5% Cash Back Credit Card

Do you think you’re ready for a 5% cash back credit card? It definitely sounds like a sweet deal when you first read about it. But as always, you must exercise caution any time companies are willing to extend money in your direction, because that normally goes against the very reason why they’re in business—in fact, the credit card companies are in the business of doing the exact opposite, and that’s taking money from you. This doesn’t make them “evil”, but it does clarify their reason for existence. Let’s face it: If credit card companies didn’t build enough financial safety nets into the cards they issue, then they would really be out of business in just a few short years. As a matter of fact, if you included all the customers that default on their payments, charge-offs, fraud, and other activities, most credit card companies would really be in the crapper if they didn’t factor all of these costs into the cards they issue and the terms and conditions of each credit card. In the case of cards that offer 5% cash back, the card companies basically give you a “rebate” of sorts for using their card to make specific purchases, normally for more higher-priced transactions such as purchasing airline tickets or major appliance purchases. Other categories that are commonly favored by these types of credit cards are pet-related items (purchased at pet stores), meals at restaurants, and other—I guess you would call them—non-essential purchases. In other words, I seriously doubt that any credit card company will be doling out the 5 percent rebate on purchases such as toilet paper and toothpaste. As a matter of fact, even with the 5% cash back credit cards that are available, such as the Discover More Card or the Capital One No Hassle Cash Rewards Card, they offer a reduced percentage on purchases of more common items such as groceries and so forth; the percentage usually drops to between 1 percent to 3 percent.

You’re probably asking “So what’s the catch?” since you know that almost every credit card company has built-in “catches” for these types of offers. I will say that the average APR on these types of credit cards is normally significantly higher than their regular, “plain vanilla” counterparts that offer no rebates or incentives. Where you may normally find Annual Percentage Rates of “regular” credit cards anywhere within the 6-to-9 percent range (or even lower), you’ll see most 5 percent cash back credit cards will be somewhere roughly in the 12% APR range. Also, look out for introductory APR periods, where the percentage rate is low for a short amount of time, but as soon as that introductory period is up, they really slather on the fees. Most cards that offer cash back incentives or rebate programs also will charge you for balance transfers, but many of them take it easy on you by not assessing an annual fee. Another thing to consider is that most card companies offering these types of cards will require you to have excellent credit, which I believe is above the 700 range, although that’s somewhat subjective. The thing to keep in mind is not to get out of balance and start making multiple frivolous purchases just for the “thrill” of getting some type of cash reward or incentive back…it can be a difficult cycle to break. It’s better for you to consider an alternative to 5 percent cash back credit cards if you consider yourself to be more of an undisciplined person. As with any other contractual agreement you enter into, make sure to read the fine print on these types of credit cards, and remember the famous Latin phrase: “Caveat Emptor” (buyer beware). Not trying to discourage you from getting a 5% cash back credit card, but I am hopefully helping you to make an informed decision before committing to any one card.