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Cash Back Card UK – Cash Back Reward And Pitfalls Does It Help With Budgeting?
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We all like the idea of receiving some cash back reward when spending money; you could look at the cashback card as a way to receive discounts on purchases you would make anyway, but which cash back card is the best one for you?

With any type of cashback card you will receive a percentage of your spending back on you card's account (or at times via a cheque yearly). You will receive this cashback reward when you spend in shops (online shops as well) that are affiliate with your specific card 's cash back reward scheme.

It is a good idea to check the list of shops partecipating in the cashback card scheme for the specific card you are considering to use, make sure shops you ususally visit are on that list!

Most cashback cards offer up to 5% cash back reward only for the first 3 months (especially cash back 'credit' cards), after the first 3 months it goes down to between 0.5% and 3% depending on what you buy or which shop you buy from. There is some much better cashback card offer available but it is not the norm, more about this later.

To start with, you need to be aware there are three types of cash back cards, cash back credit cards, cash back debit cards and cash back prepay cards. How do they differ from each other and which type is the most useful if you are trying to keep on top of your monthly budget?

Cashback Credit Card: these cash back cards work just like normal credit cards, of course with the added benefit of giving you cash back rewards when you use it to buy things from shops.

(Pitfall Alert!) Just like any other credit card, you must make sure you repay the card in full each month or you will incur interests on outstanding balances. The interest cost you could end up paying on your purchases will render your cash back rewards useless. Cashback rewards range from 0.5% to 5% while interest costs could be around 18% APR.

Do not fall into this trap, if you must use a credit card make sure you can repay it in full every month, maybe via direct debit so you don't need to remember about it. If you must use a credit card and you cannot repay the card in full every month you may be better off with a credit card that offers the lowest interest cost overall, 0% on purchases for the longest initial period; do not base your choice on cashback rewards alone.

Unless you are an expert credit card user that knows how to make the most of the free interest periods, balance transfers deals, etc... and especially if you cannot repay your credit card balance in full every month then a credit card with or without cash back reward is not your best friend when it comes to keeping your expenditures within your monthly budget because you may end up making use of your credit to go over what you can safely afford and end up paying high interest costs on unpaid balances.

Cashback Debit Card: these cash back cards works just like a normal debit card where funds from your card's account are immediately taken to pay for your purchase. Not as many around as for the credit card variety, sometime limited to a maximum cashback reward amount per year.

(Pitfall Alert!) The maximum cashback yearly limit is not such a good thing for you, check these limits if any, if you use your debit card a lot, you may only receive little benefit from a limited/capped cash back reward.

(Pitfall Alert!) Cashback debit cards tend to offer overall lower cash back rewards percentages

The advantage is that you do not need to worry about interest costs because with a debit card you can only spend up to what you have on the current/saving account linked to that specific debit card. If you have an overdraft facility setup on that account be aware, with overdrafts there are overdrafts' costs/interests costs.

For most people a cashback debit card is an easier tool than a cashback credit card to help you stay within your monthly budget. Epsecially if you do not have an overdraft facility you simply won't be able to spend more money than you actually have in your account. You will not be able to buy that cool thing you didn't really need :) but at least you won't be accumulating high interest debts :)

Cashback Prepay Card: a prepay cash back card is the easiest and possibly friendliest of the cash back cards when it comes to keeping on top of your monthly budget. You preload your card with your chosen amount of money and you can only spend up to that amount.

You won't get into debts because you won't be allowed to make purchases of a value higher than the funds you prepaid/left into the card. ( Warning: Do not borrow money to load up your prepay card with cash, that would still count as debts! :) )

Because you top up your cash back cards with your own money, there is not going to be any interest cost.

(Pitfall Alert!) Prepay cash back cards will come with one or more type of fees (e.g. registration fee, monthly fee, transaction charges, top up charges), these fees can go from £0.00 (which is good :) ) to a few £pounds depending on which cashback prepay card you choose, or for top ups it may depend on how you top up your cashback card (online/post office/telephone/etc...)

Choose well and you will benefit from high cash back card rewards, you can get up to 7% cash back from popular shops and brands and up to 19%(or more) with some card on some online shops.

In conclusion the simplest way to enjoy cash back rewards on your everyday shopping and the simplest way to use a cash back card while trying to keep your shopping habits within budget appears to be to choose a solid and well connected cash back prepay card with low fees and high cash back rewards.


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