You can offset your statement charges, but you could also put that extra cash toward investing or your favorite charity.
According to a 2017 CreditCards.com survey, 82 percent of the top 52 cash back credit cards surveyed let you redeem cash back as a statement credit, which is an easy, set-it-and-forget-it option.
Typically, you can redeem cash back rewards to cover a card purchase or just accept the cash in the form of a check or bank deposit. Some travel rewards cards that accrue points allow you to convert points or miles into cash as well, but the value of travel rewards points are often diluted when used as cash back instead of redeeming them for travel expenses.
Whatever way you currently redeem your cash back rewards, the optimal choices are ones that can pad your budget or offset your spending. If you use your cash back rewards wisely, you may even come out ahead on one or more financial goals.
“Cash back rewards can be a great perk to have fun with, but can also be a great way to get ahead financially,” says Brian Hanks, a certified financial planner based in Utah. However, “check to see if your rewards would be better used on financial priorities such as creating an emergency fund or debt paydown,” says Hanks.
It’s worth noting that you only come out ahead with cash back rewards if you aren’t revolving balances on your cards and paying interest on those balances. In fact, you’ll end up losing money as you’ll be paying more in interest than the amount of cash back you are receiving. As of March 2018, the average APR on cash back cards is 16.67 percent.
So, pay your balances in full each month. Here are the cool things you can do with your extra cash.
1. Pay down debt
Speaking of carrying a balance, with card APRs rising, it’s getting more expensive to revolve debt on your cards. To get balances under control, it only makes sense to use your cash back to to reduce what you owe.
However, you have to spend on the card to reap the rewards, which is antithetical to chipping away at an existing balance. So, the best approach here is to use whatever cash rewards you have already accumulated and apply that as a statement credit to your existing balance, as well as refraining from adding to your balance with new charges until the balance is at $0.
2. Build an emergency savings fund
Along the same vein of pursuing financial wellness, you can choose to use your cash back to build up an emergency fund. A comfortable emergency fund allows you to keep extra money around for unexpected expenses instead of having to rely on your card. So instead of applying the cash back to your statement, request that either a check be mailed to you or the cash back deposited into a separate savings account. The Chase Freedom Unlimited cash back card, for example, allows you to transfer your cash back to a Chase checking or savings account.
Saving up for an emergency fund is one way to sock away extra cash, but what about using your cash back rewards as a savings tool to supercharge your investing goals?
Robert Farrington, founder of the personal finance website TheCollegeInvestor.com, uses his Fidelity Rewards Visa Signature card to help fund his Fidelity brokerage account. “Since I started using my card, I’ve received a total of $600 in cash that went straight into my brokerage,” says Farrington.
Andrew Wang, managing partner of Runnymede Capital, does the same with his Fidelity card, but chooses to place his cash back rewards into 529 college savings accounts for his children. “The card allows you to deposit rewards into one account or divide them among up to five eligible accounts. We divide them among our three kids’ 529 plan accounts,” says Wang.
Clint Haynes, a certified financial planner (CFP) at NextGen Wealth says that using extra money to invest in yourself should also be a consideration. “Getting a gym membership or even taking an online course to gain skills that could help you earn more money are other ways to invest in yourself.”
If you have been stockpiling cash rewards and would like to be more charitable, you can donate the money to a good cause.
Stephanie Kibler, personal finance blogger at Poorer Than You, uses her PenFed Platinum Rewards Visa Signature rewards to support many of her favorite charities for various fundraising events.
“I see it as a win all around. I get to use up every last penny of my gas and grocery rewards points, worthwhile charities get donations, and I always have the money to donate to a friend’s 5K, mountain climb, head shaving, free throw challenge or other wacky fundraiser,” says Kibler.
Your cash back rewards balance can serve as a separate account earmarked for charitable giving or assisting a friend or family member as you see fit. This way, you can feel good that you are able to give to others and also do it in a way that’s not detrimental to your personal finances.
If you’d like to use your rewards to give, there are a couple of ways to accomplish this. You could redeem points for cash to receive a check, which you can deposit and give to your charity of choice. Then, there are cards that either support various charities through your spending or allow you to donate your earned rewards to a qualifying charity of your choice.
If you plan to generate extra cash from your credit card rewards, take time to think how it could benefit you in the smartest way possible. You may not get many opportunities for free cash, but when you do, you’ll want to make the very most of it.
See related: 4 ways credit can boost millennials’ charitable giving, How cash back credit cards work