Cash Back Cards Versus Reward Cards

Should you get a credit card with cash back rewards or one that gets you points you can redeem for miles or other travel perks?

Shot of a customer paying for their order with a debit machine in a cafe.

Are you taking full advantage of your credit cards? The truth is that if you play it smart, your cards can earn you everything from free airline miles to five-star hotel stays to gas credits and more — including cash.

With so many options available, determining which card is best for you isn't always easy. Fear not, Slickdealers. We've tapped an expert to help simplify the process. According to Matt Schulz, senior industry analyst at CreditCards.com, utilizing incentive programs is well worth it, as long as you're smart about it. "Job number one of any credit card holder is to pay off your balance at the end of every month," he says. "If not, then at least pay more than the minimum, because otherwise the math can work against you in a hurry."

Which Card is Best for You?

Points and rewards and cash back, oh my! When it comes to choosing the right one for you, Schulz says to first consider your lifestyle. Luxury hotel points, while nice, may not be the best choice if you rarely travel. Also, take a hard look at your budget. What are your spending patterns like? If you have to inflate your spending to collect rewards, that's a sign that a particular card isn't right for you. You'll also want to look at where you spend the bulk of your cash? Let these details guide your decision. The whole idea is to get rewarded for the spending that you're already doing anyway.

After you've clarified your spending habits and have started researching different cards, you'll find that there are absolutely tons to choose from. American Express alone offers 21 different cards. Before signing on with the first one that makes its way into your mailbox, think long and hard about which ones you can leverage the most.

Are you a business traveler? Drive a gas guzzler? Someone who just wants cash back, plain and simple? The Points Guy writes that using different rewards cards for different purposes can give you the greatest bang for your buck. For example, he suggests using one card exclusively for hotel stays to maximize things like room upgrades and extra points earned. When it comes to dining and travel, one card might earn you more at select restaurants, while another with no foreign transaction fees might be perfect for purchases made abroad.

Customer satisfaction is another key factor to keep in mind. For instance, if your rewards card falls victim to identity theft, will the company have your back? One 2014 credit card satisfaction study from J.D. Power found that American Express and Discover rank the highest for customer satisfaction. Things like billing, benefits, credit card terms, and problem resolution all played a part. Among the study's other key findings was that 42 percent of customers who switched their primary card did so for a rewards program that made more sense for their lifestyle.

Cash Back Cards

Want to get paid in cold, hard cash for making everyday purchases? If so, a cash back card might be right for you. They're particularly attractive for set-it-and-forget-it types who don't want to put too much time or energy into playing the rewards game.

"You have cards that will just give you 1.5 or 2 percent cash back on everything, no matter what you buy or where, and then you have cards with rotating categories where you opt in every quarter and you can get 5 percent back at whatever the particular categories are for that period," says Schulz.

If it's something simple you're after, he recommends the Citi Double Cash Card, which essentially gives you 2 percent back on every purchase. Their marketing hook is that you get 1 percent cash back when you buy, plus an extra 1 percent back when you pay your bill.

"Since everybody's going to pay their bill anyway, it comes out to 2 percent cash back with no annual fee, no rotating categories and no caps," Schulz adds. "That can be a pretty good straightforward cash back card for somebody who's just looking to keep it simple."

Cards that focus on rotating categories can also work to your advantage. The Chase Freedom Card gives you 1 percent cash back on everything and 5 percent back on rotating categories each quarter. This can cover everything from gas stations to restaurants and more. This card also has no annual fee. The kicker? Schulz says they'll throw in an additional $100 if you spend $500 in the first three months.

The Fidelity Investment Rewards American Express Card is another one we hear is worth it. It basically gives you cash back with the ability to dump your rewards into an investment account.

Reward Cards

Reward cards work a little differently, but can definitely be worth it. Be sure to check out any restrictions once you find a card you like. Are there caps on how many points you can earn? Is the interest rate exceptionally high? (If you carry a balance, this question is an important one to ask.)

Annual fees should also be on your radar, though even cards with fees may work out favorably for you in the end. For example, quite a few Slickdeals members have been talking about a special offer on the Visa Marriott Rewards Card. If cardholders spend $3,000 within the first three months, they'll be rewarded with 80,000 bonus points. (Pretty sweet, right?) The card comes does come with an $85 annual fee, but since membership comes with one free night stay a year, this offsets the fee.

If you're someone who likes to play the rewards game, Schulz says it's hard to go wrong with the Chase Sapphire Preferred Card, which is unique in that it allows you to transfer points pretty easily. "For example, when you sign up, you get 40,000 bonus points when you spend $4,000 in the first three months," says Schulz, clarifying that this equates to a statement credit of about $400. "But you also have the option of transferring those 40,000 points to one of Chase's partners." In other words, those 40,000 points could be converted into 40,000 Southwest miles. This is something not all reward cards allow, which is why Schulz says it's a real standout.

The Barclaycard Arrival Plus, which one of you tipped us off to on Twitter, also comes with 40,000 bonus miles on any airline after spending $3,000 within the first 90 days. This works out to a roughly $400 travel statement credit. It does have an $89 annual fee, but it's waived for the first year.

Other Considerations

Before signing on the dotted line, be sure you fully understand the terms, so that you can really reap all the benefits of whatever card(s) you choose. For instance, many cards actually have a limit on how many points/rewards you can earn in a given time period, which you'll definitely want to be aware of before registering. Similarly, some airline miles cards may come with redemption limitations like black-out dates or jacked up prices for travel during peak times.

Instead of being an automatic thing, some cards may require you to directly register to opt in for rewards. The Discover It card is one that does this, and it's easy to miss. If you don't pay attention, you could miss out on the opportunity to get more cash back. As Schulz was explaining about rotating categories, Discover changes their 5 percent cash back reward every quarter - but you have to sign up each time. This card also has a $1,500 limit per quarter. However, they did run a sign-up promotion earlier this year that doled out an extra 5 percent cash back on all purchases made during a specified period.

Rewards aside, something else to keep in mind before applying is your credit score."If you're somebody who has crummy credit, you shouldn't expect to get a card that gives you 50,000 miles back and has a low interest rate, because the best cards go to the people with the best credit," says Schulz.

You also don't want to apply for too many cards at once, as doing so will also impact your credit. In fact, experts say you could lose anywhere from 2 to 5 points per inquiry.

"The best thing to do is take a look at a bunch of cards and narrow it down to a few, and then do your homework as to which one is the best fit for you and apply for that one," says Schulz. "You certainly don't want to apply for a half dozen cards in a short period of time. That's not going to be helpful for your credit."

What Do Slickdealers Look for in a Credit Card?

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About the Author
Marianne Hayes Contributor

Marianne Hayes is a freelance writer, wife and mother in Tampa Bay. After earning a degree in journalism and creative writing from the University of Central Florida, she spent nearly a decade getting lost in New York City and Los Angeles before making her way back home again in 2014. Marianne's writing has appeared in a variety of publications including The Huffington Post, Forbes.com, LearnVest, The Daily Beast and more. When she's not writing, Marianne is usually cruising her local bookstore with her two daughters.

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