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Taking Full Advantage Of Cash Back Credit Cards

Everyone has heard of cash back credit cards. For every purchase you make on your card, some percentage of that amount is returned to you at a predetermined date, usually on an annual basis. While this sounds like a situation where you can't lose, that may not be the case.

Should you decide that you will be carrying a balance on your credit card on a regular basis; your highest priority should always be the APR that your credit card is associated with. Your interest rate will have a greater impact on you financially than the small percentage you might get back at the end of the year by using a cash back card. Remember that your returns will only be from 1%-5% annually from many of the cash back offers, and this pales in comparison with the amount of interest you will be paying by carrying a balance. If you can find a cash back credit card offer with a lower APR than a regular credit card offer, then of course take it. Chances are you won't.

Creditors make a profit from charging an interest rate on the balance that your carry on your card. Cash back cards tend to have a slightly higher APR than other card offers. This is not always the case, but it can be used as a general rule of thumb.

The cash back credit card offer began in the early 1980's with a credit company called Discover. As the market they were late entering was already dominated by MasterCard and Visa, they needed an edge that would let them push their way in. Although they were slow to move into the credit card industry, they were steady and over the years became almost as recognized as Visa, at least from a branding perspective. The cash back offer worked.

The cash back card is a simple idea. As you use your credit card to make new purchases, a certain percentage of the amount spent is returned. The first Discover offer was 1% on all new purchases, and this set the standard for a long time. It is possible to finder high returns, but these offers are generally centered on specific spending, such as groceries, gasoline, or specific merchants.

Now it seems every credit card issuer has a cash back offer, with a myriad of options available to the consumer. A program that is becoming more and more popular is the tiered offering. With this program the percentage you receive back is related to the amount you purchase with your credit card. A general example would be 1% back for less than $2500.00, 2% for $2501.00 to $5000.00, and so forth.

The bottom line with these cards is, if you want to take full advantage of the offer there are several rules you should remember. These are:

* Don't make balance transfers * Don't use cash advances * Always pay your balance in full each month

In the terms and conditions of every credit card agreement, balance transfers and cash advances are handled differently than new purchases. Unless specified in the contract, these two options have interest applied to them immediately and with a much higher APR than new purchases, and with balance transfers there is almost always an additional fee on top of that. While this interest may be considered a small amount, it begins to lessen the value of your cash back offer, often to the point of making it irrelevant.

When used in a responsible manner, cash back credit cards can save consumers money. If not managed well however, it is possible that they can cost more then they are worth.

Jon Norwood is a managing partner of http://www.rewardcardmall.com, a site providing information on cash back credit cards, gas rebate offers, frequent flyer programs, and other types of credit card rewards.

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