How to maximize cash back rewards cards

How to Get the Most of Cash Back Rewards ProgramsWhen you spend $10,000, you could earn as much as $100 cash back with a credit card that offers a rewards rate of 1 percent. Now that's getting the most out of your plastic. Cash back reward cards are a fantastic idea, and they can be quite profitable for the user. They were created by credit card companies with the intention of luring customers with good credit ratings and cleverly encouraging them to spend more.

If you are the kind of person who always pays your balance each month and are willing to take the time to do some simple calculations, then you could easily earn money with a cash back reward card. You can make money on a cash back reward card if you have responsible spending habits and understand how your particular credit card works. Here are some tips to help you maximize your rewards:

1. Make sure you spend only what you can afford. If you can't pay off your credit card bill each month, the interest will reduce the likelihood of turning a profit from a cash back credit card.

2. Record the amount you spend each month. This means summing up what you pay for groceries, fuel, clothes, etc. This will help you determine which cash back card can be used to make purchases at all of your favourite local retail outlets.

3. Compare cards. Once you've narrowed it down to the cards that are honoured where you shop, figure out which card offers the highest percentage of cash back, and has the lowest annual fees and the lowest interest rate. There is an online Canadian cash back reward credit card calculator that can help you make these computations.

The percentage of cash back can be anywhere from 0.5 percent to 3 percent for the first few thousand dollars you spend, and can increase or decrease after that, depending on the card. There can also be a limit to the amount that pays rewards. If the card is a reward point card, find out if the points are redeemable for cash, and the monetary value of each point or air mile.

With some cards, you need to apply your cash rewards to a purchase when you reach a certain level. That works well for people who have the time to keep track of the required amounts. If you are too busy, there are cards that automatically credit you monthly or annually. Some reward points will expire if not used in a certain period of time, so read the fine print. A few credit cards will invest those savings into a retirement fund or pension account.

Beware of cash back cards with annual fees that are as high as $59. Try to find one with a low or no annual fee. But again, the way to win on cash back reward programs is to always pay off your balance every month or else you'll be overpaying for any rewards you receive in interest costs. 

Written by Christopher Ibotrain.

Updated July 15, 2009

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