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.
Today, I’ll break down the difference between the two major reward categories: travel rewards and cash back.
Travel Rewards Vs. Cash Back
What are travel rewards?
Travel rewards are rewards you earn from your travel credit card that you can then use for other travel purchases.
You can earn travel rewards in a number of ways, depending on the kind of credit card you have.
Some credit cards, like The Platinum Card from American Express, give you travel points on your everyday purchases, while cards like Capital One Venture Rewards Credit Card, earn you rewards or discounts on any purchases you make for travel.
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. You also get 10 miles for every dollar spent at Hotels.com/venture. That's a big deal!
When you open a new account, you will receive a bonus of 50,000 miles if you spend $3,000 within the first three months of opening the account.
Redeeming Venture Miles is easy too. They offer a “purchase eraser” which means that you can log in to your Capital One account and select travel purchases that you would like to “erase” using your rewards miles. You effectively pay for those purchases with miles rather than cash.
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, like the Wells Fargo Cash Wise Visa Card, that offers one cash back rate (1.5% to be exact) for all purchases. It also offers a sign-up bonus of $200 if you spend $1,000 within the first three months of owning the card.
Or, you could get a card like Chase Freedom which may offer more cash back but with a more complicated rewards program. Chase Freedom offers 5% cash back on select categories that rotate each quarter, up to a quarterly maximum. Plus 1% cash back on every other purchase.
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
Which should you use?
The answer, of course, depends on your spending habits and goals. Let’s start by talking about travel rewards.
You should use a travel rewards credit card if you, well, travel a lot.
If you’re looking for a straightforward, easy-to-use card, stick with a travel rewards card that offers rewards on all purchases.
Examples of this type of credit card:
- Capital One Venture Rewards Credit Card
- The Platinum Card(R) from American Express
If you’re looking for a travel rewards card that offers you the most possible rewards, you may want to consider a higher caliber card that offers you rewards when you make travel purchases–these typically offer higher rewards rates.
Our favorite on ChooseFI is the Chase Sapphire Preferred Card.
Cash back cards are best for those who want a simple rewards credit card. You don’t have to worry about how your points transfer over and how to use rewards to get the best travel deal.
If you want a straightforward cash back card, look for one that offers the same cash back no matter the purchase.
But, if you don't mind activating your card each quarter and want to get as much cash back as possible, consider a 5% back credit card like the Chase Freedom card mentioned above.
These cards, however, only offer 5% in select categories, like groceries, gas, Amazon.com, etc. So, if you don't spend a lot in those 5% categories, go with one of these cards you might do better with a simple cash back program like the Wells Fargo Cash Wise Visa Card provides.
A few things to know before applying for travel rewards or cash back credit cards.
You need 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.
There are annual fees associated with some of these cards
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.
Some travel rewards programs only apply to one airline
When it comes to travel rewards cards, you'll likely want to avoid airline credit cards.
Airline credit cards are best for those who travel solely through one airline, but since many people no longer do, and with the invent of discount airlines, you can get a better deal with a card like the Chase Sapphire Preferred Card.
Whether or not you get a travel rewards vs cash back credit cards depends if you want an easy-to-use credit card with less rewards or whether you want a card that will earn you the most, but takes a few extra steps.
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.
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