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TWO MINUTE MONEY: Get paid to spend with cash-back cards

Welcome to Two Minute Money, Yahoo Finance’s new personal finance series offering quick explanations for some the the most important questions involving your money. 

There are thousands of credit cards on the market right now. Choosing the right card can feel like a burden. But today we’re going to focus on just one: cash-back.

Here’s the lowdown on cash-back cards: These cards are true to their name, offering a little cash-back for every dollar you spend. Different cards have different terms for calculating just how much you get back.

No credit history? No problem. You’re more likely to get approved for cash-back than another type of rewards card.

Let’s say you spend $2,000 a month on your credit card. How would that add up with some of the different types of cash-back cards on the market?

Capital Quicksilver One rewards is a great example of a flat rate rewards card. This card gives you 1.5% back of every dollar you spend—no matter what you spend it on. Multiply your monthly spending by a rate of 1.5% (Or .015), Then multiply by 12 months. And get your preliminary cash-back earnings: a total of $360. That shakes out to $321 in cash-back a year after fees.

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A second type of card offers higher cash-back rates in specific shopping categories. Amex blue cash rewards, for instance, offers 3% cash-back on gasoline and 6% on groceries—with 1% cash-back on all other purchases.

Let’s do the math. Say you spend $500 a month on groceries, $200 on gas, and the remaining $1,300 a month on all other purchases. Add up the categories, subtract the $95 annual fee, and you get a total of $493 in cash-back per year.

Some cards offer higher cash-back rates in rotating categories. Chase freedom offers 5% cash-back in a spending category that changes every quarter—with 1% back on all other purchases.

Let’s crunch the numbers. Spend an average of $500 a month in special categories then spend the remaining $1,500 on non-category purchases. And your combined cash-back is $530 a year with no annual fee.

To sum it up:

  • The key to picking a cash-back card is knowing your habits.
  • Unpredictable spender? Go flat rate.
  • Know your habits? Pick a categories card for your lifestyle.
  • Amenable to specific terms? Try out rotating categories.

If you’re still unsure and think you might be interested in a different type of card altogether—check out our points card video later in the week.

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