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Cash back credit cards are a type of reward card that gives you back a percentage of what you charge each month. Choosing the right card, using it on the right purchases, and redeeming rewards wisely can help you set financial goals and reach them faster.

Choose Your Card

Not every card makes sense for every person. Find the best card for you by pinpointing where your money goes each month. Then, you can choose the card that gives you the most rewards for purchases you're already making.

You'll also want to compare cash back cards with credit cards offering other rewards programs. Many programs allow you to redeem points for cash, as well as things like travel and shopping. You may find that flexibility — or lower, perhaps even zero, annual fees and interest rates — better fit your spending and goals. Depending on your situation, cash back cards may provide you with the most value. They can be used to help grow your rainy day fund by allowing you to directly deposit cash back into your savings account.

Know When to Use It

As long as you can still pay your bill in full each month, why not put purchases on your card to earn cash back? Many cards also offer bonuses when you first open the card, such as spending $500 within the first 60 days to receive $100 in cash. If you're planning on spending the money anyway, you'll want to do so during promo periods.

You may also get a higher cash back percentage based on your relationship with the financial institution. For example, some banks may bump your earning percentage up if you make certain amounts in checking deposits and have a certain dollar amount in a savings or investment account each month. Building a full relationship with a financial institution can have a lot of perks and benefits. And a higher earning percentage on a credit card can mean more money in your pocket.

Consider Two Cards

Some cards offer a high cash back percentage for purchases in certain categories, such as grocery stores or gas stations. However, cash back is usually capped at a certain dollar amount each month with those cards in particular. You'll likely end up getting more back with a single cash back percentage across all spending categories.

But, some consumers find that carrying multiple credit cards allows them to better maximize the cash back rewards. They'll use one card until they hit the monthly cap and another for purchases after that. But this only works if you planned to spend this money anyway, and if you're able to keep track of all of the bills you have to pay each month. The last thing you want to do is spend more money for the sake of getting rewards.

Save More, Faster

Cash back credit cards usually offer a statement credit or bank deposit. Rather than using your cash to buy more, consider using this money to advance your long-term goals.

If you've paid your card in full, direct any additional money to a savings account — before you even have the chance to spend it. The money you save now can help you achieve major goals, such as making a down payment on a house, financing an education, or boosting retirement savings.

Pay Off in Full

If you can't pay off your card in full each month, the cash back benefits you get may get canceled out by the extra money you'll spend on interest. Many of the cards offering the most enticing rewards have the highest interest rates, so make sure you look past the perks to determine if the card is right for you.

If you think you'll have trouble paying off your card, put those cash back rewards toward your statement. Remember, statement credits do not replace the monthly payment, so it does not dismiss the payment due for the billing cycle.

No matter which card you use, do the math. As your spending habits and goals evolve, revisit how cash back credit cards play into your strategy to ensure you're still on track to financial success.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

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