- Credit card rewards can be overwhelming and complex. When you can earn points, miles, hotel rewards, and cash back, how do you decide which is best for your lifestyle?
- It comes down to two things: what you value the most and how to get there with the least amount of resistance.
- All rewards credit cards offer some benefit and overall value, but it’s important to determine what matters most to you before you apply for any credit card.
- Find the right card for your lifestyle with CreditCard.com’s free CardMatch tool »
In shopping for a rewards-earning credit card, it seems there is no end to what kind of bonuses travellers can earn. One card offers airline miles, with promises of flying around the world at a low overall price. Another card offers you flexible points you can use for anything from hockey sticks to hotel nights. Others give cash back with every swipe, encouraging you to spend more to accrue a bigger rebate.
The combinations of award types may appear endless and overwhelming. Even worse, the rewards may not directly be what they promise. Just because you earned 30,000 miles doesn’t mean you can fly that far with your rewards. And 2% cash back may sound like a lot, but it takes time to wipe away a big item.
For many, simplicity among rewards is best. If you are looking for the easiest way to accumulate credit card rewards without advanced maths or incredulous planning, it’s important to determine two things: what you value the most and how to get there with the least amount of resistance.
Why should I simplify my credit card rewards?
Some people like the complexity of handling multiple credit cards and reaping all the rewards that come with it. Through carefully managed spending, expert card managers use the right cards at all the right places to ensure they get the biggest benefits.
However, it also comes with a lot of risk. High-end reward-earning credit cards come with annual fees up to $US550. And if you can’t recover the full value of the annual fee, that’s free money for the bank.
By simplifying credit card rewards, you can reduce your exposure to the risk of losing money from annual fees and improve your opportunity to earn high-value rewards. In addition, taking a simplified approach to credit card rewards can get you closer to the types of rewards you want – be it the flexibility to use your rewards where you see fit, getting cheap deals on airline flights or hotel rooms, or cash back you can use anytime, anywhere.
The pros and cons of cash back cards
As the saying goes: Cash is king. With a cash back credit card, you can earn straightforward rewards that are easy to understand and easy to redeem. Simply spend using a credit card like the Chase Freedom or the Blue Cash Preferred® Card from American Express and build up a bank of cash back that you can use to wipe away purchases whenever you want.
The downside of cash back credit cards is that they don’t earn rewards very quickly. At an industry average of 2% per purchase, it can take quite a bit of spending before you accumulate enough to write off a big trip or high-ticket item.
The pros and cons of flexible points cards
Like cash back credit cards, flexible points credit cards can give you the freedom to use your rewards wherever you see fit. And in some situations, those points can be worth more than any cash back you would earn.
For example: The Chase Sapphire Preferred Card earns 2X points on travel and dining at restaurants, and can be redeemed for 1.25 cents each when used through the Chase Ultimate Rewards travel portal. Those points can also be transferred to travel partners and redeemed through their loyalty programs.
On the downside, the points are only good if you can use them. And the best use of flexible points credit cards is towards travel. If you can’t use the points for any kind of travel, it may be best to earn cash back rewards instead.
The pros and cons of airline and hotel cards
Flexible points credit cards aren’t the best bet for everyone. If you are loyal to one airline or hotel brand and want to earn bonuses when you fly or stay with them, airline or hotel credit cards may offer your best overall benefit.
How can airline or hotel credit cards give you big rewards? Let’s look at the Gold Delta SkyMiles® Credit Card from American Express: Basic cardholders receive their first checked bag for free for up to nine people on a single reservation. If you used all nine spots, you could receive $US270 in value on one flight alone. The Hilton Honours American Express Ascend Card, on the other hand, gives you Gold status at hotels, offering valuable benefits whenever you stay at a Hilton hotel.
But like flexible points cards, the benefits of airline and hotel credit cards are only useful if you can take advantage of them. If you don’t travel enough to get value from the free checked bags or hotel status, you may lose money from the annual fee.
Although credit card rewards may appear complex, they don’t have to be. By understanding what you value the most and how to get there with the least amount of resistance, you can get the right relationship with your bonuses and gain a lot of rewards over the long run.
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