A Smarter Way To Spend

Ditch your debit card for a cashback credit card -- and get free money. Yes, really!

As my nearest and dearest would tell you, I'm well known for my love of shopping. Clothes, shoes, handbags, hair-cuts, gadgets. You name it, I've spent on it.

These days, I budget more carefully than I did in my (less Foolish) former years. I also try to spend wisely, using cashback websites, shopbots and online discount stores to get the best deals on everything.

Having been a postgraduate student until recently, I've been unable to get hold of the last piece in this savvy spending jigsaw: a cashback credit card.

Now I'm a full-time Fool, however, there's nothing holding me back.

Why do I want one?

Quite simply, I want a cashback credit card because whenever I spend on it, I'll earn back a percentage of what I've paid out.

This means I could make hundreds of pounds this year, simply by swapping which piece of plastic I use to pay for my everyday spending. The only cost to me will be the time it takes to apply for the cashback card!

How do they work?

Cashback cards work in the same way as any other credit card -- but for every £1 you spend, you'll get something back.

Every year on the same date as you opened your credit card account, your credit card company will calculate how much cashback you're owed. Sometimes this bonus dosh will be sent to your home address in the form of a cheque -- but it's more likely your credit card provider will simply put the money onto your card.

Which one is best for me?

Here are the three best cashback cards available at the moment:

As you can see from the table above, the American Express Platinum MoneyBack  Credit Card is the best overall option.

It offers the longest introductory period, during which users will get a whopping 5% cashback on everything spent. After that, you'll earn 0.5% - 1.5%, depending on how much you spend during the year.

While Barclaycard's offer of 4% cashback sounds almost as generous, this offer only lasts until the end of September -- and cashback is only paid on up to £375 worth of transactions per month during the promotional period. Those two conditions will make it difficult for anyone applying now to maximise the card's benefits.

And although Egg Money's offer of 1% cashback all year round might seem tempting in its simplicity, it doesn't have the same high earning potential as the American Express option. In fact, the maximum cashback available is capped at £200 per year.

So the American Express cashback credit card is definitely the one I'll be going for. To bump up the cashback I earn in those crucial first three months, I'm also going to apply for a second card for my boyfriend to use (but you should only do the same if you trust your partner completely).

After that, perhaps he'll apply for the card in his own right, and we'll get that promotional bonus period again!

Even though American Express isn't as widely accepted as MasterCard and Visa, I'll generally be using my cashback credit card to pay for supermarket shopping, train tickets and the like -- so I'll be using it in places where I know it is taken as payment.

However, Fools who are determined to get the maximum cashback possible on all their shopping could apply for an additional cashback credit card (perhaps the Egg Money MasterCard) -- that way, you'll have another option in your wallet.

What should I watch out for?

Like most financial products, cashback credit cards need to be handled carefully.

The key thing to remember is that their magic only works if you pay off the full balance on your card before your purchases start accruing interest. If you don't, your cashback credit card will start costing -- rather than earning -- you money. This is because the interest you pay on purchases will outweigh the cashback you receive.

In addition, cashback credit card providers generally reserve the right to withdraw cashback deals if users don't make their monthly repayments on time, or exceed the credit limit set.

For both these reasons, it's a good idea to set up a direct debit for the full balance of the card to be paid off each month.

Finally, some credit card companies will sneakily attach attractive-looking balance transfer offers to their cashback deals. Fools should beware this trick, as most banks operate negative repayment hierarchy -- which means your cheap, interest-free balance transfer debt will be paid off first, leaving expensive shopping debts trapped on the card racking up interest.

If you're looking to shift a balance, go for a dedicated 0% offer or lifetime balance transfer deal.

Happy spending!

As long as you remember those simple rules, you can't go far wrong with a cashback credit card.

I can't wait `til mine arrives. And I'm even more excited about the wedge of free cash I'll get hold of this time next year!

More: Earn Cashback On Everything! | Online Shopping Is Cheaper