Are you set to cash back?

Are you set to cash back?
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I can’t believe it’s the end of 2013 already and the holidays are nearly here. I love the holiday season and this year I’m even more excited. The reason for this is because at the start of 2013, I signed up for a cash back credit card. My friend told me about hers and I thought that I’d trade in my travel rewards card for a cash back one.

The best part of the credit card I got was that I didn’t have to pay an annual fee – another benefit over my travel rewards card and one way on how to save money this year. In recent years, I’ve just found that I haven’t used many of my airline points and I worry that they’ll expire without me using them. I’ve also paid over $100 a year to get these points so I wanted to see if I felt a bigger benefit with a cash back reward.

If you have elected for a cash back card you’ll know that cash back cards pay you back a certain percentage of the amount used on the card. The idea made sense to me and was true to the phrase “cash back”. The card I signed up for gives you cash back at the end of the year, giving me a rebate first thing in the New Year. So, I decided to go for it and signed on the dotted line right at the start of 2013.

Then I bumped into Sarah…

Half way through the year I bumped into my friend Sarah and we decided to go for a coffee. We were already talking about Christmas and how we were going to manage our spending this year. You see Sarah got stung big time with a massive credit card bill in January. Then, she unfortunately lost one of her jobs and it was really tough for her to pay it off. The card she picked had a massive interest rate and she ended up paying a lot of extra interest she didn’t plan on. She spoke to the card company but there was nothing she could do.

Before we left our coffee catch up, I decided to ask Sarah which card she had. I didn’t want to sign up for it if it sounded like it caused her so many issues. I was in shock when she told me it was a cash back card. Thankfully it wasn’t the same one I signed up for but it sounded fairly close. She told me a bit more, saying that she didn’t get much cash back at all at the end of the year – nothing near the interest she had paid. So, in reality, there was no real benefit of the card – she would have been better off with a low interest rate card.

If I’m honest, her situation scared me somewhat and I decided to investigate my card a bit more so I could make sure that I should keep it with the hopes of getting some money back in 2014.

Some things I discovered in my research on cash back cards…

When you sign up to any credit card, you agree to the bank and credit card firms’ terms and conditions. I’m trying to be money smart so I really need to get better at reading these T&C’s before I move agreements of this kind in future.

After my research, I found out that cash back rewards are available only in connection with consumer purchases made by individuals. So if you took on a cash back card as a company, your purchases in reality shouldn’t be eligible.

Cash back is applies on purchases less any refunds that are shown on your account statements. The cash back will often only be offered if your account is in good standing (maybe that was part of the issue for Sarah) and the purchases appear on one’s account statement. Cash back rewards aren’t issued normally on cash advances, interest charges, fees, payments, credit or debit adjustments and any amount other than purchases that may be charged to your account with your card or cheques. The bank also has the right to change what is eligible for cash back and what isn’t at the company’s discretion.

So what cash back rewards am I entitled to get based on my agreement? Before I spill the beans, remember that I had no annual fee. The card I signed up for gives me 1.25% cash back on eligible purchases. So, if I used my card for $100 worth of purchases, I’d get $1.25 back. It’s not that great but not that bad either. I also find out that my interest rate is 19.99% (which I failed to realize when I signed up for it) so obviously it won’t be worthwhile to leave a balance on my card even with the cash back rewards. Also I found out that I would additional cash back if I bought gas at some specific stations, up to a value of 3%.

Whatever I earn throughout the year my card says that they’ll credit me on my February account statement. The company calculates the rewards and applies them to my account in January of each year. Then, the amount of cash back rewards I’ve earned since February of the previous year will be credited to my account in that amount.

Then comes the catch – I keep searching and searching in the terms to see when the company may not credit me. They won’t give me any cash back if my account has been closed or in poor standing. As well, if I have a negative number of cash back rewards (because I have had more refunds than new purchases), the company has the right to deduct that number from the cash back rewards that I could receive later.

The Verdict

After taking the time to review all of the positives and negatives of these cash back cards, I decided to stick with it. I want to see for myself – and my own situation – if cash back will pay off. For now, I feel quite stable in my job and always pay off my credit card in full each month. I think that the cash back rewards the card is offering me are quite reasonable, considering that I’m not paying any annual fee for it.

However, I realize everyone’s situation is unique and I urge everyone reading us to do what I did and look at the terms of your cardholder agreement so you can assess if you’re really set to cash back or if you should choose an alternate form of payment.

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