Cash-back credit cards take some of the sting out of inflation -- if used wisely

Thursday, July 28, 2022

A credit card can do more than put off paying your bills or getting free airline tickets. Credit cards can help you in these inflationary times.

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

A credit card can do more than put off paying your bills or getting free airline tickets. Credit cards can help you in these inflationary times.

"We really view the responsible use of credit cards as a great way to beat inflation," says Nick Ewen from the credit card point website, The Points Guy.

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

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

"There are some credit cards that have no annual fee that offer straight up 2% cash back on everything you buy," Ewen says. "So, with the increasing cost of just about everything, you can immediately cut a significant portion of that if you switch to using one of these cards, as opposed to paying in cash, using your debit card or writing a check."

VIDEO: Changed jobs? Don't forget to bring your 401(k) with you

25 million 401(k) plans -- a fifth of all 401(k) plans -- have been lost or forgotten. Is one of them yours?

One thing keeping consumers away from cash back cards are complicated rules on how many points are given for which purposes: 8% here, 3% there, 1% everywhere.

It is a lot to keep track of, 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. That works for some, "but for others that doesn't really work for them and that's why it's great to go with a simple cash back card that offers the same rate of return, the same rewards, no matter where you're standing."

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

And remember, do not carry a balance or any good you did by using a credit card is erased... and then some.

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

Let's say you have a credit card with $5,000 balance...

If your current APR is 17.25%, if you make just the minimum payments you will pay interest plus 1% of balance or $25.
That means it will take 220 months to pay it off, and you'll pay $6,248 in interest.
With a 0.75% rate hike, it takes an additional $290 in interest to pay off the card.
With a 1% rate hike, it takes an additional $387 in interest to pay off the card.

So far there have been a cumulative 1.50% hike in rates and that means this balance is already costing an additional $579 in interest to pay off.

With the 0.75% rate hike Wednesday, the cumulative 2.25% in hikes will make for an additional $870 in interest to pay off.
With a cumulative potential 3.25% rate hike by the year's end, it will take an additional $1,260 in interest to pay off.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

7OYS's consumer hotline is a free consumer mediation service for those in the San Francisco Bay Area. We assist individuals with consumer-related issues; we cannot assist on cases between businesses, or cases involving family law, criminal matters, landlord/tenant disputes, labor issues, or medical issues. Please review our FAQ here. As a part of our process in assisting you, it is necessary that we contact the company / agency you are writing about. If you do not wish us to contact them, please let us know right away, as it will affect our ability to work on your case. Due to the high volume of emails we receive, please allow 3-5 business days for a response.