Earning cash back with your credit card can ease the pinch of spending. Understanding which credit card really pays the most on their cash back is not quite as simple as it seems. As a matter of fact the structuring of cash back cards can be quite confusing.
These types of cards are most valuable to people that pay their credit cards off every month and that do not necessarily carry a balance on their cards because typically the rates may be decent but they by far are not the best rates.
How You Earn Cash Back
These cards have been around for about a decade and a half. The concept is relatively simple. You spend money using your credit card and a percentage of whatever you spend is returned to you. For example say your credit card offers 1% cash back. That 1% can be figured annually, monthly or biannually.
If you spend $10,000 a year on an annual rewards card then you will earn $100 in cash back if the card is offering a 1% cash back. While $100 may not seem like a boat load of cash it is considerable if you would be spending the money anyway. This is the easy model.
The more difficult model can be a bit more complicated. For example some cards offer 5% cash back on certain purchases like gasoline or shopping at a particular store and then they offer 1% for other items. Trying to keep track of what spending earns what can be a challenge.
Other cards are even more complicated because they work on tiers so if you spend X amount you get X% cash back on certain goods and X% cash back on other goods if you spend X amount. It can get very complex and confusing. Most people do not really pay attention to what their cards should be earning in cash back because it takes far too much effort with the tiered cash back plans.
Is it worth it? Yes, if you use your credit card for everyday purchases and pay it off quickly, than yes it is worth it because you would be spending on the card anyway. Why not get paid to spend money you would spend anyway?
Comparing options is always best to insure that you get a card that works with your lifestyle. Sometimes the differences between the cards can be astounding.
Also, you may want to see other popular card categories here before deciding.