You've done your research, tracked your spending habits, read the fine print, and now you’re ready to apply for a new credit card. But is the best option a cash back credit card which offers money back on qualifying purchases, or a travel rewards credit card, which offers airline miles and may also offer perks such as checked bags or lounge access? The answer, of course, depends on your lifestyle.
Here are tips to help you assess which type of credit card rewards best fit your lifestyle.
Analyze your spending
Before you apply for a new credit card, review past spending to figure out where most of your money is going. Are you a commuter who's constantly getting gas? Do you often put your grocery store runs on your credit card? Do you have a high balance each month because you put every expense — including flights, hotel stays, and dinners out — on your card?
Seeing these numbers may help you assess the best rewards credit card for you. For example, if you're putting everyday purchases, like gas and groceries, on your card, a cash back credit card may make the most sense. But if you're frequently using your card for flights, hotel stays, dining out or car rentals, it may be a smart strategy to look into travel-specific rewards credit cards.
Consider future travel plans
Even if you usually use your credit card for everyday purchases instead of travel, consider your future plans. For example, a travel rewards credit card can be a smart choice even if you're not a frequent traveler. A travel rewards credit card could make once-in-a-lifetime adventures such as a destination wedding or anniversary trip more affordable. If you can imagine yourself traveling the world but aren't ready to spend your savings, choosing a travel card with that goal in mind may be a smart strategy.
Weigh credit card fees versus benefits
Sometimes, certain perks can tip the scales. For example, you might choose a travel rewards card that lets you check a bag for free. If you’re a frequent flyer, the benefits might be worth it, even if you have to pay an annual fee for the card. So, if the card you're considering has a fee, it's smart to compare that fee to your potential travel savings.
Watch for sign-up bonuses
Regardless of whether you choose a cash back card or a travel rewards card, many cards offer introductory bonuses, including additional rewards if you spend a certain amount within the first several months. Read your cardholder agreement, and consider shifting your spending so that you're making large purchases on the credit card — rather than with cash or debit — to maximize your rewards. Just make sure you can pay off the balance in full and on time.
Consider the legwork
While travel rewards and cash back can both provide big benefits, it's important to consider the work involved in redeeming rewards. For example, travel rewards may have blackout dates that make it hard to use them during peak periods, such as during the holidays. In addition, travel rewards credit cards often offer special bonuses for certain kinds of spending during specific times of the year.
Maximizing your rewards means you'll need to make a habit of monitoring your credit card issuer's time-sensitive offers. And if you don't choose to use your rewards for travel, you'll want to consider how best to spend them. In some cases, that could mean making purchases through your credit card issuer's online shopping portal.
If keeping up to date with your issuer's special programs seems like too much legwork, a cash back credit card might be right for you. Cash back rewards can typically be redeemed as a statement credit or direct deposit, which, for some, may feel simpler to track.
Read the fine print
As with any credit card agreement, it's important to educate yourself on the nuances of the reward program you're considering. For example, you may not earn rewards on certain transactions, such as balance transfers. Late fees and interest charges also typically won't count toward rewards, and paying your bill late could result in forfeiture of accumulated cash back, points or miles. In order to redeem rewards, you may have to reach a certain threshold, such as a minimum number of points to redeem for a statement credit. And don't forget to find out if there is a requirement on how frequently you have to redeem your rewards, as not every program lets cardholders accumulate points, cash back, or miles indefinitely.
Choosing between a cash back and travel rewards card
Ultimately, whether a cash back or travel rewards credit card is right for you will depend on your lifestyle and preferences. If you're a frequent flyer, a travel rewards card may make the most sense. If you tend to spend a lot in specific categories, a cash back card with bonus categories that fit your spending habits may be the right move. If you’re looking for easy ways to redeem your rewards and tend to spend in many different categories, a card that offers the same cash back percentage no matter where you spend your money might be right for you.
Consider whether you have immediate travel plans that can benefit from a travel rewards card. It's also important to think about how much effort you want to put into using your rewards – cash back cards are typically straightforward, whereas you might have to do a little more legwork to use (and maximize) miles. Consider the details of any credit card you're thinking of applying for, such as sign-up bonuses, fees, interest rates and other terms in the fine print. If you're looking at a card with annual fees, remember to weigh the long-term benefits against the costs.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
