10 cash back credit card mistakes you need to avoid
Cash back cards can offer you 'free money,' but only if you used them correctly
The content on this page is accurate as of the posting date. Some of the offers mentioned below may no longer be available. Please review our list of best credit cards to find our current offers, or use our CardMatch tool to find cards matched to your needs.
You love your cash back credit card. But do you really know how to get the most out of it?
Fifty-six percent of Americans use a cash back card as their primary credit card, according to a 2017 survey from TD Bank.
But that same research reveals that we don’t always make the most of card rewards. Almost 1 in 5 cardholders leave card rewards on the table. And that increases to almost 1 in 3 for millennials.
“They’re getting a card for benefits,” says Julie Pukas, head of U.S. bankcard and merchant solutions for TD Bank. “But they’re not maximizing it.”
What’s a cash back lover not to do? Here are 10 common cash back mistakes to avoid – along with a few tips for squeezing every dollar from those rewards:
10 common cash back credit card mistakes
- Not finding the right card that best suits your real life.
- Saving rewards for too long or not cashing them in strategically.
- Neglecting to register for those quarterly bonus categories.
- Not using rebate coupons and shopping portals to boost cash back.
- Being dazzled by sign-up bonuses.
- Ignoring spending caps.
- Carelessly using cash back cards for 'autopay.'
- You’re not avoiding foreign transaction fees.
- Carrying a balance on your card.
- Sticking with the same old card without shopping new options.
1. You’re not finding the card that best suits your real life.
“With cash back cards, there are so many flavors and options,” says Marc Bellanger, senior director of financial services for Merkle, a marketing firm for the financial services industry.
And depending on your lifestyle and where you spend money, there may be a card where you earn more, he says.
The secret: Tally up how much you’re spending in various categories such as travel, dining, groceries, etc., says Pukas. Her advice: “Really understand what you are really looking for and where you are spending.”
You can also maximize your cash back earnings by shifting (not increasing) some of your everyday spending to the right card.
If you spend a generous amount of your paycheck on groceries, maybe a card that offers an extra bonus for purchases at supermarkets is what you need. If you don't eat out much, a card that offers an extra bonus on restaurants might not be worth your attention.
And if you are willing to use your card everywhere. but don't want to spend time figuring out what card to use on every purchase, perhaps a flat-rate cash back card is the way to go.
2. You’re saving rewards for too long or not cashing them in strategically.
There are definitely consumers who forget to redeem cash back – even though it’s often simpler than redeeming points or miles, says Bellanger. “Redeeming often is probably a good thing to do.”
The one exception to the rule is when you’re saving rewards to cash them in on another (higher rate) card.
Expert tip: Some cards will let you trade your cash back rewards for points or miles on another of the same issuer’s cards.
For example, if you have a Chase Freedom or Freedom Unlimited card, you accumulate cash back benefits worth about 1 to 1.5 percent. But if you bank those rewards and redeem them for travel through one of the Chase Sapphire cards, you can get an extra bonus worth 25 to 50 percent of your points. So, if you travel frequently, turning your cash back into points could actually help you score major rewards.
3. You’re neglecting to register for those quarterly bonus categories.
“If you’re not activating those quarterly bonuses, that’s a mistake,” Honig says. It’s also a good time to note the new spending categories, so you’re using the card that gives the most for your purchases.
Easy hack: Add a reminder on your calendar to sign up for rotating categories every quarter.
4. You’re not using rebate coupons and shopping portals to boost cash back.
The other mistake too many consumers make: Not using coupon apps (such as Ibotta), coupon codes and shopping portals (such as Ebates and Upromise) to stack extra savings on top of cash back rewards, says Brian Preston, CFP, managing principal for Abound Wealth and host of The Money Guy Show podcast.
If you can pile up cash back bonuses, portal rebates and coupon codes, “that’s the trifecta,” Preston says.
5. You’re dazzled by sign-up bonuses.
“Most cash back cards have some kind of upfront bonus,” says Bellanger. The average of these sign-up bonuses, which require you to meet a minimum spend usually during the first three months after opening the account, is about $150.
Those are a nice plus. But if you plan to use the card regularly for a few years, focus on the return rate you get for the things you want to buy instead, Bellanger says. That way, long after you’ve redeemed that bonus, you’ll still have a card that’s rewarding you richly when you use it.
“As a consumer, my advice is ‘don’t get starstruck’ by that bonus amount,” Bellanger says. Instead, “make sure the underlying value is going to be lucrative for you over the long term.”
6. You’re ignoring spending caps.
Some cards cap spending limits for cash back rewards. After you hit the cap you can still earn cash back, but at a lower rate, usually the minimum the card pays.
Video: Creditcards.com Cash back survey 2017
Which means you’re wasting a chance to max out rewards for money you’re already spending.
Instead, aim for a cash back card that covers what you already spend (overall or in categories such as gas, groceries and dinners out), with a little room to spare. Or consider using multiple cards to maximize your cash back rewards.
For example, the Costco Anywhere Visa Card by Citi offers 4 percent back on up to $7,000 in gas purchases every year. At $3 per gallon, that’s roughly 45 gallons a week – more than enough for several drivers.
7. You’re carelessly using cards for 'autopay.'
Using a cash back card for bills is a great way to hit spending thresholds and rack up cash rewards. “Essentially, it’s a 2 percent off coupon,” says Preston.
But that doesn’t mean you have to put bills on autopilot, says Honig.
After frequently finding small erroneous charges on bills, Honig has learned that “it makes sense to review everything” – and use the cards to pay electronically without putting bills on automatic.
Also, if bills are larger than expected (and too much for your credit line), that autopay could max out your card. Or the payment could even be denied. Any resulting penalty fees might also cancel any hard-earned cash back on your card.
Pro tip: If you still opt for autopay, review your statements on a regular basis. That will help you spot billing errors as soon as they occur.
8. You’re not avoiding foreign transaction fees.
While many elite rewards cards have eliminated foreign transaction fees, some cash back cards still have them, says Honig.
Foreign transaction fees generally add 3 percent to your purchases made abroad, and you don’t have to be a high-flyer to get hit with them.
“If you make purchases [from websites or companies] outside the U.S., it’s something to keep an eye out for,” he adds.
Easy hack: If you plan to use your cash back card while traveling outside the U.S. or at foreign websites, consider signing up for a card that doesn’t charge foreign transaction fees.
9. Duh – you’re carrying a balance.
“If you’re getting 2 percent [cash] back but paying interest, you’re negating any potential benefit from a cash back card,” says Honig.
About 28 percent of Americans don’t pay off card bills in full every month, according to a recent CreditCards.com survey. And 29 million of us have carried that balance for two years or more.
That’s a losing game. The average APR on cash back cards is about 1.4 percent monthly. So, if your cash back card is paying you 1 percent, you’re leaking money. And if you’re getting 2 percent, you’re barely breaking even.
Want to get all the juice from your cash back card? Spend only what you can afford to pay each month.
If you need a card you can occasionally revolve, shop for a card that includes a 0-percent APR promotional offer.
And if you’ve run up a balance you can’t pay, take the cash back card out of circulation, and consider putting those rewards toward your current balance.
10. You’re sticking with same-old, same-old.
In the credit card business, new customers get the goodies – in the form of rich sign-up bonuses, promotional rates and generous perks.
While changing cards can be a pain, it’s often the only way to trade up. It’s also a good way to pick up the cards that will offer you the most when your spending habits change. And switching cards doesn’t have to sink your credit as long as you do it right.
If you’re looking at switching cash back cards (and closing one), says Daraius Dubash, co-founder of MillionMileSecrets, make sure you’ve cashed out all your rewards before you close the account.
- How to maximize rotating category bonuses in the new year – Rotating category bonuses allow you to score 5-percent cash back rewards each quarter if you have a Chase Freedom or Discover card. These tips will help you maximize your earnings ...
- 6 ways to get the most from cash back card sign-up bonuses – Cash back card sign-up bonuses can be more valuable if you shop for the right bonus and redeem it wisely. Here are some tips to give a boost to your cash back earnings ...
- How much can you really make with a cash back card? – The appeal of cash back cards is that they are simple, but how much can they augment your income? Four cardholders share their card strategies ...