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  • Writer's pictureMarc Primo

Getting back on the savings track with cashbacks

This is an article ‘Getting back on the savings track with cashbacks’ by Marc Primo

Considering today's inflation rates and economic challenges, consumers have become more creative in finding novel ways to save money. One effective method to achieve this is utilizing cashback credit cards– a financial tool that rewards them the more they spend. While this may sound counterproductive, saving money can feel like an uphill battle sometimes, and we'll have to spend some of it anyway on our needs, no matter what. But believe it or not, cashback credit cards can be your secret weapon for keeping more hard-earned cash in your pocket.

Just imagine a magical card that rewards you every time you swipe, tap, or insert it, and you'll get the gist of how cashback works. Designed to reimburse cardholders with a percentage of their eligible spending, cashback credit cards often assume a percentage range between 0.25% and 5%, depending on the card and the nature of the purchases.

Most credit card companies offer cashback as an incentive to encourage consumers to swipe their cards more frequently, generating transaction fees for the companies and, ultimately, benefiting both the consumer and the card issuer.

Three Types of Cashback

Cashback can be practical benefits credit card issuers offer consumers, especially when they need it the most. Its concept and mainstream popularity gained traction in 1986, when Discover Financial Services, an offshoot of Morgan Stanley, unveiled a credit card with no yearly charges, a more generous credit cap, and a cashback reward on select buys.

Eventually, more types of cashback emerged, including the 'flat-rate cashback,' which offers a fixed percentage on all eligible purchases, regardless of the spending category. For instance, a flat 2% cashback rate would give the cardholder $2 for every $100 spent.

The 'tiered rate cashback,' on the other hand, depends on the cardholder's annual spending. This type of cashback gives consumers a 0.5% cashback rate if the annual expenditure is, for example, below $5,000, along with a 1% rate if the spending exceeds that amount.

Then, there's the 'category-based cashback' which offers varied cashback rates depending on a consumer's spending category. For example, a card may provide a 1% cashback rate on supermarket purchases while getting a higher 3% on fuel spending.

In some cases, the cashback amount may be subject to an annual cap, so it's always essential to read the fine print when considering a cashback credit card to avoid unwanted surprises or miscalculations.

How to earn cashback

Cashback is typically redeemed in three ways: bank deposits, credit card statements, or gift cards.

Like a friend who always has your back, bank cashback equivalents can be deposited directly into your checking or savings account to increase the amount you save just when you think you're about to go dry.

On the other hand, cashback used to offset your credit card balance is reflected on your statement and automatically reduces what you owe the bank, much like a gym instructor pushing you to do more pull-ups for bigger muscles.

Lastly, there's that friend that makes everything unpredictable and exciting, which is similar to how some commercial businesses can also offer cashback through gift cards. This can take the form of loyalty rewards earned in varying cashback rates depending on the spending category that customers can use in specific retail outlets.

How the cashback process works

To optimize saving through cashback, you should first learn to offset your spending. By earning cashback rates on your daily purchases, you can effectively reduce what you take out of your wallet. Suppose you have a 2% cashback card and spend $1,000. You can then earn $20 in cashback rewards. Over time, these savings can add up significantly.

Another way you can save more from cashback is by being on the lookout for bonus categories or higher reward rates on specific categories, such as groceries, dining, or travel. By aligning how much you spend on these items with the frequency of purchases, you can increase your cashback earnings in no time.

You can also combine cashback with sales and discounts, especially when retailers are in promotion mode. Aside from benefiting from the reduced prices, you can earn and save more if your timing is right.

Tips to getting the most out of your cashback

Earning cashback is excellent, but redeeming it can be challenging if you're not patient enough. To get the most out of your cashback, ensure you have paid off your balance in full every month, as interest charges can weaken them.

While you’re at it, review your credit card's terms and conditions carefully and familiarize yourself with your card's cashback structure, caps, and other restrictions to make informed decisions and maximize your rewards.

You can also leverage the cashback earned for specific goals, such as building an emergency fund or saving for a vacation. This strategy can help you stay focused on your spending habits and make the most of your rewards.

Spend and save responsibly

Mastering how to avoid overspending and focusing more on earning cashback gives you more incentive to increase your savings. Whether you combine multiple cashback cards to optimize your rewards in different categories or be extra wary of promotions and limited-time offers, you can save more even by spending for the essentials.

It's essential to keep a keen eye on your cashback strategies and continuously evolve them. Regularly review your spending patterns, cashback earnings, and the ever-changing landscape of cashback credit cards. By staying up-to-date and adapting your approach, you can ensure that your cashback strategy remains practical and relevant. Adjusting your plan will help you optimize your earnings and contribute more to your savings.

When used wisely, cashback credit cards and loyalty programs can become your secret weapons in conquering financial goals and overcoming the hurdles of inflation. With a comprehensive understanding of the fine print, terms, and conditions, you can craft strategic plans to help you grow your bank balance and navigate unpredictable financial tides.

Remember, the journey to financial success is not a sprint but a marathon. It requires persistence, determination, and a willingness to learn and adapt. Let the power of cashback rewards be your guiding light, illuminating your path toward achieving your goals and, ultimately, leading you to a brighter financial future.

So, harness the full potential of cashback credit cards and witness the incredible impact they can have on your financial journey. The key to unlocking the door to financial success might just be hiding in your wallet!


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