Should I Get a Cash Back or Travel Rewards Credit Card?
By Anna Davies
You've done your research, tracked your spending habits, read the fine print, and determined that you want to choose a credit card with a reward option. 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 free baggage check or lounge entry? The answer, of course, depends on your lifestyle.
Here are tips that can help you assess which type of credit card rewards best fit your lifestyle.
Analyze your credit card spending...
Before you apply for a credit card, review past statements 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 every 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, says Roman Shteyn, CEO and founder of RewardExpert. 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 card offers.
...But think ahead
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, says Shteyn. A travel rewards credit card could make once-in-a-lifetime adventures such as far-flung wedding or anniversary trips more affordable. Combining travel credit card rewards with loyalty points could also put a bucket list trip, such as staying in a private villa in the Maldives, on your radar. If you can imagine yourself traveling the world but you 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
For Sid Gupta, a San Francisco IT manager, a huge factor in his decision to choose a travel rewards card was the fact it waived the checked bag fee. Even though Gupta pays an annual fee for his travel rewards credit card, the checked bag savings was more important.
For me, that's $70 a trip, or $280 in a typical month, if I check a bag every time. Just knowing I'm saving that tipped the balance in terms of the right card for me, he says. Lesson: 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 cashback card or a travel rewards card, many offer introductory bonuses, including additional rewards if you spend a certain amount within the first several months of card membership. Read your card's agreement, and consider shifting your spending so that you're making large purchases on the credit card — rather than cash or debit — in order to maximize your rewards, making sure to always pay off the balance in full and on time.
Consider the legwork
While travel rewards and cash back both provide tangible 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 many 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 may be redeemed in the form of a statement credit or account 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 won't count toward rewards, and paying your bill late could result in forfeiture of accumulated cash, points, or miles. In order to redeem rewards you may have to reach a certain threshold, such as $20. And don't forget to find out how frequently you have to redeem your rewards, as not every program lets cardholders accumulate points, cash, or miles indefinitely.
For Gupta, a travel rewards card made the most sense.
I fly several times a month, so I appreciate the fact that I'm constantly earning points for travel with all my purchases, says Gupta. Gupta says that he maximizes his rewards by using his credit card for everyday expenses.
I pay it off in full, but putting these expenses on my credit card maximizes the amount of points I earn each month, which, in turn, I can use toward flights.
Meanwhile, Melissa Stewart, a mom of three in Atlanta, likes the benefit of cash back – especially as it applies to her statement balances.
I always apply my cash back directly to my statement. I pay my balance in full, so for me, it's a small way to save on what I already owe. Stewart believes her card saves her family over $300 a year.
I only use my credit card for things I would buy anyway. I like the simplicity of immediately being able to use my savings to pay for my bill, says Stewart.
But while Stewart and Gupta have differing credit card strategies, one thing remains the same: Both prioritize paying their bill in full monthly, which financial experts say is a smart strategy. By paying in full, you can avoid interest and fees, and reap the full benefits of your rewards – no matter which kind of credit card you choose.
Anna Davies has written for The New York Times, Glamour, Marie Claire, Men's Health, Women's Health, Refinery29, and others.