6 Smart Ways to Use Credit Card Cash-Back Rewards

Build an Emergency Fund
Having a reserve fund for emergencies is always a wise move. It can give you peace of mind to know you have extra money in case of an unexpected health issue, a job loss or if you just need to make car repairs.

There are many opinions, but experts suggest that your emergency fund should have enough money to carry you through three to six months of expenses. Review your monthly budget—especially the costs that you can’t live without, such as rent, groceries and your phone bill—and get a rough estimate of how much you should have set aside to get by for three months. Your cash back might not be all you need to save, but it will give you a leg up as you save over time.

To avoid setbacks as you build your emergency fund, you may want to establish some rules for yourself about when and why you might use it. Being clear on what the money is for may help to stop you from spending it when not absolutely necessary.

Invest for the Future
If you don’t have a specific goal in mind for your cash back, invest it. You can put it toward a short-term certificate of deposit (CD) or a long-term traditional IRA for your retirement. 

The bar for investing money in the stock market has been significantly lowered, and there are multiple apps that you can download to your smartphone that will allow you to buy and sell stocks. While there is risk involved in stock investing, you may consider using a small portion of your income (such as your monthly cash back) to buy some positions in companies you think will continue to grow and turn a profit.

Retirement is one of the biggest expenses you’ll have in your life, and that $200 you put toward your IRA or investment account today could add up to thousands by the time you’re ready to retire. If you’re wondering how much money you’ll need for retirement—and how much you should save each money—use this calculator to get started.

Save Toward a Major Goal
Thinking about buying a new car? Been dreaming about a trip abroad? If you don’t need to spend the money right away, you could consider putting the cash-back reward into a savings account and earmarking it toward a big purchase. 

Bucket your saved money and put it toward a medium-term savings goal. These types of goals aren’t a part of your monthly budget and they are not long-term goals, such as retirement, but they do require significant foresight. Open a new savings account—or “bucket”—and transfer a small amount of money there each month to work toward your goal. If you have a card that automatically provides you cash back as an account credit, set aside the same amount in cash in the savings account. 

Pay Down Debt
Do you have student loans or high-interest debt? Use your cash back to make this month’s payment. Better yet, add your cash back to the usual monthly payment to chip away at your principal. That way, you can get closer to paying off your debts completely.

Wondering where to start paying back your debts? As a first step, review any debts and make a list of how much you pay each month for each loan. Once you have a clear picture of what you owe, consider whether consolidating the payments into a single loan—or a credit card that offers you 0% APR on balances you transfer to it—could help. 

Then, chose a strategy to pay down the debt over time—two popular methods are the “debt snowball,” where you motivate yourself by paying off your smallest debts first, and the “debt avalanche,” where you focus on paying off highest-interest-rate debt first.

Support a Cause
If you’re in a good place financially, you might want to give to others in need. Use your credit card cash back to pay it forward by making a charitable donation.

Whatever cause you’re passionate about—whether it’s serving your community or protecting an endangered species—charitable organizations are doing good work, and they could use your help. These days, charities make it easy to help. Donate the equivalent of your cash back to the charity of your choice. 

Not only will you feel good and make the world a better place, but you can also write off your donation when it’s time to file your taxes.

Splurge a Little
Sometimes we need to give back to ourselves. You might be surprised how much cash back you’ve earned by using your credit card, so add that money to a sunny day fund and spend it on something that makes you feel good. You might splurge on a fun night out with friends, a concert or a day trip.

Or use your sunny day fund to learn a new skill or take in the finer things in life. Have you always wanted to learn Spanish? Use your cash back to take a language course. Feel the need for inspiration? Treat yourself to a day at the museum or go see a movie. Maybe you’ve been putting off a big home repair or renovation. Or maybe you have your eye on a new couch. You might even just want to buy some flowers for the next time you host a dinner party.

You earned those cash-back rewards, and from time to time it feels good to splurge on self-care. If you use your credit card frequently, you’ll get cash back automatically applied to your statement each month. So add a line item to your budget that allows you to buy something fun with the money you earned.