Do you dream of luxury travel, flying in first class and staying in expensive hotel suites–and doing it all for free? Or do you prefer cold hard cash? Ok, I know… you like both! Who doesn’t? But when you start looking for the right credit cards that will give you the best rewards for your own personal spending habits, it’s best to focus on only one type: cashback or rewards.
There are countless credit cards out there, all different and each competing for your spending. You certainly can’t apply for all of them, and you shouldn’t apply for any of them without doing your research first.
There are cards that, for every dollar spent, earn rewards like airline frequent flier miles, hotel brand loyalty points, or even generic points that can be used in different ways towards travel and shopping. There are other cards that simply give you cash back for every dollar spent.
Get Your Ducks in a Row First
It’s important to note that, in general, credit cards with more lucrative benefits come with tougher approval requirements. The interest rates on balances tend to be higher as well. If you have a low credit score or are currently carrying credit card balances, it’s best to focus on improving those scores and getting to the point where you are paying your balances in full each month before proceeding.
If you travel infrequently or are happy to do so inexpensively, cashback credit cards are probably better choice for you than rewards cards. They generally pay you in the form of statement credits that you can use to reduce your monthly bill. Typically, these cards offer anywhere from 1% to 3% cash back on your spending.
These cards vary in how much cash they give you back. Sometimes, the differences amount to no more than a marketing gimmick. For example, one card can give you 2% cash back on all spending, another can give you 1% when you spend and another 1% when you pay your bill, and a third can give you 1% on all spending and another 1% at year end. Well, those all pretty much add up to 2%.
You have to dig a little deeper to determine the best cards for you. Many will award you more cash back on certain spending categories like supermarkets, restaurants, department stores, or gas stations. Having a combination of cards with different category bonuses and using them accordingly is the best strategy.
Depending on the card, sign-up bonuses can be fairly significant. For all sign-up bonuses, there are rules on eligibility due to their value. Credit card issuers want to protect themselves from customers applying for a card, collecting the sign-up bonus, cancelling, then repeating the process to collect the sign-up bonus again. This is referred to as “credit card churning.” For some cards, you are eligible for a new bonus once every 18 or 24 months. In the case of American Express, you’re eligible only once per lifetime for each card.
Occasionally, credit card issuers temporarily offer increased sign-up bonuses as a promotion. For example, the American Express Blue Cash Everyday Credit Card recently offered a $250 credit after $1,000 in purchases in the first three months of having the card. That credit is normally only $100. That was a great incentive!
Most of the major airlines and hotel chains have branded credit cards. The rewards come in the form of loyalty points, like frequent flier miles, that you can use for awards on flights or hotel stays. In addition, there are generic programs like American Express Membership Rewards, Chase Ultimate Rewards, and Citi ThankYou Rewards, where points you earn can be transferred to multiple airline frequent flier or hotel loyalty accounts.
Depending on your travel habits and ability to redeem rewards properly, you can potentially extract far greater value for every dollar spent on a rewards card than you can on any cashback card. To be fair, everyone’s definition of value is uniquely personal. Would you rather have $100 cash or stay in a $1000 hotel room for 1 night? Not everyone will answer the question the same way.
There’s How Many Hilton Credit Cards?
Choosing the right rewards cards can be complicated to the point of being overwhelming. Do you like staying in Hilton hotels? In the U.S., there are four (that’s right, FOUR) different Hilton credit cards to choose from, two from Citi and two from American Express. It’s equally as confusing with Airlines frequent flier programs and their credit cards. And just like with cashback cards, extremely lucrative sign-up bonuses are often available.
Rewards cards are not just geared towards travel. Citi has a credit card that provides rewards to AT&T customers. Even department stores have their own branded credit cards where rewards may add up.
In future posts, I’ll go through various cashback and rewards credit cards, individually and in detail. I’ll explain each of their unique benefits so you can compare and make the best choice for yourself.