Credit Card Comparison: Cash Back Vs Credit Card Reward Points
If you have been following Young, Dumb, and NOT Broke?! for any length of time now, you know I’m a huge fan of credit card rewards. What we haven’t talked about yet is which is better; cash back or credit card reward points? This is a question that no single blog post, YouTube video, or one person can answer for you. The reason is you need to answer it for yourself.
You see, while both are great incentives for using a credit card, cash back and reward points have slightly different outcomes. The outcome that works best for you, is going to totally depend on your lifestyle choices and what brings more value to you.
If you are new to credit card rewards in general, then I would highly suggest you check out my article: Are Credit Card Rewards Worth It? – Cash Back, Travel, and More! Of course, do that after you’re done reading here. That article will break down what all of the rewards associated with credit cards are to help you get a better grasp on this fun topic.
Seriously, it is a fun topic because you are getting these rewards, whether it be cash back or points, for free. Yes, as long as you are using your credit card responsibly and paying it off in full every single month, then these rewards are free.
In this article, I’ll take you through what cash back and reward points are, give you some pros and cons, then tell you which system I use and why. At the end of this article, I’ll even show you the chart I use to document all of my credit card rewards.
What Is Cash Back?
Okay, let’s start this out by talking about the most common type of credit card perk and that is cash back. Cash back is as simple as it sounds. You spend money and then you get a certain percentage in cash back to your account.
I posted an article a couple of months ago titled Why The Chase Freedom Unlimited Should Be Your First Credit Card. This card gives you 1.5% cash back on all purchases. Another good option is its counterpart the Chase Freedom. This card gives you 1% on all purchases but additionally lets you rotate different categories each quarter for 5% cash back.
That’s a lot of percentages I know, but cash back is a great option for people who don’t want or know how to use reward points. Or frankly, people who don’t care about them and just want some incentive to use a credit card. Nothing wrong with that at all.
If you are interested in checking out the Chase Freedom Unlimited then click the image or button above to go directly to Chase’s site. As you’ll learn later on, I’m more of a reward points guy but I do keep a Chase Freedom Unlimited in my wallet for certain purposes. If you want to know why I still use it then check out my YouTube video here.
Just to put some numbers in front of you, let’s say you spend $1,000 a month on your Chase Freedom Unlimited. You would then get 1.5% or $15 back. While it doesn’t seem like much, it really can add up. In a year, that’s $180. That’s enough for that Apple Watch you’ve been checking out!
What Are Credit Card Rewards?
Okay, now let’s get to my favorite type of credit card reward; reward points. I’m not going to sugarcoat it. If you think cash back is confusing, then understanding reward points can really throw you off. Just know that by figuring out how to leverage these points, I haven’t paid for a flight in almost 3 years! Yes, in a roundabout way this means I’ve been traveling for free.
To put it simply, reward points work by giving you a certain number of points per dollar spent. Where it can get confusing is trying to decipher what purchases allow you to earn points, how many points you earn per purchase and when/how you can redeem the points. Yes, that’s a lot, I know.
Let’s start out with how you earn them. On my American Express Gold Card when I buy groceries or spend money on dining out, I earn 4x points. But when I buy gas I just get 1 point per dollar spent. Of course, this is just one example of one credit card. Every card assigns their points differently.
If you’re interested in applying for the American Express Gold Card then click the image or button below to take you directly to their site. This card is a staple in my wallet and one I think anyone who is serious about credit card rewards should also have. If you aren’t quite sold, then click the link above to go to the article I wrote on it or click here for the YouTube video.
Obviously, you can see how it gets confusing with the dozens of options out there.
Since I’ve already got you somewhat confused, let’s jump over to when you cash them in. Unfortunately (or fortunately however you look at it), points are worth different amounts when you cash them in.
For example, if I choose to use my 50,000 points and just get cash back on my Chase Sapphire Reserve, then I’ll get $500 cash back. But if I take those same points and use them to book a flight through the Chase Ultimate Rewards Portal, then they are now worth $750 of air travel, or 50% more. If you need the money right away, cash back is the right option but if you can use your points strategically, you can get quite a bit of dollar value out of them.
You can use your points for many different things, not just flights. Amazon now gives the option at checkout to use your Chase points to pay for your items. You can rent a car or a hotel room with points. You also have the option to transfer points to partner programs but doing that is out of the scope of this introduction to credit card reward points. (Shoot me an email if you have more questions.)
Again, this will all change from card to card. The best advice I can give to you here is to write down your card or cards and list their top 3-5 perks so you remember them (I show you an example in the next section).
Which One Is Better?
The answer to the question of which one is better is going to completely rely on your personal beliefs. Personally, I’m a points guy, I enjoy the thought of earning reward points throughout the year. I can then take these points and use them for vacations. I like to travel and do it often so I’m able to maximize the value of my reward points. When I take these trips, my flights are always paid for with points. Additionally, I have used points for a rental car and other lodgings.
Below is a picture of my current points, which card or service they are from, as well as a brief description of each. This is a chart I update every month so I understand how my credit card rewards are working for me.
These points have taken years to build up and even more time to learn how to play the credit card reward game. Don’t think you’ll open up a card and instantly have $1,000+ worth of points. It just doesn’t work like that.
On the other hand, you could open up a cash back credit card and see that money coming back to you instantly every single month. If you want more cash in your pocket now, then this is obviously the way to go.
The method that I would suggest is that you do a mixture of both. Have a cash back credit card that you use to buy things like gas and groceries. Put a little extra money in your pocket every month and then use a rewards card for all other purchases. Set this card to autopay the full balance every month and then don’t look at it for a year. Seriously, wait a year and then check on your reward points balance. I think you will be pleasantly surprised.
The Bottom Line
At the end of the day, cash back vs credit card reward points is all going to come down to your personal situation. Some may value points while others like reward points and that’s just fine. Each one has its perks, but I think everyone should take advantage of at least one of these.
Seriously, it’s free money.*
I put an asterisk there because you still need to follow the golden rule of credit cards. I repeat this rule on every post I write about credit cards. In case you need a refresher, here it is:
Pay off your credit cards IN FULL every single month and never carry a balance.
Follow that rule and you’ll be just fine.
If you’re interested in a cash back or reward points credit card, then I would highly suggest scrolling back up. Click the button below either the Chase Freedom Unlimited or American Express Gold Card and you’ll go directly to their secured sites. Both of these cards are in my wallet right now, seriously I’m looking at them. I use them almost daily and I can’t recommend them enough.
Are you a cash back person or do you prefer credit card rewards? Had a cool experience that you got to do because of credit card rewards? Let me know by tweeting me @Shelbygrosch.
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