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.
A 2019 poll of favorite credit card features by CreditCards.com found that America’s favorite credit card reward is 3% cash back on all purchases – and those results were across all age groups, income brackets, Census regions and education levels.
The appeal of cash back cards is that instead of continuously calculating the value of your points and miles to be sure you’re getting the most at the redemption counter, getting cash back is straightforward.
You simply use the card to buy things and the issuer returns a percentage of the charges, and you can spend that money, save it or use it to pay down a bill.
Here are the fundamentals of cash back cards, and how a few cardholders are using them to augment their income.
Some are reaping thousands, but even when the cash is seemingly small, every dollar counts.
See related: 7 ways to get the most from rewards credit cards
How cash back cards work
With a cash back credit card, the issuer returns a percentage of your spending to you.
Generally speaking, cash back cards come as one of two types:
Flat-rate cash back cards – These cards offer a standard percentage you’ll earn across all purchases. It’s often a low rate, but there are plenty of great 1.5% cash back cards and a few options that reward a coveted 2% on all purchases.
Bonus category cash back cards – With a bonus category card, you’ll earn a higher percentage when spending in predetermined categories, such as dining out, supermarket purchases and travel. The bonus rates can be fixed to one or more categories for the entirety of your time as a cardholder or rotate on a quarterly basis.
It’s important to know the fine print of how your cash back card works. With a bonus category card, the amount you can earn may be unlimited, but often, the high percentage categories have a spending cap and revert to a lower rate once you reach it. You may have to activate bonus categories if your card operates on a rotating schedule.
You’ll likely be able to receive the cash as a statement credit, direct deposit or in the form of a check. Sometimes, you’ll have to reach a minimum amount of cash back, such as $25, before you can redeem your cash back.
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 few things.
It starts with finding a card that matches your lifestyle. Make sure the rewards categories fit your spending habits and that the cash back redemption process is simple.
Here’s how some cash back cardholders have found cards that fit their lifestyle and in turn, padded their wallets.
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, but 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,” DeCicco said, “and 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.
And as a dedicated small business owner, she works hard, so she uses the cash back funds to treat herself and her family.
“Mostly it’s for pleasure and fun stuff,” says DeCicco said.
“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 of 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,” Eli said. As a result, he makes the most of his expenses while he’s away from home.
“The Citi® Double Cash Card gives 2% on everything,” Eli said, “and I use this when there isn’t a better option.”This card gives 1% back on the cardholder’s general purchases and then adds in another 1% 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.
Eli also breaks out his Costco Anywhere Visa® Card by Citi often for 4% cash back on eligible gas (for the first $7,000 per year and then 1%) and the 3% on eligible travel and restaurants when higher percentages aren’t available on his other cards.
“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,” he noted. Tricks like this can be the key to avoiding cash back credit card mistakes.
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,” Kline said.
“It was great getting money back on expenses we had to pay for anyway.”
They used their Discover it® Cash Back card to earn 5% cash back on items in rotating categories (on up to $1,500 in purchases quarterly, after activating, then 1%), and 1% 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,” Kline said.
“Overall, we earned well over $1,000 in cash back rewards during our college and young adult lives.”
As one of the top flexible cash back options, you may want to see how the couple’s Discover it Cash Back compares to the Chase Freedom Flex℠.
See related: 6 worst ways to redeem your credit card rewards
Cash back can pad 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 credit 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% on all purchases. It increases to 2% for grocery store and wholesale club items, and 3% on what she charges on gas (on up to $2,500 in combined category purchases each quarter, then 1%).
**Current intro bonus is $200 online cash rewards after spending $1,000 in the first 90 days from account opening
“I have to be mindful with what I spend,” Klein said.
“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.”
Klein doesn’t make it complicated — she said all she knows is that when she uses her credit card, she gets a little money back at the end of the month and that’s great for her.
First make your money, 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 noted.
“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.
Campbell said she likes her Sam’s Club Mastercard because she gets 5% back at the pump — and she shops at Sam’s Club anyway.
“I make about $90 a year on cash back just from that,” she reported.
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 said to do your homework first.
See related: Best flat rate cash back credit cards
Tips for maximizing cash back earnings
As we traverse the new cash back trends of 2021, it’s important to know the keys to maximizing the value of your cash back card:
- Find a card that fits your spending. Take a look at your spending habits. If there’s a particular category or two where you’re paying extra every month, find a cash back option that provides heightened rewards in those fields. If your spending is spread all over the place, a flat-rate cash back card might be your best bet.
- Set reminders for yourself. If you carry a rotating category card that requires quarterly activation, this is an essential step to be sure you’re earning the bonus rewards you deserve. This is also useful to ensure you’re making on-time payments, thus protecting your credit and status as an eligible rewards-earner.
- Hit your sign-up bonus. It may seem simple (as cash back earning often is), but making sure you cash in on the bonus your provider offers is a must.
- Spend strategically. If you’re someone who carries multiple cards or uses a rotating category cash back option, keeping close watch over what, when and where you’re swiping will be a lift to maximize your credit card’s value. For those with a few choices, be sure to use the most-rewarded option on every purchase and potentially look into scheduling out large buys in advance. Pay attention to any earnings caps, special limited-time spending incentives and your budget to avoid overspending.
Know what you’re eligible for, since the card should match your creditworthiness, and 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 CardMatch to find out which cards you can qualify for and 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,” Campbell said.
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.
*All information about the Wells Fargo Visa Signature Card has been collected independently by CreditCards.com and has not been reviewed by the issuer. These cards are no longer available on our site.