I’m researching to open my first proper card and still confused about how cash back works.
Say you buy a burger and get 2% cash back. Does it apply a 2% discount to the burger? Or do I earn 2% of the burger’s price?
Where does the money for the cash back come from? Does the cash back affect credit score?
In: Economics
Say you have a card that gives 2% cashback. It means you will get 2% of your purchases back (usually lump sum, once a year). So your $10 burger yielded you…$0.20. So obviously the more you spend the more you get back (but never justify overspending for this reason). In a year’s time, you spent $15,000. That means you would get back a grand total of $300 “back”. By this, your next statement will be $300 cheaper than whatever it would have been.
Many cards have different rates. Some are flat rate cards. Some have different rates for different categories. For example, Card 1 gives 4% on restaurants, 1.5% on gas, groceries, and 0.5% on everything else. Card 2 gives 2% on everything. Its wise tio pair up cards to maximize your cashback. Basically, card 1 for food, card 2 for everything else.
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