Credit cards

Cash Back Credit Cards Mitigate Some Inflation – If Used Wisely

SAN FRANCISCO (KGO) — Inflation is all around us. Fortunately, a break in the rate of inflation is also all around us: credit cards.

A credit card can do more than delay paying your bills or getting free plane tickets. Credit cards can help you in these times of inflation.

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“We really see responsible credit card use as a great way to fight inflation,” says Nick Ewen of credit card points website, The Points Guy.

The website focuses on the best use of credit cards: their miles, points and benefits.

He tells me that in this economy, cash is not king.

“Some no-annual-fee credit cards offer 2% cash back on everything you buy,” says Ewen. “So with the cost of almost everything going up, you can immediately reduce a significant chunk of it if you switch to one of these cards, instead of paying cash, using your debit card, or doing a check.”

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One thing that keeps consumers away from cashback cards are complicated rules about how many points are awarded for what purposes: 8% here, 3% there, 1% everywhere.

It’s a lot to follow, but Ewen says you don’t have to if you don’t want to.

“Think of it as, like, extreme couponing but with credit cards,” Ewen says. It works for some, “but for others it doesn’t really work for them and that’s why it’s good to opt for a simple cashback card that offers the same rate of return, the same rewards, no matter where you stand.”

Discount brokerage firm Fidelity offers a cash back credit card that offers between 2% and 3%, depending on how much you have in your account.

And remember, don’t carry a balance or any good you’ve done using a credit card is erased…and more.

Here are some hard numbers on what it costs to maintain a balance:

Let’s say you have a credit card with a balance of $5,000…

  • If your current APR is 17.25%, if you only make the minimum payments, you will pay interest plus 1% of the balance or $25.
  • This means it will take 220 months to pay it off and you will pay $6,248 in interest.
  • With a 0.75% rate hike, it takes $290 in additional interest to pay off the card.
  • With a 1% rate increase, it takes $387 in additional interest to pay off the card.
  • So far, there has been a cumulative rate hike of 1.50%, which means that this balance is already costing an additional $579 in interest to pay off.

    • With rates rising 0.75% on Wednesday, the cumulative 2.25% hikes will earn $870 in additional interest.
  • With a potential cumulative rate hike of 3.25% by the end of the year, an additional $1,260 in interest will be required to be repaid.
  • Check out more stories and videos from Michael Finney and 7 On Your Side.

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