How to Budget Your Cash Back Credit Card Funds

How to Budget Your Cash Back Credit Card Funds
Cash back credit cards offer the ultimate reward. For every dollar you spend, you earn money that you can redeem when you like. In some cases, this could be a significant amount of money. Many people use the money earned as a small “bonus” to be spent on a special treat. Determine the most effective way to budget your cash back funds by thinking about your needs.

Paying Down Debt

If you’re carrying a balance from month to month, you’re not doing yourself any favors. Even though you may be earning rewards by using your credit card, you’re likely paying more in interest fees than you’re earning in rewards. The smartest thing to do is to use any cash back funds you get to pay down your debt. This gets you closer to financial freedom. Many reward cards make it easy for you to use the money toward your balance. Simply select that option from inside your account.

Letting It Build Up

You could also choose to think of your cash back rewards as a sort of savings account. Some people like letting the money accrue throughout the year, then getting a big check back at the end of the year. You could use this bigger check to pay for a vacation or for your holiday shopping. This can be an easy way to save money, since you’re not actually cutting into your paychecks to do so.

Unfortunately, there’s also a chance that you could lose out on your rewards. Sometimes, the rewards expire after a certain time. If you’re not paying attention, your money could just vanish. It’s also possible for the company to change the terms of their program at any time. This could mean that your rewards are worth less than you thought they’d be. A safer option would be to cash out your rewards as often as you can.

Earning Interest

One of the biggest downsides to letting your money accrue in the cash back account is that it doesn’t earn you any interest just sitting there. Savings accounts don’t necessarily earn you a lot of money either, but a little bit is better than nothing. If you want to save up your rewards, the smartest way to do so is to cash out when you can, then transfer them to a savings account. Choose a savings account that you don’t have easy access to so that you can avoid temptation. Some rewards accounts even let you transfer your rewards money to investment funds, such as the Upromise card, which links with your 529 plan. These investments can earn you even more money. The sooner you transfer your money into accounts that earn interest, the sooner your money will start working for you.

Making the Most of Your Cash Back

You should also look for ways that you can make the most of the money in your cash back account. Carefully look over the terms of redemption to see if there are ways that you can earn more money. For instance, if your card works on a points system, there’s a chance that each point is worth more if you wait until a certain number of points have accrued. With a Bank of America rewards card, you get a small bonus when you have your cash rewards deposited directly into a Bank of America checking account. If your credit card offers programs like this, take advantage of them.

Despite the appeal of getting a big check at the end of the year, this isn’t always the smartest way to budget your cash back rewards. Think about the ways that this money can best work for you and plan to use your rewards accordingly.

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