Cash back credit cards are a popular and stress-free way to enhance your financial situation when used strategically and responsibly. Let’s take a quick dive into cash back credit cards and see how you can maximize savings through everyday spending.
Understanding Cash Back Credit Cards
There are two main types of cash back credit cards in Canada: flat-rate and category-based. To put them into simple terms, flat-rate cards offer a flat-rate percentage of cash back for every purchase made on the card while category-based cards offer rewards on purchases you make in specific categories (more on this later).
Choosing the Right Cash Back Card
No one knows your spending habits and card preferences better than you do. When deciding which cash back credit card will work best for you, consider these factors:
Fees: Is there an annual fee attached to the card you’re eyeing, and will the rewards you earn offset the cost of that fee? Typically, cards with fees offer higher levels of rewards. However, many people prefer to not pay an annual fee and are completely satisfied with the rewards they earn. It all comes down to personal preference.
Spending habits: Do you tend to try to save more for everyday purchases such as groceries, gas, bills, and smaller household items, or are you more likely to save for travel, expensive electronics, and fancy meals out? Which of these categories are you more likely to pay for with a credit card? Take the time to break down your spending habits so you can maximize your rewards.
Rewards preferences: What are your goals for your rewards, and what is the easiest way to get you those rewards? Some people thrive on category-based cards and are always on the lookout for rotating categories or bonus deals. Some people find constantly monitoring these categories to be too stressful and prefer to select their categories and stick with them. And other people don’t want to have anything to do with categories and opt for a flat-rate card. You’ll know after a bit of research which option is best for you.
Making the Most of Cash Back Categories
The most common categories for cash back credit cards in Canada are groceries, travel, gas and dining. If you don’t travel a lot, avoid the travel categories. But if you know you have a trip coming up within the year, keep your eyes open for travel to rotate in or show up as a bonus category. Then use this and earn your rewards by paying for things like airfare, hotels, and vehicle rentals on your card.
Understanding your preferences and your spending habits will be a crucial part of choosing which type of card will work best for you and, if you opt for a category-based card, which categories will get you the best rewards.
Using Your Card Wisely
A fantastic way to maximize your cash back rewards is to pay your bills each month with your credit card. Then pay off the balance each month (if possible) with whichever bank account you had previously used to pay the monthly bills. Now you’re not spending any additional money, but you get to watch the rewards flow in.
Whenever possible, pay your balance off in full to avoid interest. If this is not possible, make sure to pay at least the minimum amount owing, and pay it on time.
Redeeming Cash Back Rewards
To redeem your cash back rewards, you will usually have a couple of different options. You can choose to put your earnings against your monthly statement as a credit, or you can choose to have your rewards deposited directly into your bank account. This is another example of “you will know best what you want.” Both options have great outcomes. You can help pay down your credit card bill and help you stay within your budget, or you can put the money aside for whatever your heart desires.
Monitoring Your Spending and Rewards
Make sure you keep track of both your spending and your rewards. There are various online tools that can help you to manage rewards, should you opt to save them, and financial institution apps that allow you to see exactly what you’ve purchased and how much you’ve earned.
Once you become familiar with your preferences and spending habits, you’ll be able to maximize your rewards earning potential and enjoy the perks of being a cash back cardholder.
