Credit card companies are hungry for new customers. So over the past year, they’ve sent out millions of offers for credit cards that give you money back when you use them. It may sound good – but guess who really benefits? Not you – the credit card companies do. Basically, credit card companies lure you with a cash-back incentive, hoping when you buy something you’ll use their credit card instead of the other ones in your wallet. However, a lot of people are being punished for taking the bait.
In a study of 6,000 customers with cash-back cards, they each got an average monthly reward of $25, but they spent an additional $68 a month to get it. The balance on everyone’s card went up over $100 a month! Also, researchers found that cash-back cardholders tend to spend more money because they want the cash-back rewards, but that only increases their debt. Bottom line: Simply taking advantage of a small cash incentive can run your budget into the ground if you’re not careful. So, how can you protect yourself?
- First, read the fine print. There are a lot of loopholes with cash-back credit cards. For example, on one card, you can only get a maximum of $75 back every three months – no matter how much you use the card.
- Another tip: Beware of categories. On some cards you only get cash back for what you spend on food or gas.
- One final tip about cash-back credit cards: Often the interest rates are a lot higher than the average credit card. So, unless you can pay off the balance every month, that higher interest will wipe out any cash-back reward you may have earned.