Most Expensive Mistakes Parents Make With Cash Back Credit Cards

When you become a parent, you have a lot of new expenses to cover. Diapers, formula, toys, child care, and those are just a few examples. A cash back card is a good way to get some money back on all those expenses -- as well as your other everyday bills.

For the most part, cash back credit cards are easy to use. When you pay for purchases with them, you earn cash back on what you buy, and you can redeem it later. But there are a few cash back mistakes that could end up costing you.

Settling for a low cash back rate

I realize that for parents, free time is at a premium. You probably want to spend it doing something fun or relaxing. Researching credit cards may not exactly fit into either of those categories.

But if you have a run-of-the-mill cash back card that doesn't earn much back, you should absolutely look at other options. The Motley Fool's Ascent's list of the best cash back credit cards contains cards that earn as much as 6% back in bonus categories or a flat rate of 2% on purchases.

Let's say you spend $40,000 on your credit card every year. Your current card earns 1% back. If you replace it with a card that earns 2%, you'd go from $400 to $800 in yearly cash back.

Using cash back rewards as an excuse to spend more

One of the biggest risks with rewards credit cards is that they convince you to spend more. It's already hard enough to keep your spending in check when there's something you (or your kids) really want to buy.

Some parents fall into the trap of letting cash back be the tiebreaker. You know you shouldn't spend $500 on those clothes that caught your eye or that video game system your kids want. But hey, you're getting 2% or 3% cash back. That's a point in favor of buying it, right?

On a $500 purchase, 2% to 3% is $10 to $15. That's not bad, but it's not exactly justification to spend that much money, either. You still end up costing yourself $485 to $490 more than if you hadn't made that purchase. It's important to stick to a spending plan, regardless of how much you're earning in cash back.

Carrying a credit card balance

Parents sometimes look at their cash back cards as financing tools. If you can't pay off your balance, no big deal. Just pay what you can and carry the rest of the balance over to the next month.

This isn't a great way to use cash back cards -- or most credit cards, for that matter. When you carry a balance, the card issuer charges you interest. Interest rates are extremely high right now. The average credit card rate is 21.59%, the highest rate on record since the Federal Reserve started tracking this back in 1994.

Interest charges will likely cost you more than you make in cash back. The only way to come out ahead with cash back cards is to pay your bill in full every month. If you have any large expenses you can't pay in full, such as home renovations, you're better off using 0% intro APR credit cards. These give you some time to pay off purchases interest-free.

It doesn't take too much time or effort to make money with cash back cards. Make sure you're using a quality card with a competitive cash back rate. Follow a spending plan so you aren't tempted to spend more because you're earning cash back. And pay off your card's balance every month by the due date, so you don't get stuck with any interest charges.