The Simple Math Behind How Quickly Cash Back Credit Cards Add Up To Big Rewards

There’s a reason people tend to use credit cards to pay for purchases. Not only does can it lend to better cash flow during the month, but you could end up getting rewarded for the purchases you’re already making.

But if you’re going to get a cash back credit card, it’s important to choose the right one. And there’s a simple formula you should use to make that call.

How to pick the right cash back credit card

Many credit cards offer cash back on purchases. But what you should aim to do is find a credit card that offers bonus cash back on the spending categories that cost you the most money.

Let’s say you have a long daily commute to the office, so you’re constantly filling your car up with gas. In that case, it would pay to find a credit card that offers bonus points at the pump.

Or, it may be that you have a large family to feed, and that you spend a lot of money at the supermarket each month. If so, aim to get a credit card that gives you extra cash back on groceries.

Here’s how the cash back could really add up. Imagine your credit card gives you 4X points on gas, and you spend $300 a month filling up your tank. That’s $3,600 per year.

A credit card giving you 1% back would mean earning $36 per year from your $3,600 in gas spending. But a credit giving you 4X points at the pump would have you earning $144 per year.

And you can use this strategy across different spending categories — for example, have one cash back credit card you use for gas, another you use for groceries, and another you use for travel purchases. That way, you’re hitting all of the categories you spend money on, and the cash back can really add up.

Make the most of your credit card cash back

It’s common for credit cards to give you access to your cash back pretty soon after you earn it. But one thing you may want to do is let your cash back accumulate and then use it to tackle larger expenses or goals.

Say you earn $40 a month in cash back from your credit card, and you redeem it each month. Chances are, you’re going to find something to spend it on, since it’s not such a huge amount.

But if you let your $40 per month add up, after a year, you’re looking at $480. That could be enough to pay for something more substantial you need.

You can also use the cash back you get from your credit cards to boost your savings. Many Americans don’t have enough money set aside for emergency expenses, so a good bet is to take your cash back and stick it in the bank if you’re short on funds.

Of course, it’s also important to keep your credit card accounts in good standing, especially if you’re juggling several of them. To that end, track your monthly spending and put yourself on a budget.

You don’t want to negate the value of your cash back by accumulating interest on credit card balances. But if you manage your credit cards well, you can earn a lot of money simply by purchasing the things you were already planning to buy.

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