Unusual as it might seem, getting cashbacks on credit cards is now considered a genuine passive income source. And the notion is not far-fetched, considering that there are people who get the resources to travel the world and purchase expensive things based on the cashbacks they get off credit cards. Unfortunately, when most people hear about credit cards, they get frightful nightmares about debt. However, you can turn the tables around and have the credit card issuers pay you for using their money.
Can you make a passive income using cashback credit cards? People are making passive income from cashback credit cards. For example, if you spend $5,000 per month on a cashback credit card in accepted categories, you can make back $50 at a 1% rate.
People have traveled around the world with the help of cashback credit cards, and these are experiences people usually have to save up for over several years. Credit cards have benefits that debit cards and cash might not give you. And using these financial tools to make a passive income is actually easier than most people think, as we are about to find out below.
If you spend $5,000 per month on a cashback credit card in accepted categories, you can make back $50 at a 1% rate. Note that your spending should be based on regular and necessary purchases and your card should be paid back on time. Otherwise the accrued debt will become a financial burden, rather than a lucrative passive income source.
1. Understanding How Cash Back Credit Cards Work
The idea behind cashbacks is simple – for every dollar you spend, you get some cash back. You can get this money in your bank account or have it applied to your credit card statement. You are probably thinking, how would it be considered a good source of income if you have to spend money in order to get money back?
But think about it – you cannot get by without spending money. Therefore, you might as well spend this money in a way that benefits you. When you spend physical cash, you never get such deals, and neither does making purchases using your debit card. Besides, with a credit card, you are not actually spending your own money, as the credit card company gives you the amount based on your prescribed limits. Best of all, you will get these financial rewards while buying the very same things you purchase on a daily basis.
The cashback rewards you get for using cash back credit cards vary depending on the kind of product you are buying. For instance, while you can manage a 1% cashback on some purchases, you can also get cashbacks of 5% on other product categories, and this varies from one credit card to another. But generally speaking, some of the products you can buy to get cashbacks include groceries, gas, telephone services, restaurant expenses, and even shopping from department stores.
Who Shouldn’t Use a Cashback Credit Card You should not get a credit card if you know that you will use it irresponsibly. Furthermore, getting this card is probably not a good idea if you are already in debt as you will most likely not enjoy the benefits we are talking about here. It is counter productive to not pay off the debt on time as the card will wind up costing you way more than the cashback value. This would put you further in debt rather than provide you passive income.
2. Choosing The Best Cashback Credit Card for You
Broadly speaking, there are three types of cash back credit cards. Some offer flat rates, while others offer cash backs on certain categories (also known as bonus category cashback credit cards). Yet others provide a tiered cash back rate.
- For flat-rate cards, you get the same percentage of cashback regardless of what you buy.
- If you get a bonus category cash back credit card, you will get 1% on everything except on products in categories that offer higher rates.
- With a tiered cashback credit card, you will get better rates when you buy some items, for instance, gas and groceries. For these cards, you get a 1% cash back on other items.
Therefore, it is up to you to sit down and determine what benefits each cash back credit card can offer you. For instance, if your job keeps you constantly on the road, making you spend a lot of money on gas, then getting a card that pays you more for buying gas would be a brilliant idea. We love Tangerine’s cashback credit card. Their card has no annual fee and provides up to 2% cashback on groceries, gas, furniture, home improvement, public transportation, entertainment, recurring bill payments and more.
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3. Making the Cashback Flow
After you know what cashback credit card will work out best for you, you can go ahead and begin the process of getting one. However, before you can get some of the best cash back credit cards, you need to fulfill some requirements first. For instance, you should build a good credit history. Fortunately, with some of these credit cards, you will also get a bonus when you sign up, which can significantly boost the financial rewards the card has to offer you in the first place.
Once you have the cash back credit card in your hands, you can go ahead and start using it to ensure you get the cash back rewards you wanted all along. At this point, it is important to know the rules that apply to that credit card in order to make the best of it. In particular, understand what categories pay the best cashback rates as you use the card.
As soon as you start making purchases using the credit card, you will start to accumulate cash backs. Understand that you will not always get a chance to redeem the cash back in the form of money. You may get free travel, or an opportunity to buy stuff using accumulated points. That’s something to consider before choosing a card.
How Passive are Cashback Credit Cards?
Earning a passive income through cash back credit cards is as passive an income method as any. You just need to go about your life as you normally would but with a little more focus on the items you decide to buy. After a while, knowing the most rewarding way to use your card will be like second nature and you will have no trouble earning this money for free.
This is not a scalable passive income source because it will put you further in debt if you do not use it wisely (see the risks section for more info). You can try to earn more from your cashbacks, but you have to do so in a way that makes sense financially. There is no point in buying more things than you need just to get some extra cashbacks.
You can start with nothing. But you will need to have a good credit rating or some of the best cashback credit card providers might not issue you with a card. Therefore, this is a very cheap way to earn some extra money since a credit card issuer gives you the money to spend.
You don’t have to spend a lot of time trying to make this work. As soon as you get the card, you can start using it to earn this passive income. Generally speaking, the only time you will have to wait is when you have to be patient as your card is delivered to you. But otherwise, once you get the card, you can start earning passively right away.
If you have the discipline and a clear understanding of the cashback you can make from your usual spending each month, then this is one of the easiest things you can do to earn some extra money. But if you struggle to control your spending, then this passive income method will prove very challenging and probably even impossible to implement. But with a good plan, this is without a doubt one of the easiest ways you can make yourself some extra cash.
At every day of every week throughout the year, you will need to buy something. It could be gas, groceries, food and so forth. Therefore, seasons should not be a factor in how you earn through your cashback credit card. However, you might find yourself earning more cashbacks over the holidays when most people’s spending goes up.
There is some risk to using credit cards in that most people are tempted to use them improperly. This works to the favor of the credit card companies as you have to pay high interest rates. So, unless you plan your finances well, you might not enjoy the passive income benefits that these credit cards have to offer. Make sure to consult a financial professional in your area if you need more help in understanding the risks related to using a cashback credit card in your own personal financial situation.
Return On Investment
The return on your investment is quite impressive on cash back credit cards. Remember that you are getting the money you are using to earn the cashbacks on credit. The cost of such money is the interest you have to pay, and if you use the card wisely, you can offset these interest rates and get something extra on top, which will represent your profits.
Can you get more than one cash back credit card? Yes, that is possible. However, you should avoid getting too many cards and losing track. Having too many credit checks and cards can also lower your credit scores, which can in turn reduce your chances of obtaining these cards. If you want to have more than one single cash back credit card, you should have only a few cards that you can easily manage.
What would make the card not earn me any money? There are a few things that might cause this. For instance, you might not be using the card on expenses that offer the best cash backs. It might also be that you don’t pay off the card every month in a timely manner, which will increase your interest rates and wipe out any cash back benefits you made, and possibly even cost you more.
How much can you make from a cashback credit card? If you spend $5,000 per month on a cashback credit card in accepted categories, you can make back $50 at a 1% rate. Note that your spending should be based on regular and necessary purchases and your card should be paid back on time. Otherwise the accrued debt will become a financial burden, rather than a lucrative passive income source.