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Everyone loves a good deal, especially when it comes with a little cash back in their pockets.

According to a Lending Tree survey, 87% of U.S. adults have at least one rewards credit card. Another poll found that the majority of rewards cardholders prefer cash-back cards over any other option.

If you’re thinking about adding a credit card to your wallet, here are a few things you might want to know about cash-back rewards, including how cash-back rewards work, and whether this type of rewards card makes sense for you.

What Are “Cash-Back Rewards”?

Cash-back credit cards are offered by many credit card companies to qualified consumers. Consumers can use these credit cards to make purchases, and a certain percentage of that purchase is returned to the customer as a cash incentive. In other words, cash back rewards can be an easy way to make the most of everyday expenses.

Typically, cash-back rewards range between 1% and 2%; however, a few cards offer more.

Some rewards cards offer a set number of points per purchase that can be redeemed later for cash or for goods like airline tickets, discounts at coffee shops, or gift cards.

How Does Cash Back Work?

Cash-back rewards are easy to use. All that consumers have to do is spend as they normally do, and in return, the credit card company calculates the percentage to return to the cardholder based on what they spent on eligible purchases.

For example: A card pays a flat rate of 2% cash back on all purchases. If the cardholder spends $1,000 in a statement period, the card issuer will then give the cardholder $20 in cash-back rewards.

The card issuer pays out the percentage at the end of a given term, which could mean paying it out at the end of a statement period or billing cycle, or even once you hit a predetermined amount, like $20.

Cash-back cards might come in handy for everything from large purchases to everyday needs. Think of it this way — rather than purchasing things with cash, which doesn’t provide any added benefits, a cash-back card could return money right into a consumer’s pocket.

However, in order for that money to really pay off, the cardholder will likely want to pay off the credit card balance every month in full so they’re not accruing interest and fees, and negating that cash-back reward.

One thing to remember is that cash-back cards are different from other rewards cards. There are rewards cards that offer specific travel rewards, cards that partner with gas stations to earn free gallons, and many more.

Four Ways to Redeem Cash-Back Rewards

Depending on the cash back card, there may be a number of different ways you can redeem cash back rewards. Here are some commonly offered options.

1. Credit card balance reduction: This allows you to have your cash rewards applied to your balance and use them to pay off a portion of your monthly bill.

2. Gift cards: Some card issuers allow you to redeem your cash back rewards in the form of gift cards to your favorite retailers or restaurants. To sweeten this deal, some issuers partner with other companies, such as online retailers or airlines, to provide bonus payouts when cash back rewards are redeemed with a gift card.

3. Charitable giving: Several card providers allow users to use their cash back for good, sending their rewards directly to the charity of their choice. All that users need to do is select the charity and the card does the rest.

4. Paper check or direct deposit: You can often redeem your cash-back as just that — cash. In this case, you ask your card issuer to transfer the money directly to your bank account or send a paper check.

The Different Types of Cash-Back Cards

While cash-back cards all work in a similar way, there are some differences between these cards to keep in mind.

Some are flat-rate cards, which means that cardholders receive the same exact cash back percentage on every eligible purchase, be it groceries or plane tickets. This option is easy as users never have to think about the way they use their cards.

Another option is a bonus category cash back card. These cards offer higher cash back percentages on certain purchase categories. For example, you might get more cash back on gas and groceries (say 2% or 3%) than you do on other items (say 1%). If you opt for this type of card, it can be a good idea to make sure the higher variable percentage is for items you purchase often.

Some cards rotate these bonus purchase categories every quarter, and you need to activate your rotating bonus categories in order to earn rewards. Others allow you to choose your bonus category.

Any of these cards may offer additional features, such as:

•   Special promotions One way to earn even more cash back may be via a special promotion run through the credit card. For example, a credit card may typically offer 1% cash-back. However, for one billing cycle, it could partner with a large retailer for 5% cash back for all eligible purchases.

•   Signup bonuses Cash back rewards cards might also come with signup bonuses to attract new customers. This might be a certain lump sum of cash back (say $100) if you spend a certain amount in the first three months. Or, you might be able to earn double or triple cash back for a set period of time.

Potential Drawbacks of Cash-Back Rewards

Cash-back credit cards can come with a few potential downsides that users may also want to be aware of. As with signing up for any new credit card, it’s a wise idea to read the fine print.

For instance, you may want to be sure to read through the contract carefully to understand exactly how the rewards work, what to expect along the way, and also suss out any hidden credit card fees such as late payment fees, balance transfer fees, foreign transaction fees, and more.

It can also be a good idea to find out if the card has a high annual fee, which may negate any earned rewards, and what the APR (annual percentage rate) is, in case you get into a bind and need to carry over a balance month to month. However, it’s key to keep in mind that carrying a balance nearly always outweighs any rewards.

It’s also important to note that many credit cards (cash-back or otherwise) can retain the right to change their bonus structure at any time. That means it could change the percentage of cash users receive in return for purchases for a lower (or higher) amount. So, users might want to be happy with the card and its rates and policies, not just the cash-back rewards, as that could change at any moment.

When looking at the fine print, consumers might also want to identify if the card comes with a cap on possible rewards. Many cards limit just how much money a user is allowed to claim, so make sure to know that number and be comfortable with the limit.

And, again, like all cards, it’s key to pay off a cash-back rewards card in a timely fashion. This way, users won’t be paying interest on purchases with a card that was meant to bring them a little money in return.

Recommended: What Is a Good APR?

The Takeaway

Cash-back is a credit card rewards benefit that refunds the cardholder a small percentage of some or all purchases made with the card. Every time you make an eligible purchase with your cash-back credit card, your card issuer will pay you back a percentage of that transaction. Your cash-back reward won’t necessarily pay out immediately. Like your statement balance, your rewards will accrue each month and show up on your monthly statement.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A medical fellowship after residency can provide the training you need for a successful career in your preferred specialty. But it also probably means you’ll make far less for a period of one to three years.

Do you get paid during a fellowship? Yes, you do. Medical fellows earn an average salary of $89,175 per year and residents earn an average salary of $57,264 a year. While those are both still above the national median salary of $57,200, they still do not compare to the salary of a full-time attending physician and may require you to set and stick to a budget during your fellowship training period.

The Difference between Residency and Fellowship

Residency usually happens right after medical school and is designed to give doctors the experience needed to serve patients. A fellowship follows residency and is designed to train fellows in a narrower specialty.

While some fellows may earn more than residents, the salary is still lower than for most working physicians. Usually, fellows have to pay for the majority of their living expenses, including housing and at least some meals.

Additionally, most fellows face a high student loan burden as well, with 73% of medical school graduates having some form of education debt. The average student loan debt of medical school graduates, including undergraduate loans, is $250,999.

With a relatively low salary and a high debt burden, being smart with money during fellowship years can be a big part of creating a strong financial foundation.

Fellows may feel like they have too much on their plate to devote time to thinking about personal finance. But just a few savvy budgeting strategies can help fellows live within their means and potentially avoid getting deeper into debt.

10 Budgeting Tips for Living on Your Fellowship Doctor Salary

1. Finding a Budget that Works for You

The first step to smart budgeting is actually making a budget. Start by making a list of monthly expenses in two categories: fixed expenses (those that stay roughly the same every month, such as rent, utilities, and insurance) and variable expenses (those that fluctuate, such as eating out and entertainment).

Next, note how much money is earned each month from fellowship or any other income sources. Use take-home pay after taxes and deductions.

Ideally, expenses should be less than income. If they’re not, work out where costs could be trimmed. With a reasonable budget in place, the next step can be to track spending each month.

Recommended: 23 Ways to Cut Back on Spending and Expenses

2. Living Within Your Means

Expenses should not exceed the money you bring in. During a medical fellowship, you might be tempted to bite off more than you can chew financially with the expectation that your salary will soon increase dramatically. But going into debt isn’t a savvy way to start off your career.

Credit cards generally have the highest interest rates, so even a small balance can balloon into substantial debt down the line. Failing to make payments or using too much available credit could impact an individual’s credit score, which could make a difference when looking for a mortgage or car loan.

3. Choosing Housing Carefully

For most people, housing is the single largest monthly expense. That’s why it’s worth putting in the effort to find an affordable option that meets your needs. In a particularly expensive market, it may be worth getting roommates. Another factor to consider—the closer you are to your workplace, the more that can potentially be saved in commuting costs.

Recommended: How Much House Can I Afford?

4. Delaying the Purchase of a New Car

For those living in an urban area, think about whether public transit or carpooling may be options for getting to work. If a vehicle is non-negotiable, consider a used car rather than a new one. Cars lose much of their value when they’re driven off the lot for the first time, so it may be worth seeking out used cars that are in great shape at a great price.

5. Saving on Food

As a variable expense, food is an area with plenty of opportunities to save. If you have any meals provided for you as part of your fellowship, take advantage of the free food. Eating out can be tempting with a busy schedule, but it may be wiser to limit how often you go to restaurants and how much you spend there.

Since you won’t always have time to cook, preparing meals in batches to eat throughout the week could help you resist the temptation of going out.

When you grocery shop, purchase what’s on sale, learn what produce is in season, and consider purchasing generic brands. Look for nonperishable items in bulk at discount stores. If you’re feeling extra thrifty, clipping coupons could save you some change, too. Some stores even offer coupons through their app—no clipping required.

Recommended: 30 Ways to Save Money on Food

6. Traveling with Rewards Points

During your fellowship, you’ll probably want to go on vacation and take a well-deserved break. But your trip doesn’t have to break the bank. Fellows with a decent enough credit score may qualify for credit cards that offer significant point bonuses, which can be redeemed for travel costs like flights, hotels, or rental cars. Some cards may require cardholders to spend a certain amount upfront to qualify for a bonus, so double check you’re not taking on unnecessary expenses or carrying a balance if you don’t need to.

7. Taking Advantage of Income-Based Repayment Plans, Deferment, or Forbearance

Those with eligible federal loans who cannot afford to make payments may be able to pause their payments through deferment or forbearance options if they meet certain qualifications.

Income-based repayment plans allow borrowers to tie their monthly payment to what they make, and the balance is generally forgiven after a certain number of years (currently anywhere between 20 to 25 years).

Eligibility for these programs largely depends on the types of student loans that the borrower holds and when they were borrowed. Those who are in a qualified graduate fellowship may be able to request a student loan deferment while in a medical fellowship.

If successful, they likely won’t have to make payments during the fellowship. In some cases, borrowers may not be required to pay accrued interest, for example, if they hold subsidized federal student loans.

Borrowers who don’t qualify for deferment but are still struggling financially may be able to apply for forbearance, but would likely be responsible for paying the interest that accrues.

Fellows who are interested in pursuing a career in public health may also consider the Public Service Loan Forgiveness program. In that program, borrowers who work for a qualifying non-profit establishment may be able to get their loans forgiven after 10 years of income-based payments.

8. Trying to Save

Living on a fellows salary may not leave much room for saving, but if at all possible, setting small savings goals could be helpful.

For example, if you don’t already have an emergency fund, you could try to put away some money every month until you have about three to six months of living expenses saved.

Once you have a cushion for emergencies, consider contributing to a retirement account, such as a traditional or Roth IRA. The power of compound interest means investing early can translate into gains over time. The longer money is invested, the more time it potentially has to grow and withstand any volatility.

Recommended: Investing for Beginners: How to Get Started

9. Considering Passive Income

As a fellow, you probably don’t have extra time to take on a side hustle. If you’re looking for ways to potentially boost your pay, consider looking into low-effort side hustles as sources of passive income, which can allow you to earn money without investing much time or energy.

Examples include renting out your room or car, wrapping your car in ads, or creating an online course. It may require some effort up front, but if you can increase your cash flow without working too much, it could be worth it.

10. Refinancing Your Student Loans

Dealing with student loans can be challenging when you’re living on a medical fellowship salary.

Refinancing your medical student loans is one way to help make your debt more manageable and potentially free up some extra cash.

When you refinance your loans—both federal and private student loans—with a private lender, you typically get a new loan at a new interest rate and/or a new term.

Depending on your situation, student loan refinancing can lower your monthly payment. Many online lenders consider a variety of factors when determining your eligibility and loan terms, including your educational background, earning potential, credit score, and other factors. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Keep in mind that when refinancing with a private lender, you do give up the federal benefits that come with most federal student loans, such as deferment, forbearance, income-based repayment programs, and student loan forgiveness. If you plan on using those programs at any point in time, it is not recommended to refinance your federal student loans.

The Takeaway

Fellowships can be an excellent opportunity to hone in on your medical specialty of choice, but the relatively low salary may require some creative budgeting in order to keep expenses in line with income.

Some ideas to consider include creating a passive income stream, shopping smarter at the grocery store, establishing a realistic budget, and finding an affordable living situation.

If you decide it makes sense to refinance your student loans, consider SoFi. SoFi offers an easy online application, flexible loan terms, and competitive rates. They also offer $100 monthly payments for those in residency for up to 84 months.

See if you prequalify for student loan refinancing in just a few minutes.

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If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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