Nowadays, your credit card can do double work for you. In addition to helping you build or repair credit, many credit cards offer rewards programs in the form of cash back or travel miles. Choosing which rewards program is right for you depends mostly on how much you spend and what you spend your money on most.
Cash Back Credit Cards
The name says it all - when you spend money on these credit cards, you get a certain percentage of cash credited to your account. Some cards apply the same percentage to every category all the time. A lot of cards vary on how they apply these percentages to your spending categories. For example, you might earn 2% back at gas stations, but only 1% back at restaurants. The percentage of cash back applied to different categories might also change throughout the year, so it's important to read up on a card's policy before you commit to it.
Cards can also differ in how they give you that cash back. They might deposit your earnings into your bank account, mail a check to you, or allow you to redeem your rewards a statement credit. Most programs will use the statement credit system, which allows you to redeem your rewards to reduce your outstanding balance, but you cannot use it to actually make a payment on your account.
Travel Credit Cards
Travel rewards programs tend to pay higher rewards on your purchases, specifically those related to travel expenses, but you have to spend a lot more money in the first place compared to cash back rewards cards.
If you're already doing a lot of travelling, this might be the better option, especially if you won't have to adjust your spending to reap the rewards. What's more, travel cards are less likely to charge foreign transaction fees, cutting down even more on your expenses. And these cards often come with other rewards, such as free checked bags, annual travel credit, discounts on companion tickets, priority boarding, access to airport lounges, and travel insurance.
So which one is best for you?
At the end of the day, money back is money back, whether it's in the form of cash or miles. Your spending habits will ultimately dictate which program offers the most bang for your buck.
Cash back systems are usually simpler and easier to benefit from than travel rewards programs. Particularly if you tend to spend a lot of money in high earning categories, you could really maximize your rewards. If you travel often, and especially if you travel out of the country, a travel rewards card could prove really valuable.
No matter which rewards program you choose, make sure you familiarize yourself with the program policies, especially any contingencies or exclusions.
Original Article: "Miles vs. Cash Back Rewards Credit Cards," posted by The Balance on 06 Feb 2019