Cashback credit cards: earning while you spend

Credit cards don’t have to be just a means of spending money – they can also help you make money!

Many credit card providers run schemes, often targeted at new customers, where you can earn either money or points entitling you to free goods. Here are a few common ways you can turn a spend into a save…

Cashback credit cards

Some credit card providers offer up to 5% cashback on purchases you make using your card. This is a technique to get you to choose your credit card over your debit card more often however, provided you pay off the outstanding balance in full every month it can actually make buying items cheaper. These cash back deals tend to be for a limited time period so remember to read the small print.

Other providers offer cashback incentives on specific types of purchases, for instance 3% cashback on fuel and travel expenses.

If you’ve decided you’d like a cashback credit card, do some research into the current cards available on the market. You will most likely face a choice between cards that offer high percentage cashback for a limited time period or those that offer less cashback over a longer term. What you choose depends on the purpose of getting a credit card – if it’s primarily to finance one large purchase that you can afford to pay off quickly, a higher fixed term card will be best suitable, but if you’re intending to use it repeatedly for the foreseeable future then you’ll get better benefits from a long-term promotion.

Loyalty point schemes

Instead of, or sometimes in addition to, cashback there are a number of credit card companies that run a loyalty scheme for customers. This means that you accrue points each time you charge something to your credit card, and these points can be converted into prizes or gift vouchers.

Like the cashback credit card, these loyalty schemes are best suited to those of you who intend to use your card on more than one occasion over a longer time period.

Before you jump into any scheme, check how much a point is worth in real terms. An incentive deal offering 10 points for every pound spend may seem great on paper, but it quickly loses its appeal when you read the small print and find out each point is worth £0.0001.

Like the points scheme, some providers offer you the chance to build up air miles when you use your card – which could be a handy bonus if you’re a frequent traveler or you want to cut the cost of a family holiday.

New customer prizes

To entice you to sign up for their services above rival firms, some credit card providers offer free goods as a thank you when you become a customer. This could be anything from a high street store gift voucher to European flights.

The catch with this offer is that the lender may well stipulate a minimum spend to make sure that you don’t just take out the card for the free gift. In order not to build up debt, use the card for the fewest transactions possible and pay off the card immediately.

The most important thing to remember when taking out a credit card is not to be seduced; bonus points, cashback and gifts might seem like a great reason to opt for a particular card but they could lead to unanticipated debt. Credit card interest rates tend to be higher than current accounts and personal loans, so it is all too easy for your outstanding balance to grow if you’re not careful with your spending habits.

However, if you do trust yourself to take out a new credit card you may not need to just use it sparingly if you have a lucrative cashback card. During the initial period while the cashback offer stands, use this card for all your grocery purchases, nick-nacks and such, as you will be earning money on items you already buy on a weekly basis. This will maximise the amount you receive but again, it’s a good idea to remember to revert back to using your debit card when the deal comes to an end.

Cashback or gifts aren’t the only benefit to paying for large purchases on credit card: credit cards also offer you greater legal protection should you not receive an item or your goods turn out to be faulty. This is particularly useful when booking ‘higher risk’ items such as holidays and vehicles, as it provides a peace of mind should the worst happen and your holiday etc be cancelled.

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