Can credit card cash back fill the gap caused by inflation?

Consumers, including low-income consumers, are increasingly using rewards credit cards to help make ends meet, according to a new report from the Electronic Payments Alliance.

“For many people, these credit card rewards have acted as a lifeline during the record inflation of the past few years,” EPC executive chairman Richard Hunt said.

In ConsumerAffairs' survey of cash back cards, our editors determined that airline miles and restaurant points are great if you travel frequently, but nothing beats the flexibility of cash. With the best cash back credit cards, you'll earn extra money to spend however you want.

But it's not a level playing field. Consumers have to jump through some hoops to make sure the cash back card they sign up for makes sense for what they're buying. ConsumerAffairs surveyed a group of credit card experts to find out how to play the game and get the most cash back. Here's what we found.

Do you usually have a balance on your credit card?

Dave Grossman, CEO and founder of Your Best Credit Cards, believes it's silly to get a cash back card if you don't usually make your monthly payments.

“Generally speaking, any type of rewards credit card will have a higher APR than a non-rewards card because they have to pay rewards fees. So don’t pay 20% interest just to earn 2% interest,” he told ConsumerAffairs.

“But for anyone who can control their spending, such as not carrying a balance, a cash back card or any rewards card will be a better move, especially since credit cards will offer more consumer protections compared to credit cards. A financial card.

What are you going to do with it?

Before you apply, consider choosing a cash back credit card that rewards this category with a high cash back percentage. Frugal Flyer co-founder Josh Bandura suggests that if you spend the most money on groceries, for example, you should consider a cash back card that rewards that category with a high cash-back percentage.

Money-saving expert Andrea Woroch agrees with Bandura and shares some data to explain why being picky is so important. Pointing to a study by credit card matching tool Gigapoints, she said the average credit card user misses out on $1,000 worth of cash back every year because they use the wrong type of rewards card based on their spending history.

“So it's best to analyze your spending habits, find out where you shop most often, what types of shopping and spending are the most, and then find a card/store etc. that can offer you a higher cash back rate,” she suggested.

Flat rate or variable rate cash back card?

When you look at what each one has to offer, you'll find some pretty attractive prices if you buy certain items or buy them in certain places. For example, Amazon has a 5% cash back offer when you shop from Amazon (or Whole Foods), but that drops to 2% at gas stations and restaurants, and then to 1%.

If this credit card is your only one, flat rate is your best option, Woloch adds. “Because it takes the guesswork out of tracking categories or quarterly bonuses and provides you with a higher cash back rate on all of your expenses, even your monthly utility bills that you pay with your card or medical bill,” she asserts.

There is much more where these ideas come from. ConsumerAffairs also discovered CashBackMonitor, a website that tracks cash back offers from all major retailers and the hurdles you have to overcome to earn them. Some are definitely worth looking into, such as:

  • Walmart: 3%

  • Home Depot: 7%

  • Best Buy: 4%

  • Macy’s: 9%

Again, you have to do some work to make the website work in your favor. Floney explains how CashBackMonitor works in this video:

Your complete guide to who offers what

ConsumerAffairs recently completed a complete guide to cash back cards, and our researchers found even more interesting ways to get money back on your purchases. For example, there is one credit card that gives you up to 5.25% off on the following purchase categories: your choose.

To find out who offers what and how their plans work for certain buying categories, you can find our guide here.

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