The FI community isn’t anti-credit cards, they’re anti-credit card debt. If you use credit cards responsibly, the rewards you can gain can earn you free vacations, access to exclusive clubs, or just extra cash.
Here is a breakdown of the difference between the two major reward categories: travel rewards vs. cash back.
Travel Rewards
Let’s begin by taking a look at how travel rewards work and when to use them.
What Are Travel Rewards?
Travel rewards are rewards points you earn from your credit card that you can then use to save on future travel expenses. These operate in a number of ways depending on the type of card you have, but in general terms you earn points & miles through large signup bonuses the premium credit cards offer and you earn points through your everyday spending on these cards.
The points & miles can then be used to offset travel expenses you pay for with your credit card in the case of a card like the Capital One Venture Rewards Credit Card or when you have a card like the Chase Sapphire Preferred® Card you have points that sit in your Chase account that can then be transferred to numerous airline and hotel partners (such as Hyatt, Southwest, United, British Airways) to become miles/points in that airline or hotel’s rewards program.
How To Use Travel Rewards
Travel rewards are typically redeemed for travel purchases such as: flights, hotel stays, rental cars, and baggage fees.
For a better understanding of how travel rewards work, let’s take a look at the card I mentioned above—the Capital One Venture Rewards Credit Card.
With the Capital One Venture Rewards Credit Card, you get two miles for every $1 you spend.
Redeeming Venture Miles is easy too. While you can book travel using miles through Capital One Travel, you can also use Venture Miles to pay for other travel purchases that you paid for with your credit card. At the time nobody knew or cared that you had “miles,” all you need to do is log in to your Capital One account and select travel purchases that you would like to redeem your rewards miles for and you can offset some or all of that expense.
Most Flexible Travel Card
Details: $95 annual fee | Enjoy a one-time bonus of 75,000 Miles once you spend $4,000 on purchases within 3 months from account opening
Cash Back Rewards
Ok, now that we’ve explained travel rewards, let’s dive into how cash back rewards work.
What Are Cash Back Rewards?
Cash back rewards are literal cash back on your spending.
Like travel rewards, you can earn cash back rewards in a couple of different ways. You can get a cash back rewards card, that offers one cash back rate (most will be in the 1%-2% range) for all purchases.
How To Use Cash Back Rewards
Cash back rewards are aptly named because you can redeem your rewards for physical cash deposited into your bank account, or you can redeem your cash in a few other ways:
- Towards you credit cards balance
- For gift cards
Travel Rewards vs. Cash Back: Which Cards are Best?
The answer, of course, depends on your spending habits and goals.
You’ll almost always get more dollar value out of a travel card. To learn why check out our Ultimate Guide to Credit Card Travel Rewards series. But you can’t use your travel points to pay your electric bill or your mechanic.
Do you want that kind of ultimate spending flexibility? If so, a cash back card may be worth it, despite the lower redemption value.
What Else You Need to Know
Before you apply for a travel rewards or cash back credit card, there are a few things that you’ll want to be aware of:
Many Of These Cards Require Good Credit
For many of these credit cards, you’ll need good to excellent credit.
So, those on the bottom of the good credit scale, or those with poor credit will need to look for different credit cards (and use them responsibly) to start building credit.
Some Of These Cards Come With Annual Fees
Some of the cash back credit cards, and nearly all of the travel rewards cards mentioned in this article have annual fees.
Typically, those annual fees are $95 a year. For those who travel frequently or earn significant cash back, this fee won’t matter much. But, if you can’t earn enough in rewards to pay off the fee, these cards may not be worth your time or money.
Final Thoughts
Whether or not you get travel rewards vs. cash back credit cards depends on your personal preferences and goals.
Do you want an easy-to-use credit card with lower redemption value? Or do you want a card that will earn you more but requires a little more legwork?
It also depends, of course, if you travel a lot. If you do, obviously one of the travel rewards credit cards we mentioned will work best for you. If not, go with a cash back credit card.
Top Travel Rewards Offers
Top Travel Card
Details: $95 annual fee | Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.
Most Flexible Travel Card
Details: $95 annual fee | Enjoy a one-time bonus of 75,000 Miles once you spend $4,000 on purchases within 3 months from account opening
Best Card for Side Hustlers and Business Owners
Details: $95 annual fee | Earn 100,000 bonus points after you spend $8,000 on purchases in the first 3 months from account opening.
