Cash back is not free money!

Cash back is great, but it’s also too easy to misuse.When used properly, cash back on your credit card can be used to save you money, but more often than not, it causes you to spend more.

If you were thinking of buying something you can’t afford, I’m sure it’s easier to justify your purchase if you get cash back. This is not the case however. If you can’t afford something, don’t buy it, and save yourself from getting into debt.

Now, here’s how to properly use cash back to actually save money:

  1. Get a credit card with no/low annual fee, with good cash back rates(ex: 2% on all, 1% with 5% in rotating categories)
  2. Only spend what you would otherwise spend
  3. Use the cash back(or money you saved if you get bill credits) for more of your usual spending

If you do all of the above steps, your spending will actually decrease by the amount of cash back you get.

Here’s what not to do or think:

  • My cash back will justify this un-needed purchase
  • Who cares about interest
  • I’ll just pay the minimum and save

In all of the above cases, cash back is not being used properly. You can also choose to keep your spending the same, but buy more nice things. For example, if you get unlimited 2% cash back on all purchases, and you spend $10000 per year(use your card to pay bills, etc.), then you can treat yourself to $200 worth of fun money. Ok, bad example, but let’s say you’re lucky, and you shop at rotating categories, and the limit is $1500 of purchases per quarter. Than means for spending $6000, you get $300 of fun money. Factor in the 1% on the remaining $4000 of yearly spending, and you have $340 of fun money, without spending a cent extra!

Leave how you use cashback in the comments below!:

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