Are Rebate Cards Right For You?

By Darin Shebesta, Arizona State University

Wouldn't you like to get back some of that hard earned money you spend everyday? Well, I have been doing just that for a couple of years simply by using a credit card. Sounds too easy, right?

Please note that in order for the credit card companies to pay me back, I have to first use their card by making purchases of some sort. Banks offer reward/cash rebate cards that pay you back a certain percentage of the money you spend. However, there are some steps that need to be taken to ensure that rebate cards are right for you.

Finding the right rebate card

For those of you who do not pay off your credit card balances every month, this type of card is probably not right for you. That's because the Annual Percentage Rate (APR) tends to be higher on rebate cards. If you were to carry a balance on a rebate account, the interest rate typically tends to be higher than for a non-rebate card. For those who carry a balance, using a card that offers a low APR is appropriate so you'll pay less interest charges. There are plenty of 0% APR cards available, but be careful to check how long the low interest rate introductory period lasts before your rate is raised.

For those who are still interested in rebate credit cards, here is more important information. Some rebate cards require you to carry a monthly balance to earn cash rewards. This defeats the purpose of using a rebate card because you end up paying interest on the balance carried (the APR is usually higher on a rebate card).

If you don't carry a balance to the next month, no rebate is accumulated. I spent at least six months trying to figure this out with a so-called "rebate" card. I stopped using the card for my purchases once I realized there was no incentive for me to do so.

Rebate award rules

Credit card users should be aware that some rebate cards use a "tiered" system to calculate the designated rebate percentage. For example, if you spend $25-$50 per month, you qualify to earn a certain rebate percentage. If you spend $51-$100, you can earn a higher rebate. Spending $101-$150 will allow you earn the highest rebate return available. Warning: The spending level needed to earn the highest rebate percentage can be very high.

Look for a card that doesn't use spending tiers, just one flat rebate percentage. From the very first dollar spent to the last, you'll always receive the same rebate percentage. Be aware that some cards pay a bigger rebate if items are purchased at gas stations, supermarkets, and home improvement stores.

You can choose between several types of rebate cards: gift certificates, airline miles, cash back, etc. I choose cash rebates because I can use the money for anything. It all depends on your situation.

Using credit cards of any sort requires smart and logical decisions. If you can't afford to pay for purchases in cash, don't charge them. In essence, don't buy an item at all if you don't have cash to pay for it in full (rare exceptions can be made for long term investments such as a house).

Credit card debt should be avoided whenever possible. Do not buy unnecessary items to earn a rebate. Also, keep in mind that if items are returned, your rebate is lost along with the goods.

With some credit cards, the rebate earned the month before is applied to the following month's balance. Other cards may require that a certain award level be reached before a rebate can be awarded. It is important to find out the details on how the rebate is distributed before you sign up for any credit card.

Here are some more tips for keeping credit card costs low:

* Sign up for online bill paying. Ask your bank set up an account to pay the monthly credit card balance automatically. Not only is this quicker and safer, but you will also save money on checks and postage.

* Avoid cash advances. Fees for cash advances vary, but fees can be very costly. If you must get an advance, avoid using ATM machines. ATMs charge an additional fee for advances. The financial institution that owns the ATM charges this fee.

* Compare credit fees. You may pay a variety of charges to use credit cards, including annual fees, late fees, over limit fees and transaction fees. Learn about hidden fees to find the best lender.