8 Ways to Waste Your Cash Back

Debit and credit card reward programs sometimes come with cash back that offer cold hard cash (or a statement credit) based on how much you spend on your card. As we’ve seen with Ben’s Blue Cash card, the right cash back program can earn you hundreds of dollars per year for your everyday spending.

Although it sounds great, there are several things that can stand in the way of you maximizing the cashback you earn. If you have a cash rewards card, here are 8 ways to waste your cashback that you definitely want to avoid.

Cash Back Mistakes to Avoid

1. Pay an annual fee
Earning cashback on your credit card is great, but you wipe out a big chunk of your rewards by paying an annual fee. Essentially, having an annual fee means your cashback account starts out in the hole every year.

You have to spend a lot of money just to break even with an annual fee but having a fee doesn’t necessarily rule out a card. Just be sure that you research the card’s cash back program well enough that you feel confident your spending habits will make the fee more than pay for itself. You can find some good credit cards without annual fees in this look at the best cash back credit cards.

These days it’s becoming more common for banks to charge a fee for you to use their debit cards as well.  There are companies that offer cash back debit cards that don’t charge a fee – for example check out Perkstreet Financial.

2. Pay interest
Similar to paying an annual fee, any interest you pay reduces your cashback reward significantly. Interest can be even worse than an annual fee because while the annual fee is a fixed cost, the interest can get higher and higher depending on your balance.  Earning 5% cash back but then paying 20% in interest fees defeats the purpose of earning cash rewards.

3. Pay late fees
Likewise, paying late fees because you sent in a late payment will wipe out a large chunk if not all of your cashback rewards. Set up automatic payments on the card so you don’t pay late fees.   If you’re a long time customer and it’s the first time you’ve been charged a late fee, a phone call to customer service may be able to get that fee waived.

4. Forget big purchases
If you’re buying a bick ticket item and pay cash then you could be missing out on a big chunk of cash back.  Obviously, you have to make sure you pay off the big balance at the end of the month or you’ll end up owing interest.

For example, last summer when Ben remodeled his kitchen in his new house he put the countertop and the appliances on his card.  He had the cash to pay it off right away but going through his Blue Cash Everyday card earned a lot of cashback.

5. Convert dollars to other reward programs
Many credit card companies allow you to swap out your cash back dollars for reward points in other programs. You could turn your cash rewards into hotel card points or airline card miles. While this can be convenient if you’re about to take a trip many times those points are worth less than the cash you earned.

Many points programs give you points at what comes out to less than 1% returns on your spending. If your cash back is earned at a higher rate like 2% or 5%, you are losing out. Additionally, you can spend cash on anything. You can’t control the value of the travel points.

6. Forget to cash out your rewards
This isn’t relevant for cards that automatically send you a check or credit your cash back to your statement.  But for cards that require you to request your cash back, make sure you do it!  If you’re not sure how yours works, be sure to look into it and find out how you can redeem your rewards. 

7. Miss out on top reward categories
Some cashback credit cards, like the Chase Freedom card, offer bonus cashback on certain rotating categories of spending on a monthly or quarterly basis. Extra cash back is great, but some of those same programs ask you to “opt-in” for the bonus rewards every time the category changes. Failure to do so will mean fewer rewards for you.

8. Miss a payment
Not only does missing a payment result in late fees and interest charges, many cards won’t give you credit for cashback you earned during a month that your payment is late.  This could have a particularly big impact on your earnings if it’s a month where you made a lot of big purchases.

Maximizing Cash Back

As you can see from that last point, these are all mistakes that can compound if you make multiple of them at once.  Here are some best practices to follow to help you maximize your cash back:

• Use a card without an annual fee
• Make your payments on time to avoid fees & interest
• Remember your rewards card for really big purchases (if you have the cash)
• Don’t convert your cashback to other rewards points
• Cash out your rewards as soon as possible
• Remember to opt-in for cards with rotating rewards categories

For more detailed information on frequently asked questions and misconceptions about cash back cards you can enter your email address below and I’ll send you the report, “10 Secrets to Maximizing Your CashBack Rewards”:

Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, ING Direct, and many others.

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