Are You a Sucker for Cash-Back Credit Card Offers?

Rebates and signing bonuses of $100 or more are mighty tempting, but these cards can cost you more than you realize

by Lani Luciano • Next Avenue
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Photograph: Shutterstock.com

Szifra Birke, a consultant on financial behaviors in Chelmsford, Mass., agrees. “We’re hard-wired for immediate gratification," she says, "and cash back seems pretty immediate.”
 
If you want to keep your own financial behavior under control, though, it’s wise to remember that credit card companies aren’t philanthropies. To get your hands on their money, you’re going to have to spend yours.
 
You may be surprised to learn that you typically won’t get a credit card’s signing bonus until you make enough purchases to fulfill its requirements. For example, to get Chase Freedom Card's $100 bonus, you must first spend at least $500 with the card during the first three months.
 
“Cash-back cards can really disappoint you if you don’t choose them well,” says Beverly Harzog, a credit expert and blogger based in Johns Creek, Ga. “The payback is in the details.”
 
To come out ahead, here’s what to keep in mind:
 
Don’t try to game the system. Maybe you’re thinking that you’ll get several new cards with signing bonuses then cancel them after receiving the cash. Not so fast. Cancel any of the cards and you may ding your credit score.
 
Remember: Credit scores are partly based on the percentage of available credit you’re using — the lower the percentage, the better your score. So if you cancel a card, your percentage rises and your score could drop.
 
(MORE: Tool: Credit Card Debt Calculator)
 
What’s more, if you don’t use cash-back cards enough, you might forfeit your rebates. And if chasing rebates causes you to overspend, you’ll do even more damage to your finances.
 
Don’t be dazzled by cash-back offers. Do the math. It’s easy to get lured by eye-catching cash-back rebates of 2 percent, 3 percent or even 6 percent of what you spend (rebates are typically 0.25 percent to 1 percent). What you may not realize, though, is that the higher rebates may be restrictive or tough to get.
 
For instance, American Express’s Blue Cash Everyday Card returns 3 percent on groceries only and 2 percent on just gas and certain department stores. The rebate on everything else is 1 percent.
 
Some cards switch their higher rebate categories often, making it harder to rack up the deals.
 
The Chase Freedom card, which normally offers 1 percent rebates, bestows 5 percent on up to $1,500 spent during the quarter in select categories, like restaurants and travel. The catch? Those categories change every three months. In addition, you’ll receive the higher rebate only by explicitly signing up for it online or by phone. Forget to do that and those rewards might never materialize.
 
(MORE: The Dirty Little Secret About Baby Boomer Debt)
 
In other cases, you’ll receive the inflated rebate only by agreeing to pay an annual fee for the card. American Express’s Blue Cash Everyday Card normally has no annual fee, but the Preferred version doubles your grocery rebate to 6 percent and ups the gas rebate from 2 to 3 percent if you pony up $75 a year. (The CardHub website just named the Amex Preferred card one of the best cash-back credit cards of 2013.)

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