Here is how rebate credit cards work:

1. You make purchases on your credit card.
2. Every time you make a purchase, the credit card company records a certain percentage of the purchase.
3. When you reach a certain amount of cash back, the credit card company sends you a check.

This sounds very straightforward, and even beneficial, and it can be. However, it is important to remember some important information about rebate credit cards before you get too excited about your cash back.

Warnings about rebate credit cards

The two main concerns about rebate credit cards are that they usually offer cash back only on certain purchases, and also that the interest rates charged can actually offset the cash back rewards that you get.

    Issue #1: only certain purchases get you cash back. It is important to realize that not every purchase "qualifies" for cash back. Sometimes only groceries or gas apply. In some cases, these are the very things that are excluded. Additionally, most rebate credit cards offer different percentages for cash back on different purchases. They may offer 5% on some purchases, but only 1% on others. A very few rebate credit cards offer cash back of up to 10% in comes cases.

    Issue #2: Interest rates and the value of your cash back. The reason that credit card issuers are so willing to offer cash back is because the interest rates charged (usually between 13% and 29%) often more than make up for the cash back rewards. Many people charge a lot of things to their rebate credit cards in the hopes of getting a large check.

Unfortunately, this type of thinking gets many people in trouble. They run up large bills and carry balances. This means that they pay hundreds (and even thousands) of dollars in finance charges. So the $100 - $300 that most people manage to get back each year is more than made up by the $600 to more than $1,000 that many people pay in finance charges every year for carry balances and sometimes being charge over the limit fees.

Using your cash back rebate credit cards wisely

It is important to use your cash back rebate credit cards responsibly. That way, you will be able to maximize your benefits, without paying finance charges. One of the best things you can do is to create a plan that incorporates you monthly budget into your credit card use.

For instance, only put the things that you would buy anyway on your rebate credit card. Put groceries, gas, bills and other items that are already in you budget on your credit card. Next, it is vital that you pay off the balance every month. This is possible if you have been sticking to a budget and only spending the money that you already have. That way, when the bill comes, you can pay it off immediately, rather than carrying a balance.

Having a budget and a plan for your rebate credit card can also help you avoid late fees and over the limit fees. Try to keep things under control with your rebate credit cards, and make all payments on time and in full. That way you won't have to pay finance charges, and the cash back you get is truly free money.

Rebate credit cards can be great financial tools. However, you have to understand how they work, and you have show discipline in using them.