Avoid These Cash-Back Credit Card Mistakes

by Barry Choi March 2, 2018 / No Comments

Cash-back credit cards are incredibly popular. They’re easy to understand since you earned a fixed amount in cash back on all your purchases. That being said, many people still make mistakes with their cash-back cards without even realizing it. From not paying attention to multipliers to paying foreign transaction fees, you’ll want to avoid these cash-back credit card mistakes.

Not using a cash-back credit card that suits your spending habits

Many of the best cash-back credit cards in Canada have higher multipliers for certain merchant categories. Groceries and gas are the most common categories, but travel spending can also be a popular choice since most people tend to spend a higher amount on their travel purchases.

You really need to take a look at your spending categories and make sure you have the right cash-back credit card to maximize your rewards. Some people even have multiple cash-back credit cards so they can get higher multipliers in various categories.

You’re not cashing in your points

Generally speaking, there’s almost no advantage when it comes to hoarding cash back rewards. Some cash-back credit cards automatically pay you out once you reach a certain threshold, but for others, it may be up to you make a claim. For example, the PC Financial World Elite Mastercard allows you to redeem $10 in merchandise for 10,000 points, but you need to tell the cashier, or select the option when doing self checkout.

PC Financial World Elite Mastercard

  • Earn 45 PC Optimum Points per $1 spent at Shoppers Drug Mart / Pharmaprix
  • Earn 30 PC Optimum Points per $1 spent where President’s Choice products are sold
  • Earn 10 PC Optimum Points per $1 spent on all other purchases

Other cards provide cash back in the form of a statement credit, but depending on the card, you may be able to request that amount in a cheque. There are strict rules with this so you need to read your cardholder policy.

You’re not factoring in the yearly fee

Cash-back credit cards are great, but have you factored in the annual fee when calculating your rewards? If you have a cash-back card that earns you 2% interest on all purchases but comes with a $99 annual fee, that means you need to charge $5,000 in purchases to your card just to break even.

Keep in mind that many credit cards run promotions where the annual fee is waived for the first year so it’s totally beneficial for you to sign up. However, if there’s no chance that you’ll spend that much after the first year, be sure to cancel your card before your annual fee kicks in.

Paying foreign transaction fees

What many people forget is that most credit cards have a foreign transaction fee of 2.5% whenever you make a purchase in a foreign currency. Well, if you’re earning 1-2% in cash back on your purchases, you’re actually taking a loss since you’re paying that foreign transaction fee.

Fortunately, there’s one cash-back credit card that has no foreign transaction fees and no annual fee. The Home Trust Preferred Visa gives you 1% cash back on all purchases, including those made in foreign currencies. In addition, you get purchase security insurance.

Home Trust Preferred Visa

  • No annual fee
  • No foreign exchange fee charged on purchases abroad
  • Earn 1% cash back on all purchases, with no limit on the amount you can earn
  • Not available to residents of Quebec

You’re carrying a balance

Okay, this should be obvious, but it needs to be stated nonetheless. If you’re consistently carrying a balance on your credit card, then cash back rewards mean nothing. Seriously, what good is 2% cash back when you’re paying 19.99% in interest every month? Only charge what you can pay off every month.

That being said, if you do find yourself carrying a balance, it probably makes sense to apply for a balance transfer credit card. When you balance transfer to a low-interest credit card, you get a promotional period of six to 12 months where your interest rate is incredibly low which will allow you to pay down your debt. One of the best balance transfer credit cards in Canada is the American Express Essential Card, a no annual fee card that has introductory balance transfer rate of 1.99% for the first 6 months before increasing to the still very low rate of 8.99% on purchases and cash advanaces.

American Express Essential Credit Card

  • No annual fee
  • Low interest rate of 8.99% on purchases and cash advances
  • For new cardholders: special 1.99% introductory rate on balance transfers for the first 6 months (available only at time of online application)
  • Access to American Express Invites

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