Fortune Recommends: Tips on cash-back credit cards

April 6, 2023

Credit cards, spending, and managing your money

Running Point Capital and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Fortune Recommends in an article — by Alena Botros, How cash-back credit cards work and some tips on how to choose the best one for you — regarding cash-back credit cards, spending, and managing your money.

Smart ways to use cash back rewards

Paying off high-interest debt is probably one of the most opportunistic ways to take advantage of cash back rewards. Other smart ways to use cash back rewards include using them to save for a specific goal or purchase, treating yourself to a reward or splurge you’ve been eyeing, or specifically gearing them towards a purchase that leverages their value; for example, some cards offer a 20% rewards bonus when used to purchase air fare, hotel stays, or other travel related purchases.

The downside to cash back programs can come as the result of redemption rule changes and reward expiration dates. Additionally, some cash back cards charge annual fees which can offset the rewards earned; and if you close your credit card account, your rewards will disappear.

It is often best to redeem your cash back as soon as reasonably possible and/or when you have enough points to make it worthwhile, but definitely before rules change or their value is significantly eroded by inflation or expiration dates.

Any downsides?

Cons of using a cash-back credit card can include higher interest rates compared to other credit cards and the temptation to overspend on unnecessary purchases to earn rewards or take advantage of promotions.

Credit cards can be a bad idea if you have difficulty managing credit and may overspend, or if the interest rate is high and you are unlikely to pay off the balance in full each month. For some people, acquiring additional cards may make it harder to track expenses which can make managing or budgeting more difficult.

Quoted article excerpts are below:

…credit cards with rotating categories offer different bonus categories (that typically change monthly or quarterly) to cardholders, but they may require manual activation to start earning cash back. Michael Ashley Schulman, CFA, partner and chief investment officer at Running Point Capital Advisors, says it’s important to keep an eye out so you know what categories will earn you more, or so your unused points don’t go to waste. 

Nonetheless, cash back can be redeemed in a variety of ways depending on the card itself. That means you can redeem your earned cash back for statement credit or deposit it into your checking account. Some other options for redeeming cash back include: redeeming for gift cards, requesting a check, using it to offset a large purchase, paying specific retailers with points you’ve earned, and booking flights or hotels. 

Think about how you manage your finances before choosing the best credit card for you. For your first credit card, you should think about how you manage your money. If you’re really good with your finances, look into a cash-back credit card. But if you’re not, and you won’t be able to pay off your bill at the end of each month, you’ll want to look for a credit card with a low APR (annual percentage rate) on the debt, and cash-back credit cards don’t typically offer the lowest APR. “It doesn’t do you much good to earn $10 in rewards and then pay an extra $90 in interest,” Schulman says.

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You don’t realize how much you use your credit card, not even to buy things. It’s a card you get so you can navigate society.

Adam Carolla

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-42