How much can you really make with a cash back card?
Here's how some cardholders use cash back cards to augment their income
Consumer finance expert, author and “Opening Credits” columnist.
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Out of all the rewards credit cards on the market, cash back cards are especially prized. But how much money can you really make with cash back credit cards, with no to little effort?
According to a 2017 TSYS consumer payment study, of the 75 percent of people who have a rewards card, cash rebate programs are cited as the most popular feature. The affluent, in particular, gravitate toward these products. A poll by CreditCards.com found that three out of every five people with at least $100,000 in investable assets said their favorite credit card reward is cash-back.
The appeal of cash back cards is that instead of accumulating points or miles and going to the trouble of calculating how to get the most value out of them in exchange for airfare and other products, getting cash back is straightforward. Use the card to buy things and the issuer returns a percentage of the charges. The funds will then be available to spend, save or to pay down a bill.
Here are the fundamentals of cash back cards, and how just a few cardholders are using them to augment their income. Some are reaping thousands, but even when the cash is seemingly small, for those living on a tight budget, every dollar counts.
How cash back cards work
With a cash back credit card, the issuer returns a percentage of your spending to you. Depending on the card, the percentage may be a low flat rate, such as 1 or 2 percent, on all charges or much higher rate on purchases in predetermined spending categories, such as dining out and travel.
The amount you can earn may be unlimited or cap out on the high percentage categories and then revert to a lower rate. You may receive the cash as a statement credit or in the form of a check, though you might have to reach a minimum figure first, such as $25, before the reward is released to you. Many cash back cards also offer a signup bonus of $150 or more for opening the account, which you’ll receive after meeting a minimum spending requirement within a specific time frame.
Clearly there is money to be made with these cards, yet how much hinges on a couple of factors. The first is the percentage rate. If it’s 1 percent and you charge $3,500 one month, you’d make $35. Second is the amount you charge. Spend $125 with the card giving 3 percent back and you’ll earn $3.75. However, if you spend $1,250 with the same card, you'd get $37.50 back. In short, the more you charge, the higher your profit.
Here’s how some cash back card holders use their cards to pad their wallets.
See related: Which reward is better? Cash back or travel?
Thousands in cash back boosts a small business’s bottom line
Denver resident Katie DeCicco is the founder and CEO of Celebration Saunas, an online retailer that supplies infrared saunas to hospitals, spas and individuals. Before launching, she was oblivious to the cash back rewards on her credit cards. However, when she started buying costly inventory and advertising, she found out how much she could bring in. Her current annual average in cash back rewards is $6,000.
“I spend about $600,000 on the saunas and another $50,000 on advertising each year,” says DeCicco. “I usually use my credit cards that give cash back on purchases, like my Discover it® Cash Back Card and Wells Fargo Visa Signature Card."
Since DeCicco doesn't carry over any debt, the thousands of dollars the credit card issuers return to her is pure profit, which she deposits into her personal bank accounts. As a dedicated small business owner, she works hard, so uses the cash back funds to treat herself and her family.
“Mostly it’s for pleasure and fun stuff,” says DeCicco. “The money I get from cash back pays for my daughter’s violin and her classes. This year I bought a new, expensive tent so we can go camping. I also spend it on improv classes, too, because they keep me laughing. Essentially, I use my cash back to invest in experiences.”
A funnyman rakes in $1,000 every year
Show business is not a financial win for everyone in the field, but a savvy entertainer can capitalize on the lifestyle. Shaun Eli, from Scarsdale, New York, for example, makes at least $1,000 from his cash back credit cards annually. “I’m a stand-up comedian, so I tour in addition to vacation travel,” says Eli. As a result, he makes the most of his charging while he’s away from home.
“The Citi Double Cash Card gives 2 percent on everything,” says Eli. “I use this when there isn’t a better option.” This card gives 1 percent back on the cardholder’s general purchases, and then adds in another 1 percent when the bill is paid on time.
Eli also has Citi, Chase and Discover cash back cards because they offer substantially higher percentages on categories that rotate throughout the year. “I put a Post-It note on each card for what that quarter’s spending category is. That way, I don’t have to remember which card covers which.” Eli also breaks out his Citi Costco Anywhere Visa Card often for 4 percent cash back on gas and the 3 percent on eligible travel and restaurants when higher percentages aren’t available on his other cards.
A young couple stockpiles cash back to fund their ‘wants’
Rochester, New York-based Kelan Kline and his wife Brittany run the personal finance blog The Savvy Couple. They, too, come out ahead with their cash back cards.
“In college, we always used credit card rewards to our advantage,” says Kline. “It was great getting money back on expenses we had to pay for anyway.”
See related: 4 cool ways to redeem cash back rewards
They used their Discover it® Cash Back card to earn 5 percent cash back on items in rotating categories, and 1 percent on things they bought at other times. In the beginning, the couple used the cash back earnings to help pay for what they charged, since it reduced the burden of the bill. After graduating, their finances improved. They became homeowners, and soon built up enough cash on their card to splurge on a BBQ grill and an entertainment center.
“It's always so rewarding to save up your cash back and purchase something worth hundreds of dollars for free,” says Kline. “Overall, we earned well over $1,000 in cash back rewards during our college and young adult lives.”
How cash back pads a fixed income
When living on a fixed income, every penny counts. San Diego resident Bobbie Klein has been using her Bank of America Cash Rewards Card to bump up her bottom line. She received a $150 initial cash bonus soon after getting the card, and now earns at least 1 percent on all purchases. It increases to 2 percent for groceries and wholesale club items, and 3 percent on what she charges on gas.
“I have to be mindful with what I spend,” says Klein. “What I get from my card is helpful. I like to do nice things for my grandkids, like buy them things at Costco. The money I get from my credit card is extra. I would say I probably make about $300 in total from my credit card in a year, maybe more.”
Klein says she doesn’t do anything special to get the most out of her cash back card. “Why would I?” she asks. “If I have to buy something, I buy it, and if I don’t, I don’t. I don’t make it complicated. All I know is that when I use my credit card, I will get a little money back at the end of the month and that’s great for me.”
First make it, then protect it
According to Dr. Mary Ann Campbell, a consumer credit expert and certified financial planner from Little Rock, Arkansas, the most crucial consideration regarding cash back card usage is to always pay off your entire balance when the bill is due. “Otherwise, you lose the value of your earned cash, and very quickly,” she says. “My best advice is to have your total payment automatically drafted from your checking account every month. It will guarantee your profit.”
And although Campbell believes it’s wise to know which times of the year you can earn a higher percentage on different spending categories (if that's the type of card you have), you will come out ahead by simply shopping as normal.
“I have a Sam’s Club Mastercard and like it because I get 5 percent back at the pump, but that’s where I shop anyway,” says Campbell. “I make about $90 a year on cash back just from that.”
Whatever you earn will be a positive net gain.
If the experiences of successful cash back card holders are motivating you to apply for one, Campbell says to do your homework first. Know what you’re eligible for, since the card should match your creditworthiness. Check your credit scores.
Accounts with elevated cash back features are granted to people with excellent credit ratings, though cash back cards exist even for people with bad-to-fair credit. Use CreditCards.com's Match tool to find out which cards you can qualify for. Also bear in mind that some cards come with annual fees, so calculate how much you can come out ahead after subtracting that charge.
“You have to research your options and then use the card smartly. If you do, you’ll make money,” says Campbell. Will you become a cash back millionaire? No, but netting a grand or two can be enough to cover the cost of a pretty sweet backyard grill.
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