Cash back vs. Points: Pros & Cons of Different Types of Credit Rewards
In today’s world, there are many different kinds of credit cards that offer consumers the ability to earn rewards. These credit card reward programs can be divided into two main categories: cashback and points. With a cashback credit card, consumers earn a percentage of their purchase as a direct rebate or return at the end of each billing cycle. Points cards, on the other hand, use abstract points to denote rewards earned with purchases.
While some people believe that one type is inherently better than the other, in reality, both have their benefits and drawbacks depending on what you value most in a rewards program. This article will help you to get a better idea of how to get free stuff on Amazon and other shopping websites.
Before we get into specific comparisons between these two types of credit card reward systems, let’s take a look at how they work individually in order to give you a better idea of how each type is structured.
Cashback credit cards are pretty straightforward in that by purchasing goods or services with the card, the user will earn a certain percentage of their purchase as cashback after it is applied to their account. Most cards offer between 1-5% on all purchases, although some can give higher percentages for specific types of purchases like groceries or gas. Once the cashback has been earned, it is added to your monthly statement and can be used however you wish (e.g., spend it on more items, receive a check in the mail, etc.). Points credit cards work similarly but instead of offering direct cash on each transaction, users accumulate abstract points on every purchase which then equate to rewards on specific purchases. The rewards can be in the form of travel, cash back, gift cards, etc., and range based on the number of points needed for each reward.
Most people begin to accumulate points or cash back and then spend it when they want to make a large purchase (e.g., take a family vacation, or buy new appliances for their home). While this is definitely one way you can save up your rewards towards something big, there are alternatives that allow consumers to earn points/cash-back faster and easier depending on how much time and effort they’re willing to put into it. These options include:
1. Credit Card Rewards Bonus Sites
There are hundreds of sites out there—such as Upromise —that help you earn extra points/cash-back on purchases you already make every day. All you have to do is link your credit or debit cards to the site and shop as you normally would. Then, when it’s time to pay for your items, enter your information at checkout through Upromise and watch the extra cash-back flow into your account!
2. Maximize Spending
If you’re someone who uses a specific credit card for all of their spending and manages multiple cards, our suggestion is to focus on one particular card that offers the highest percentage in return on all of your everyday spending (e.g., groceries, utilities, etc). According to ClearPoint’s Personal Finance Calculator, if an individual makes $100K per year and spends $500 a month on a credit card with 5% cashback, they will earn $3,000 in rewards every year just from their monthly purchases.
3. Maximize Rewards
In addition to using your cards more strategically as mentioned above, you can also maximize your rewards by purchasing items that offer the most return. For example, if you use a points credit card to buy airline miles from one of the major carriers without any fees, this is considered an excellent way to get maximum value out of those points/miles because they are worth at least two cents each towards travel!
4. Take Advantage of Promotions
Lastly, don’t forget that there are always promotions going on either through the actual store or with your specific credit card company. For example, any store that offers double or triple the number of points during specific months throughout the year is obviously a great opportunity to take advantage of in order to double or even triple your earnings! And if you have a credit card with 5% cash back on gasoline, there are promotions every quarter where it doubles for three months at a time.
5. Review Your Credit Card Options
Last but not least, make sure you’re really looking at all the available options when deciding which rewards program to go with. This includes considering which type of purchase will get you the most return (e.g., groceries vs. travel), what types of promotional opportunities are available, and how many cards would be best suited to your spending habits.
With so many options out there for earning extra credit rewards—whether it’s by increasing your spending, utilizing promotional opportunities, or using different types of cards—there are plenty of ways to get the most value out of your everyday routine. The key is not to stress too much about maximizing your earnings and simply follow a game plan that works best for your lifestyle.
The choice between cash back and points credit cards ultimately depends upon your individual preferences, needs, and spending habits. If you’re someone who would rather use a card with fewer bells and whistles but one that allows you to enjoy the full amount of cash-back you earn every month without any hassle or limitations, choosing a straightforward cash-back credit card is probably the best option for you.
On the other hand, if you want to earn rewards faster and more efficiently while maximizing your purchases, points or travel credit cards are likely a better choice because they offer higher percentages in return on certain types of spending (i.e., gas), allow you to collect points/miles with your credit card that can be redeemed for travel or cash, and even offer bonus points/miles on promotional periods throughout the year.
Regardless of which type of card you choose, one thing is certain–if you’re not utilizing a rewards credit card to its maximum potential, it’s truly missing the boat!
Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.
