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What is a cash back credit card and how does it work? Cash back credit cards give back a percentage of the user’s spending every month providing the user pays off the balance each month in full. The cash back percentage depends on how much is actually spent on the card and the cash back amount is then deducted from the balance of the following month.
Cash back rebates can range each month from 0.1% to 3% off the credit card balance however this depends not only on the users’ monthly spend but also on their salary. Sometimes there is even a minimum monthly spend limit with an added annual charge. In general, for credit cards featuring cashback a good credit rating is required in order to qualify for approval and this criteria must be adhered to in order to benefit from the cash back offer. In some cases the cash back offer is for a limited period only.
UK cash back cards can also be used alongside store loyalty cards such as the Boots Advantage, Nectar and Tesco Clubcard so you can earn yourself further bonus rewards. In addition, cash back cards can be used as an alternative to charity credit cards. Since the rates on a cashback card are generally higher than those offered by charity cards you have to choose to donate any cashback sum to your favourite charity and with the extra option of gift aid thus increasing the value further still.
In order to make the cashback card work the user must pay off the balance in full at the end of every month otherwise interest charges with apply and therefore wiping out any cash back benefit.
Cash back cards in the United Kingdom should never be used for withdrawing cash as hefty fees are almost always charged. Even if the balance is paid off in full a high interest rate is also charged. The same applies for balance transfers as shifting debt does not offer cash back. Many cashback cards offer top rates on balance transfers in an attempt to entice their users to actually transfer their debts onto them as well as use the card for spending. Monthly repayments are automatically allocated to repay cheap balance transfer debts first therefore leaving the higher interest from spending debts until last. This move has a negative outcome making it harder to pay off those costly debts accrued by spending. It is therefore much wiser and advisable to use separate cards for earning cash back and balance transfers only.
Above all it is highly recommended to only apply for a cash back card if you religiously pay off your cards in full each and every month.
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Published on September 30, 2007
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