Inflation has all but decimated our bank accounts over the past couple of years. Though it’s cooling down somewhat, costs are still untenably high across various categories.
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Americans are having a tough time getting by because of inflation, and more are living paycheck to paycheck. There’s only so much you can do to fight it; even the Fed is having a difficult time taming it.
So what can you do to battle inflation? One tool that could come in handy is a cash-back credit card. No, cash-back credit cards won’t spare you from all of the repercussions of inflation, but they can help in a couple of key ways, provided you use them responsibly and in a way that naturally fits in your financial life.
“Cash-back rewards provide consumers with a way to offset the rising costs of goods and services due to inflation,” said Michael Kleinman, the owner of Centurion Payment Services. “By earning a percentage of their purchases back in cash, they can effectively reduce their overall expenses.”
It’s a matter of simple math. Basically, if inflation is at 6.4%, which is roughly where it is right now, and your cash-back rewards on travel purchases are 5%, as they are with the Chase Freedom Unlimited card, then you’re not getting gouged 6.4%; you’re enduring an inflation of just 1.4%.
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What you do with the cash-back money matters significantly, too, in your private war against inflation. Kleinman recommends investing it to hedge against rising costs.
“Cash-back rewards can be used to invest in assets that appreciate over time,” Kleinman said, “such as stocks or real estate, which can help protect against the effects of inflation.”
Not all cash-back credit cards are the same. When looking for a cash-back card, there are some important factors to consider.
You’ll also want to scrutinize the exact cash-back rates. What are you getting back and on what categories?
“If everything is basically 1%, yes it’ll add up over time but that’s still low enough that it can be easier to fall into a trap of spending more to earn more,” said Julie Ramhold, consumer analyst with DealNews.com. “Make sure the cards you’re looking at have good rates. Generally, things like gas may be as high as 4%, while restaurants and travel may be 3%, select other purchases could be 2%, and all other purchases could be 1%.”
You’ll also need to keep your eyes peeled for fees. Some cash-back credit cards tout steep ones that heavily dampen the payoffs.
“Cash-back cards lose their luster if you’re having to pay a fee to use them,” Ramhold added, “so, before applying for a new card, read the fine print and make sure the fees aren’t going to negate the overall perks of the card.”
Think of your cash-back credit card as a partner in crime, rather than as a solution to inflation. This means that responsible spending and payment behavior will be paramount. Additionally, a cash-back credit card should naturally align with your spending goals. Don’t get one just because you want to fight inflation. Get one because it works with your lifestyle, too.
Ask yourself, “How does a cash-back credit card fit into my life and line up with my spending goals and budget?”
“If you’re trying to cut back on spending overall, a cash-back card might not be the smartest financial move to make right now,” Ramhold said. “However, if you’re trying to save on regular purchases, then it may be well worth it as those cash-back earnings can help to make things like higher grocery costs easier to swallow.”
Also, remember to always pay your balance in full or you’ll totally defeat the point of fighting inflation with your cash-back credit card.
“Carrying a balance from month to month means you will pay interest, which costs far more than any rewards you earn on those purchases,” said budgeting expert Andrea Wororch. “The average interest rate on credit cards these days hovers above 17%.”
Bear in mind that there isn’t a card out there that has a cash-back reward rate as high as inflation. So if you’re out to full-on win the war on inflation with a cash-back credit card, it’s not going to happen. The best you can do is get some savings and, ideally, use those savings to invest in something that is inflation proof, or at least fairly resilient in the face of inflation.
There are other ways to get cash back on your purchases.
“You can earn extra cash back by using cash-back sites and apps,” Woroch said. “For instance, link your cash-back credit card to an app like Slide and then use the app to pay at participating retailers to earn up to another 10% cash back.
“You can also turn recent purchases you made with your cash-back card into even more money back in your pocket by taking pictures of your receipts using a rewards app like Fetch. The app gives you points for each receipt you upload, which can be redeemed towards free gift cards to a variety of stores including Amazon and Target. Other cash-back apps and tools include Honey and Dosh.”