My First Cashback Credit Card (And Why It Changed How I Talk About Money)

One of the first things that truly got me fired up about personal finance was cashback credit cards. And that excitement came at me from a number of different angles which I think really feed into how I work with people now and the issues I think are super important. Firstly… 

FREE MONEY! 

A cashback credit card is literally free money. 

If you use it well, that is. And if you don’t, then it’s a trap. I am excited about free money - and I know most of you will be too but cashback credit cards aren’t for everybody. Having said that, they might be for more people than you firstthink. 

How Do Cashback Credit Cards Work? 

When you spend money on your credit card, they will give you a percentage of that back. On average it’s probably around 1% in the UK, can be a little less, could be a little more.

Sometimes they have introductory offers or special offers for when you buy from certain stores or make certain types of purchases (for example when I had a shop, American Express supported Small Business Saturday by offering extra cashback when customers shopped in indie, high-street stores). Sometimes there is a minimum spend in order to get the cashback, sometimes there’s a cap on how much cashback you can earn. Sometimes you can pay a fee in order to get more cashback. 

The cashback might be credited to your account, paid out periodically or sometimes given as vouchers. There are also points cards which work similarly but where the points can be spent in certain stores or businesses - they can often be more generous but you’re limited as to where you can spend the points. 

How Do They Offer Cashback Credit Cards?

Ultimately, credit card companies make loads of money out of people who don’t pay their balance on time - like loads of money. The average interest rate on a UK credit card at the minute will be around 20-30% per year and it’s usually worked out daily so it compounds quickly. 

Say your rate is 25% (your Annual Percentage Rate or APR), they divide that rate by 365 (or sometimes 360) for the days of the year and at the end of each day that daily rate is multiplied by your unpaid balance. Usually it will be added in one go at the end of the month.

There is also usually a grace period whereby if you pay your balance off before then, no interest accrues. Some types of transaction (e.g. cash advances or ATM withdrawals) might accrue interest from the first day. 

So you might buy something on the 2nd of October, the statement is created at the end of October, and then you have until the 21st of November to pay your balance. From the 22nd of November your unpaid balance starts accruing interest at a rate of 0.0684% a day but the first time you’ll actually see that is on your November statement created at the end of November.

Ultimately 1% cashback just doesn’t compare to paying 25% in interest - so if you aren’t clearing your balance before the interest starts accruing then it’s just not worth it even if there’s a good cashback rate. This is really important and where a lot of people fall down.

They also make money on something called the interchange fee. When you use your credit card to purchase something, the retailer’s bank pays a fee (currently capped at 0.3%) and that is used, in part, to pay back to customers in cashback. 

My First Cashback Credit Card

I first started hearing about them through US finance podcasts, I’m sure they’re a bigger thing there than here in the UK. My natural reaction to credit cards was always ‘absolutely not - what’s the point? If you spend only what you have you can never get in trouble’. I never considered that I might be missing out on actual free money! 

So, I gingerly applied for my first credit card, around age 28, and I was actually turned down - I guess because I’d never had one before. They offered me another type of card, a baby credit card, with no benefits to speak of but I accepted on the basis that that would get me going. It was an American Express, and not every business accepted those at the time - it’s better now, but I started paying where I could with it - the weekly shop, petrol, coffees.

I made myself promise that it would only ever be for stuff I was already buying and that I would pay it back as soon as it turned up in the app which meant that I wasn’t even waiting for the statement. This turned out to be quite important because it was my way of building trust that I wasn’t just going to go wild, spend up to my limit and then never pay it off. Objectively, I could tell you that’s not the sort of person I was - but in my mind that absolutely could have happened. What’s more, it was very likely I would spend it all, not pay it off and then the police would turn up and take me to debtor’s jail where I would be living in a modern day Dickens novel and have to survive on gruel and shame for the rest of my life. 

That didn’t happen but I did get a little obsessed with checking the balance - doing that daily really. That calmed over time but I have still never lost the dopamine feeling of keeping on top of my finances, knowing what was happening and making active choices about it - rather than feeling too scared to open statements and emails which had been my more familiar state. 

Over time I was able to open a cashback credit card, then I opened another one for the business and then I really was flying. 

My cashback was paid out yearly, so a nice big lump, and I made another promise to myself that I would put half into investments and the other half split between a holiday and some nice fun, extra stuff like a massage or a nice bottle of gin or something. 

Speaking To Other People About It

It worked so well I started talking to people about it in the shop and in my personal life. At first I wasn’t even thinking of the personal finance thing, I was just excited. Later they started offering bonuses to people who signed up for the card, and to me too if they signed up through my link, so then I got really serious. 

But in talking to people about credit cards I realised how common my two biggest resistances were - that it’s somehow immoral or dissolute to have a credit card and/or that we couldn’t be trusted not to spend it all and never pay it back. The thing is, these people I was speaking to, mostly women and enbies, I knew them to be clever, capable people who worked hard and followed through on stuff - how was it that they were so scared of this?

That’s not to say that cashback credit cards, or even credit cards in general are for everybody - they definitely aren’t - but equally they‘re not for nobody. They’re not only for old men, rich people, people who have their act together. These were people with jobs, careers, families, responsibilities and yet they were worried that all of a sudden some sort of credit demon would inhabit their bodies and they would act so incredibly out of character that they would end up as a poor wretch in a Dickens novel. 

Personal Finance As A Career

It was in large part these conversations that led me to delve deeper into studying personal finance. I had in my head that if I could just spread enough information that these people would be saved from the shame and self-doubt and be able to make the right financial decisions. But, can you see how this isn’t about how much you know or what is logical? It’s about what is deeply ingrained in us from a very young age about what money is, who has money, what money can mean and the morality of it all. These aren’t rational decisions to be ‘dealt with’ by logical means - it’s deep feelings and emotions, family history, society. 

So I’m grateful to have studied financial advising, it really stood me in good stead, but I am so grateful I found financial coaching because that’s really where it is for me! 

If any of this struck a chord - let’s get coaching!! Find me right here. 

Love Eleanor. xxx