Is Your Cash Back Card a Scam?

No incentive is more enticing than cold, hard cash. People have been known to gamble their life’s savings away for the mere chance to hit it rich. People straight-up kill for cash. The idea of an allowance motivates kids to do something that’s fundamentally at odds with their nature: chores. Our intrinsic love of money allows credit card companies to suck us in with miscellaneous bonuses and rewards. But the credit beast is ravenous and not easily sated. Because of the recent crackdown on shady fees and practices, credit card companies today look for any possible way to lure us in and up their revenues. That’s why, now more than ever, it’s important to brush up on our credit card resistance skills.

In the wake of the recession, people are more drawn to cash-back offers because of the flexibility and because of the fact that it’s … well, cash. Some people don’t particularly want airline miles. They want money that they can use on necessities like food, bills and rent. Cash-back rewards also play into our ever-increasing Internet-era need for instant gratification. Saving up for a big-screen TV? Ha! That’s so 1992! You don’t have to save up your cash-back rewards forever to finally redeem them for something good the way you do with air miles. You simply get a certain percentage of your monthly spending back on the next billing cycle, like a little present.

Still, simply being broke and impatient doesn’t fully explain our love of cash-back rewards. As Olivia Mellan, a psychotherapist specializing in financial issues, told Forbes, money also “means love, power, control and security.” Credit card companies know this, and they’re appealing to these deeply rooted desires more and more as fee regulations become stricter and extra revenue gets harder to find. A 2012 study found that almost half of new credit card offers were of the cash-back variety, as opposed to 27% just a few years ago, in 2008. Credit card companies know what appeals to you, and they desperately try to keep you spending.

So what do you need to know about cash-back offers if you don’t want to get screwed? Look in your agreement’s fine print and identify the catches. Some of the more common ones include:

  1. Postponement of cash-back rewards until you make a ton of purchases.
  2. Annual fees that pretty much negate the cash you’ll get back.
  3. Strict regulations on the places where your cash-back rewards apply. What’s more, from month to month companies can even adjust where you can earn the most cash back.
  4. The right to revoke cash-back agreements if you don’t use your card as frequently as they deem suitable. It’s an attempt to trick you into spending more than you normally would.

Cash back cards can also get the IRS after you. Rewards earned through spending aren’t taxable, but a signup bonus must be treated as income – and it will be taxed as such under the law, something most people don’t know. Although some companies will send out 1099 tax forms, most of them will leave it to you to figure out and deal with on your own, in typical heartless fashion.

These incentives aren’t all inherently bad, though. As long as you stay ahead of the game, you do have the potential to use them to your advantage. Don’t just sign up for a bunch of cash-back credit cards to get the signing bonus and then cancel them, because that can both damage your credit score and turn the giant flaming eyeball of the Internal Revenue Service your way – you know, the same thing that happens when Frodo puts the One Ring on his finger. So be aware of the risks, and read the fine print. Shop around, and make use of every resource available to you. To get the cash you want – without getting screwed – you’re gonna have to be smart, informed and (sometimes) a little bit crafty.

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