rate of 2.5% cashback for every purchase, no matter the amount or the category. That means if you buy a $100 item, you will get $2.50; if you purchase $100,000 worth of goods, you will receive a total of $2,500.
The flat rate will always be the same, and your earnings are based purely on the amount you spend. There can be exceptions – for example, there might be an upper limit on incredibly expensive purchases – but the rate will almost always remain the same.
This keeps the cashback consistent and simple and can provide a good base level of cashback. If you know you are going to make a lot of purchases, this can be the better choice since the amount of cashback you receive will always be the same.
Tiered
Tiered cashback rewards work a little differently. They are usually based on your annual spending – for example, a 0.5% cashback rate below a $6000 threshold and a 1% above it.
This means you earn more cashback as you spend more – often leading to bigger payments or a lot more small payments, giving you a big boost in cashback. This naturally makes it a more popular choice for people who know they will spend large amounts using their card.
Of course, if you are still determining whether you will meet the breakpoint for more cashback, the flat rate could be the better choice since tiered cashback will sometimes have a much lower starting cashback percentage.
Variable
The final type is a variable rate, where you earn a different amount of cashback depending on your spending habits. For example, you might get 1.5% cashback on all of your food and entertainment purchases but a 2% rate for clothing.
These rewards are more complicated than the other two, but they can be useful for people with specific needs. You are sacrificing the consistent cashback rate for a more specialized reward, which can be great if you find one that fits your spending habits.
What Are The Benefits of Cashback on Your Credit Card?
Cashback credit cards offer several benefits that can make a big difference to your finances, especially if you pick the perfect cashback option for your spending habits. While no two cards are going to offer exactly the same advantages, cashback cards can be a great choice for a whole range of different situations.
1. Extra Savings on Everyday Purchases
One of the most appealing aspects of a cashback credit card is the ability to save money on everyday purchases. Whether buying groceries, filling up your car with gas, or paying for a meal at a restaurant, cashback allows you to earn a small percentage of your money back with each transaction.
Over time, these small amounts can add up to significant savings, effectively reducing the overall cost of your purchases. This is essentially free money that you get for buying things you were going to buy anyway.
The only risk is that the cashback might push you to make purchases you normally would not, but the benefits outweigh the risk – especially when the risk can be avoided by better controlling your spending.
2. Price Reductions
Since you are getting money back for buying things with your card, you are essentially getting a discount on anything that the cashback applies to. This can even apply to other discounts. For example, a 2-for-1 deal with cashback would give you two of the items for the price of one, which would be reduced further with the cashback you get.
This means that you are spending less overall, regardless of whether you are using the card for huge purcahses or just day-to-day living. The more purchases the cashback applies to, the more money you will save.
3. Smarter Spending Habits
Using a cashback credit card can encourage smarter spending habits. Since you earn rewards for every purchase, you might be more inclined to use your credit card for transactions rather than cash or debit. This can lead to more thoughtful spending and can also help you build up your credit score by using your card more often.
Additionally, earning cashback can motivate you to track your spending more closely. You can adjust your spending habits to maximize your rewards by monitoring which categories offer the highest cashback percentages. This can lead to better financial planning and more disciplined budgeting.
4. Passive Rewards
Cashback is generally a passive benefit – you do not have to trigger it yourself. This makes it a great choice for people who want a reward that is as automatic and effortless as possible. All you have to do is use your card to earn your rewards.
Additionally, most cashback programs require no activation or opt-in. Once you have earned the card, it is there waiting for you to use. This is a huge benefit for anyone who wants a credit card reward without having to do any additional work or go through a complicated signup process.
5. Beneficial for Both Large and Small Purchases
Cashback credit cards are versatile and beneficial for both large and small purchases. Cashback rewards you regardless of the purchase size, whether you are making a significant investment like booking a vacation, buying a new appliance, or paying for everyday expenses like coffee or groceries.
This versatility means you can maximize your rewards, whether you spend a little or a lot. Over time, even the smallest purchases can contribute to your overall cashback total, making every transaction count.
Final Thoughts
A credit card with cashback (kredittkort med cashback) offers a practical and rewarding way to enhance your financial transactions. While other card benefits are also useful as long as they suit your situation, cashback can be useful in general, no matter your purchases.
You obviously should not choose a card based on its cashback options alone, but cashback is such a popular option that a lot of big credit card companies offer it. If you are looking for a way to earn some money back with every purchase you are making, then cashback is an obvious choice.
If you are interested in learning more about how these cashback systems work, regardless of what cards you are interested in, resources like kredittkortinfo.no/cashback/ are a fantastic place to start. Being properly informed about a card’s benefits can be incredibly important when choosing a new provider.
Whether you prefer a flat-rate card for consistent rewards, a tiered card that offers more as you spend more, or a variable-rate card tailored to specific categories, there is likely a cashback credit card that fits your needs.
