Credit card companies provide numerous perks to entice consumers to use their cards over the competition. While credit card perks can get extensive, many people gravitate to credit cards for cash and points. You will receive a percentage back on every purchase.
Credit card applicants can receive cash back for every purchase or travel rewards. While many people would enjoy extra cash and traveling miles, you can only pick one perk for your credit card. Which one should you choose?
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
The difference between cashback and travel rewards
Cashback credit cards allow you to get cashback on your purchases. You will receive cash instead of points and travel rewards.
While you could get more for your money with a different reward system, cashback is a simple way to make every purchase count. Travel rewards credit cards take more research and effort, but you can redeem your points at over $0.01 per point in some cases.
Your purchases will literally take you farther with travel rewards than with a cashback card as long as you travel often.
Credit card cashback rewards
Cashback rewards give you more cash. As such, you aren’t limited to travel expenses or any other category.
Credit cardholders will have more leeway with their initial spending, as these cards offer introductory 0% APR periods that can reach up to one year, if not longer. However, cashback reward credit cards have foreign transaction fees and fewer perks than travel rewards cards.
Some credit cards have limits on how much you can withdraw each month as well, while others let you use as much of your cash rewards as you desire. It all depends on the exact card in question.
Credit card travel rewards
Travel rewards credit cards give frequent travelers a greater return from every purchase they make. Some travel rewards cards will give you two points for every dollar you spend, and each travel point can equal $0.02 in some scenarios.
You can, on average, effectively get 4% cashback with a travel card, but you can only use the points for the sake of travel. The card will likely have an annual fee, but it can cover TSA pre-screening, airport lounge access and other traveling expenses.
Choosing between cashback and travel rewards
Cashback and travel rewards credit cards offer numerous perks. Both cards reward you for every purchase and can help with your monthly budget. However, you can only use one rewards program at a time. You should consider these factors when choosing between cards.
Consider reward types
Cashback cards give you more flexibility, and they require less effort. While cashback cards make sense for most people, you should strongly consider a travel rewards credit card if you travel frequently.
Consider your top spending categories
Credit cards have different reward structures based on spending categories. Some credit cards offer better rewards for gas and groceries than other purchase categories, while other cards are the opposite.
Look for a credit card with a favorable rewards program related to your top spending categories. You can usually get more than one point for every dollar you spend if most of the higher reward perks are in your top spending categories.
Consider the likelihood of using the rewards
Who wouldn’t want extra cash? The cashback rewards that certain credit cards offer can give you perks you’ll use right away.
Travel rewards can provide you with more resources for the same purchases, but since you can only redeem them on travel-related purchases and for participating hotel brands, you have to consider how frequently you will use those rewards in the first place. If you don’t travel terribly often, a cashback card might make more sense for you.
Consider annual fees
You may have to pay an annual fee in order to obtain a specific credit card with rewards. You should assess how much you spend each year to determine how much you will receive in rewards.
It only makes sense to pay the annual fee if you envision yourself spending enough money so that your rewards exceed the annual fee. However, you should only spend in a healthy manner. Spending beyond your means just to rack up rewards can create financial obstacles both now and in the future.
Consider sign-up bonuses
Some credit cards offer sign-up bonuses for opening a new card and making a specific number of purchases within a set timeframe. These bonuses often make a credit card seem more appealing. Just keep in mind that travel rewards cards usually offer better sign-up bonuses than cashback cards.
Getting the right credit card for you
Credit cards let you accumulate rewards with every purchase you make, and on-time payments towards these cards will improve your credit score. These cards are useful financial resources, and picking the card with the most optimal perks can help you rack up considerable rewards.
What is the smartest way to use a credit card that has rewards?
You should assess credit cards based on their perks as well as their points in each spending category to find the best card for you.
Is there a downside to cashback?
You may experience foreign transaction fees or withdrawal limits. Cashback doesn’t provide as many rewards as a travel card does, but it is usually the more flexible option.
Is it better to redeem points for cash or travel?
You will get more out of your points by redeeming them for travel.
