How to use cash back on a debit card to the fullest

What if you could pay for your next date night or trip to the grocery store without having to dip into your budget? If you use cash back to your advantage, these benefits could become a reality.

In the past, you had to swipe a credit card to earn cash back. But with Discover^® Cashback Debit, you can earn cash back by spending with your debit card (you read that right: debit card), allowing you to reach your financial goals without the risk of going into debt.

To best use this budget bonus, you might be wondering, “What should I do with my debit card cash back?” According to Eric Rosenberg, financial consultant and founder of a personal finance website, “You could put [your cash back] into savings or treat yourself to something from your wish list.”

Read on for things to do with cash back to help you achieve the right balance of responsibility and fun:

1. Save for a rainy day

Sometimes it seems like everything goes wrong all at once: You get a flat tire. The sink starts leaking (ugh, again!). You get a parking ticket. Since life can throw unexpected, costly curveballs your way, it’s important to have an emergency fund. Also known as a rainy day fund, an emergency fund is cash that’s set aside to cover unplanned, yet crucial, expenses.

“So many people can’t afford the cost of an emergency from their savings,” Rosenberg says. If you don’t have this type of fund to fall back on, starting an emergency fund (or adding to an existing fund) could be a top priority when evaluating what to do with your cash back from a debit card.

With a debit card that gives cash back, you can funnel extra cash to your rainy day fund. Note that experts typically recommend putting aside at least three to six months of living expenses for this purpose. To maximize your emergency fund, you may want to consider moving these savings (and the cash back you’re putting toward this fund) to a high-yield savings account. That way, your emergency fund can steadily grow with interest until you need it. (P.S. More to come on how to automatically move your cash back into savings.)

2. Pay down your debt

If you owe, it can be tough to climb your way out of debt. Whether it’s from credit cards, student loans, or a mortgage, interest is accruing and costing you money. Learning how to use your debit card cash back to offset debt can help you save on those interest payments down the road.

According to Andrea Woroch, founder of a consumer money-saving website, when you’re focusing on paying off debt, “It’s natural to cut back where you can. But you may eventually hit a wall where you can’t find ways to tackle expenses any further,” she says. That’s where learning how to use debit card cash back comes into play. Since a debit card with a cash back feature can allow you to earn for your everyday spending, those earnings can become a new source for paying down debt, Woroch adds.

3. Shore up for those special moments

You know you’d like to go out more often, but even if you’re looking for ways to spend less on date night, they often don’t come cheap. But you could take some special outings using funds from a debit card that gives cash back. Is there a restaurant you and your significant other have been dying to try? Is there a concert the whole family is super eager to see? There may also be larger events with family and friends to think about—planning a milestone birthday or anniversary or that getaway with college buds. You can set aside your debit card cash back and earmark it for your relationships to create memories that will last a lifetime.

4. Support your children’s allowance

If you have kids, you’ve probably heard this one before: “Mom, Dad, can I have some money?” Sometimes it can feel like you’re a walking ATM. One thing to do with a debit card that gives cash back is to set aside an allowance for your kids. You can then use this cash to teach your children good savings habits and how to manage money on a monthly basis for the things they need and want, says Rosenberg. The best part: The money isn’t really coming out of your budget since you’re earning it from your everyday expenses spent with your cash back debit card—and from money you’d be spending anyways. Win-win.

5. Stockpile funds for the holidays

In thinking about what to do with your cash back, spending it on gift-giving and holiday expenses may be a good goal. “Some people go into debt during the holidays. To help avoid that circumstance, use your cash back to get ahead,” Woroch says.

And, really do think ahead if holiday spending is on your list of things to do with your cash back. The earlier you stash your cash back away for the holidays, the longer it will have time to accrue if you put it in a savings account for safekeeping. Season’s greetings may be the last thing on your mind while you’re flipping burgers on the 4th, but planning ahead could really impact your end-of-year festive spending. That way, you won’t be spending months paying off holiday debt. 

How to maximize your cash back

Now that you know what to do with your money from your cash back debit card—whether it’s going to work for your emergency fund or funding emergency holiday gifts—consider steps you can take to get the most out of your extra dough. For example, find a rewards program that matches your spending style. With Discover Cashback Debit, you can earn 1% cash back on up to $3,000 in debit card purchases each month.¹ That’s up to $360 a year. Not too bad for just going about your daily debit card spending.

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To make the process of saving that extra cash even easier, consider opening a Discover Online Savings Account. If you sign up for Auto Redemption to Savings, your cash back will be automatically deposited into your savings account every month.

“The hardest part about saving for many people is remembering to make a transfer or take the cash to the bank,” Rosenberg says. “If you can automate it, you are setting yourself up for success. It’s like saving while you sleep.”

If you’re still considering how to use your debit card cash back to the fullest, Woroch suggests paying for group purchases when you’re out with family or friends. “Whether you’re going to dinner or renting a condo, cover the entire expense on your card and ask friends and family to pay you back with cash or [via mobile payment],” Woroch says. “This way you can benefit from earning more rewards.”

When it comes to how to use your debit card cash back, the key is to make sure you have enough in your account and aren’t spending too much if you offer to temporarily foot the bill. You don’t want to overextend in order to earn, as you could be hit with overdraft fees or not have enough in your account to cover bill payments, Woroch says.

Get ahead with a combination of strategies

If you’re looking for things to do with cash back, using these tactics can help you improve your financial foundation and have some fun along the way. Understand your needs and goals to help you create a cash back plan, and then maximize your strategy with tools to help you automatically direct your cash back to savings to limit the temptation to spend the money elsewhere.

“We are all so busy these days, and managing money is often pushed down on the to-do list,” Woroch says. Learning how to use your debit card cash back can help you put money management front and center. Start earning! Now that you know how to enjoy cash back from your debit card, make sure you’re familiar with all the tips to manage your checking account. 

¹ See Deposit Account Agreement for details on transaction eligibility, limitations, and terms.

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