Saturday, June 16, 2012

Cashback credit cards

Previously I had written on why we need to be extra careful about using credit cards. Credit cards are generally considered an enemy in the battle for financial security. But the truth is they can be used as a potential ally in this same journey. A potential ally who you need to keep a tab on always :)

I have found that credit cards are very useful in two ways -

One, they act as an emergency fund. Everyone needs to maintain an emergency fund always. Typically this should be the amount you would need to maintain your lifestyle for at least three months when your source of income , god forbid, stops to exist. It is a fund you will turn to when you are suddenly faced with an emergency. This kind of thing turns your planned budget upside down.

Ideally you should save a portion of your income in a savings account for this. There are some really good savings accounts out there which provide a great interest rate (however these rates may seem pretty low unfortunately in today's world). These accounts also allow a great deal of flexibility in terms of liquidity of funds. One great website I found that shows latest and best savings account rates is
Another site to check for interest rates is

However your credit card can also be a great asset when you run into an unexpected emergency. It can supplement as your emergency fund available in a savings account as well. However remember to pay off the card as soon you recover from your situation. Keep in mind credit card debt can be your worst enemy as i mentioned in my previous post - Credit Cards: Advantages and Disadvantages

Secondly, you can pick and choose your credit card such that you get back something from it via rewards.
If you travel a lot, a travel rewards card can be a big help. But in my case and in my personal opinion for most of us, a cashback credit card is the best. You can earn cash back from the card company thanks to all the transactions you did.

Caution: Remember these should be transactions you would have made irrespective of whether you had a card. That is never spend to buy things on your card just for the reward points. You should buy only if the item is essential for your needs.

There are many cards out there which offer great cashback %s on different categories. I will detail out a few i researched in my next post. Most importantly, by analyzing your expenditure, you should be able to determine on which categories do you spend a lot via plastic.
If it is groceries, then search for a cashback card that gives max % on supermarkets
If it is on fuel, then search for a cashback card that gives max % on gas purchases
There are many choices out there so be careful to read through all features of card before taking one. There are many websites out there which help you even compare different cards, like -

We will talk more about the few ones that I researched recently in the process of choosing one for myself in the next post. Till then, keep saving!!

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