With a credit card, you generally have three choices between a cash-back rewards card, a travel card, and a debit card. While a few non-reward options are available, choosing one of them and missing out on “free” reward values seems like a non-starter, and it does seem like cash-back cards make sense for nearly everyone.
When choosing between these three card types, only the cash-back card has been getting the love lately, and one poster on Quora is wondering why. They believe that switching to cash-back credit cards hurts local and small businesses as the bank takes a percentage of the bill, which means eating up a little bit of profit.
I don’t think most people are factoring in the effect on local businesses, only that cashback credit cards are currently offering them what they believe is “free” money for spending.
Cash Back Cards Make Sense
If you think about who uses debit cards these days and why, most people have a debit card because it came with their checking account. The same can’t be said for travel card users, as not everyone travels, and not everyone wants to worry about booking rewards through a limited travel portal on a credit card website, which sounds time-consuming and frustrating.
For this reason, the cash-back card is the one that grabs most of the attention, as it’s the easiest to work with. You don’t have the same security worries with a debit card, and everyone can use cash-back, which can’t be said about travel bonuses. If you are shopping and spending money on purchases you were already going to make, cash-back cards make a ton of sense, as you can look at them as “free” money.
On top of this, cash-back cards are very straightforward in that you know precisely the percentage you will earn, so it’s almost as if you can calculate your reward value as you go. The same can’t be said about travel cards, which lessens their appeal. In other words, you can see the cash-back reward as soon as you log into a credit card account, but the same can’t be said about travel points until you dive into booking a trip and seeing how the points work out based on different destinations, airlines, and more.
Overall Security
It should go without saying that debit cards are also the least secure of the three options as any fraudulent activity immediately takes the money out of your account, becoming a real headache. While cash-back cards can tempt you into spending more, if you can keep your overall spending in check, there is every reason to believe this card type is the way to go. Cash-back cards also offer purchase protection, extended warranties, auto rental coverage, and other perks that debit cards can’t hope to compete with.
What’s Most Important
If you ask someone what they do the most regarding what they charge on a credit card, it’s a strong guess that travel isn’t their biggest spending habit. Instead, it’s more likely that if you tell them they can earn “free” cash-back, it heavily appeals to people’s general sensibilities to see their rewards immediately. This is especially true today, when inflation is outpacing income levels. Every bit of cash back helps, especially when you can put this money toward your statement balance.
Small Business Impact
Circling back to the Quora poster and their concern over cash-back credit cards hurting small businesses, this isn’t exactly something to ignore. This card type can impact small business profits, as they are responsible for anywhere between 1.5% and 3.5% per transaction owed to the bank. Unfortunately, these card processing fees are an aggravating but necessary evil.
What this Quora poster isn’t considering is that most people don’t carry cash these days, and these small businesses have to weigh the positive of someone being able to purchase with a card against the alternative of not making a sale. Personally, I’m less likely to buy something with cash if I have it on me, just because it’s a mindset question that I might need the money later in the day. Alternatively, what if someone isn’t carrying any cash at all?
These fees, while they can affect profits, are hopefully made up by the increased number of people who can make a purchase. It is really better than the alternative of only accepting cash or debit cards and having people realize they don’t have the correct form of payment available and walking out empty-handed.
Top Gaining Stocks
Top Losing Stocks