Updated: April 30, 2020

Cash back credit cards have become popular in recent years because they allow you to earn money back when you spend on the everyday and not-so-everyday purchases. As a result, new cash back cards are constantly hitting the market, creatively earning users cash in a variety of spending categories. But are cash back credit cards worth it at the end of the day? After all, a handful of them come with annual fees and high interest rates that cut into the rewards. We’ll help you determine the answer to this question by breaking down cash back cards in detail.

Finding the right card is key

The key to getting the most out of a cash back credit card is choosing the one that’s right for you. To maximize your rewards, you should find one that matches your personal spending habits and lifestyle. For example, if you frequent Chipotle and the Outback steakhouse and always go see the latest movies that come out, you should go with a credit card that offers a high cash back rate on entertainment and dining.

If your spending is spread out across a few different categories, such as groceries, entertainment and travel, then you consider a flat-rate cash rewards card like the Wells Fargo Cash Wise Visa® card*. Flat-rate cards offer a set percentage of cash back on every single purchase. The downside is that they offer a lower cash back rate than cards with specific spending categories. In most cases, it’s best to get the higher rate on one type of spending and then collect the lower rate for everything else.

When you’re shopping around, you should also look for cards with low or no annual fees, low APRs, large welcome bonuses and perks that you’ll actually use. For example, you wouldn’t want to get a card that offers travel and rental car insurance as its main perks if you won’t use them.

There are hundreds of rewards cards on the market with different spending categories, cash back rates and perks, so it’s very possible you can find one that aligns with your lifestyle. Visit our cash back credit card reviews to find the perfect card for you.

Responsible spending helps you avoid debt

Are cash back credit cards worth it? Well, that depends. If you carry a balance from month to month, you’ll probably rack up more interest than you earn in rewards. Cash back cards also tend to have higher interest rates than other credit cards, which makes it even more important to use them responsibly. If you pay off your balance in full each month and don’t use rewards as an excuse to overspend, cash back cards can definitely be worth it.

To help you practice responsible credit card use and maximize your rewards, here are some tips.

Pay your bill on time. Making late payments on your credit card hurts your credit score and may even lead to you losing your rewards. A handful of cash back credit cards have late fees, and incurring one essentially cancels out the rewards you’ll earn for the next month or two. Paying late can also cause you to lose your cash back privileges completely. Any rewards in your account may be forfeited, and you might not be able to earn rewards on that card in the future. Some credit card issuers allow you to make a few late payments before you lose your rewards, but you should still try your best to pay on time.

Don’t carry a balance or max out your card. If you carry a balance on your credit card, you’ll often end up paying so much interest that it negates your rewards. As your debt accrues interest, it also becomes harder to pay it off completely, which can get you caught in the debt cycle. To avoid that, only charge what you can afford to pay off by the end of the billing cycle. Try not to max out your credit card, either, even if it has a low credit limit that you can comfortably pay off. Maxing out your credit card will raise your credit utilization ratio and hurt your credit score.

Analyze your spending habits. When you use a credit card, it’s easy to overspend. One study showed that people spent up to 100% more when they paid with a credit card instead of cash. Keeping that in mind, it’s important to keep a close eye on your spending. Check your statements on a regular basis to make sure your credit card isn’t causing you to spend more than you usually would. If it is, you may want to set a hard limit for how much you can charge each month and leave it at home when you reach your limit. We should note that credit cards offer more fraud protection than debit cards or cash, which is why we recommend using credit over the other options. That said, if you’re overspending with a credit card, you’ll want to get your spending habits in check before you make it your primary form of payment.

Don’t close your account. You might think about closing an old credit card account when you get a new cash back card, but doing so can hurt your credit. Closing an account lowers your total credit limit and raises your credit utilization ratio. If it’s one of your older credit cards, you also risk losing account history, which plays a role in determining your credit score. Instead, keep your credit card in a safe place that’s out of sight. Only use it for small purchases every now and then to keep the account active and boost your credit score.

Spend your rewards well. Lastly, if you have a credit card that earns you cash back, consider investing it or depositing it in your savings account. Spending your rewards well will double the benefits of your cash back card. You won’t just be getting cash back and spending it on things you don’t need — you’ll be using those rewards to boost your financial health and possibly your net worth.

The final word

Cash back credit cards can put extra money in your pocket by giving you a rebate on everyday and not-so-everyday purchases. The key to getting the most out of them is to choose the best one for you and then use it responsibly. If you pay off the balance in full each month and avoid racking up interest, your card can earn you money. But if you fall into the temptation to spend more because you’re earning cash back, having a rewards credit card could set you back financially. To make a cash back card worth it, get yourself in the right mindset, identify how you spend and find the best cash back card to reward you for your lifestyle.

*Information regarding the Wells Fargo Cash Wise Visa card was prepared by NextAdvisor.com staff. Opinions expressed therein are solely those of the writer and have not been reviewed or approved by any advertiser. The information, including card rates and fees, presented on this page is accurate as of the date of the post.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.