Two Minute Travel Tip: Travel Reward Cards VS Cash Back Cards
Redeeming credit card points and miles is one of the best ways to make travel more affordable. But by design, the card companies make it confusing. Which type of card should you use most often? A travel card or a cash back card? Keep reading to see what we prefer and why.
Travel Reward Cards VS Cash Back Cards
To get right to it, we prefer travel cards. We feel you can get a much better value by using this type of card. Here is a simple example. We're going to compare the Citi Double Cash card and The American Airlines Citi Platinum card. The American Airlines card isn't the best travel card to use, but we'll use it as an example of what's possible with travel cards.
The Double Cash card earns 2% back on everything you buy. The AA card would effectively earn 1% back. It seems like the cash back card is worth twice as much, but not everything is as easy as it sounds. For an example, let's say you spent 60,000 dollars on each card in one year. With the DoubleCash, you'd earn 120,000 points or 1200 dollars. Not bad. If you spent the same on the AA card, you'd earn 60,000 AA miles. What are those miles worth? Well, it depends on how you redeem them. Cashback is always worth a flat rate because it's cash. Points and miles are fluid and can usually be redeemed for much more.
60,000 AA miles could be redeemed for a roundtrip ticket anywhere in the US to Europe. What does a flight like that cost? Below we used Paris as an example. From our small regional airport, it would cost 1869$, according to Google. That's almost 700 dollars more value for the same amount of spending.
And what's really crazy is that the Citi AA card is a horrible travel card. There are much better options that earn more points on bonus categories, but even that card beats the best cash back card. Why is that? The credit card companies make deals with airlines and hotels to buy their points way below market value. So you're able to redeem those points for much more than cash. Travel cards also offer other perks, such as airline and hotel status, travel credits, lounge access, and travel insurance. Usually, the signup bonus on a travel card will be much higher as well. The Double Cash doesn’t even have a signup bonus. The Citi AA card gives you 60,000 miles to start off with.
However, it can be more of a hassle to book with miles. You won't always be able to get the exact flight or hotel you want. If you're looking for the simplest way to earn rewards, cash back cards are what you should choose. But if you want the most value, you can't beat travel cards.
Whichever you prefer, start using credit card rewards as soon as possible. There are pros and cons to both approaches, but you should be getting the best return for your circumstances possible. You're spending the money anyway, you should get as much back as you can. How do you feel about using credit card points and miles? Would you like more help navigating all the rules and options? Answer below in the comments. We've got more excellent credit card content coming soon.