There are many different credit cards out there to choose form and many of us have at least one card already. However, they do differ and it can be worth finding more out about the different types of card so that you can choose the right one for you. A lot of people are tempted by a cash back credit card and these can be good, but it is worth understanding how they work before applying for one.
Although all cash back cards will work slightly differently, the main principle is that you will get a certain percentage of money back on the amount that you spend in a month. That money is usually credited to the card for you to spend the following month. The percentage is usually very low but it is still more than you will get with other credit cards. Sometimes the cashback is only paid on certain types of purchases or you get a higher percentage for certain types of spending. You may even accumulate points rather than money which you can spend on certain things. If you have a shop issue credit card, such as Tesco bank for example, you may gain Tesco clubcard points that you can spend in the shop. Some will reward you with airmiles and others may give you different things. It will vary and you will need to take a look at what is available to see which you think will be the best for you. Obviously if it is a points reward card then you will need to make sure that you will use the points and that you are confident that they will be useful to you in the long term.
The main problem with cash back cards though is the interest rate. In order to fund the cash back they need to charge more money than standard cards. This means that any outstanding payments on the card will be charged at a high interest rate. It is often the case that the rate is so high compared to standard cards that it is not worth using these cards unless you pay off the whole outstanding balance each month and therefore pay no interest. This is very possible for many people who have a direct debit set up to clear all of their debt each month and never pay any interest on their card. However, you do need to be very careful and if you think there is any risk that you will not be able to pay the full balance off, you will need to consider whether you should choose a card with lower interest instead.
Only you know whether you will be able to commit to making sure that you pay the full balance off each month and therefore whether it is worth getting a card like this. Many people will just set up a direct debit for the balance in full to be paid off and it is done automatically which means that they can be sure that they will be able to pay it. If you have a regular income and are confident that this will continue then this can be a sensible choice. However, if you do not have a credit card because you are worried that you may be tempted to overspend, then think hard first. Make sure that you can trust yourself to be sensible with the card. Using it to pay for everything you would normally buy is sensible as you will cash back on all those purchases and will be able to pay it back when it is due with the money you would have originally bought the items with. However, if you think that you will be tempted to spend more than normal because you have a large credit limit, then it can be wise to not get a card in the first place. It can be a hard decision to make as you may not know how you will behave. You do know your own spending habits and how well you can budget or stick to a spending plan or whether you tend to make lots of impulse purchases and spend money without always thinking hard about it. If you are already a card owner and you know that you use it wisely, paying off the full balance each month, then it is worth taking a look into the cash back card options and whether you think that it is worth switching over.
So a cash back credit card can be a fantastic option for anyone who always pays off their credit card in full each month. However, if you do not do this then you need to be wary as you could find that you end up overpaying for the card because you pay more in interest than on a standard card and you will still pay more even if you take the cash back into account. Make sure that you research well, compare the costs carefully and understand your own shopping behaviour before you sign up to one.