Cashback is a popular incentive offered by many credit card companies. It means that for every dollar you spend, your card issuer will give you back a small percentage, usually in a single payment made once a year. The term cash rebate credit cards is also used to describe this.

The amount paid back is calculated as a percentage of your total spending. Percentages vary, but typically range from 0.5% to 2%. Some card issuers pay higher rates of up to 5% for purchases in some categories (e.g. gas or groceries) or made through certain retailers.

The big advantage of cashback credit cards is thus obvious: You can make a small saving on every item you buy. This might not seem much at the time, but in most cases all these rebates are added together and returned to you in a single annual payment. If you spend, say, $20,000 a year on your cashback credit card, you could collect up to $1,000 a year in rebates - a handy sum in anyone's language!

There is a potential pitfall to watch out for with cashback cards, though. In most cases these cards also offer attractive-looking balance transfer deals, offering low (or zero) interest rates on the transferred balance for up to 12 months. The aim is to tempt you into shifting long-term debts onto your credit card, as well as spending money on it to benefit from the cashback.

What's the problem with that? Well, the crucial fact is that your monthly repayments are automatically allocated to paying off cheap balance transfer debts first, leaving the high-interest debts from spending trapped on your card until all the cheap debt is repaid. In other words, you cannot simply pay off the costly debts first.

The best thing, therefore, is to use separate cards for cashback and balance transfers. If you do transfer a balance to your cashback credit card, ensure you pay off the entire balance in your next monthly repayment. In any event, with a cashback credit card ALWAYS pay off the balance by the due date every month - that way you will enjoy a nice little bonus from the cash rebate, and you won't lose any of this money on interest charges.

Finally, note that in recent months some card issuers have cut back on their cashback offers, reducing the rates paid or in some cases abolishing it altogether. If you want cashback, therefore, it's important to shop around, and not simply reply to the first offer that drops unsolicited into your mailbox. Credit card comparison websites such as http://www.finest-credit-cards.com make this easier by displaying all the best offers, updated daily, alongside independent advice on choosing and using a credit card.