I get this question almost daily. Which is the best rewards card to sign up for? Aren’t they all the same? Miles, points, cash back, what’s the best option? The truth is rewards cards are not all the same and there are some that are probably better for you than others.
It’s very important to keep in mind that credit cards have a purpose. The purpose is to make the credit card issuer money. However that revenue is generated, it doesn’t really matter. Whether it’s fees, interest, interchange (the merchant’s fee for accepting the card), or through the sale of enhancement products revenue is revenue.
All rewards cards also serve the same purpose. That purpose is to generate revenue for the issuer but in this case the issuer is targeting you with a partner. That partner might be an airline, a sports team, a charity or a school. Regardless of which, it’s someone or some organization that is appealing to you. And since most consumers are vain, they’d rather walk around with a card with a college logo stamped on the front than one with nothing on the front.
I believe, and I might be unique in my opinion, that cash back cards are the best type of rewards card. Why? It’s simple, cash has no black out dates. And, the cash back programs are really easy to understand, which is not something you can say about the air miles programs. If you spend a dollar you earn some percentage of that dollar as cash. Normally the percentage ranges between 1% and 5%, depending on the issuer.
Here’s another reason I like cash better than miles, the value is better understood by the consumer. Follow me…it takes roughly 25,000 air miles to redeem for a free round trip domestic coach ticket. And, that’s if you’re lucky enough to choose a flight that actually has seats available for purchase with that minimum mile price tag. To earn 25,000 miles you’ll likely have to spend $25,000 because most of the programs reward you with a mile per dollar spent. Now, I can buy a round trip ticket in first class to anywhere on the globe for about 1/2 that price. Point being, you better not buy stuff simply to earn the ticket.
Go to any of the airline websites and you’ll see that you can buy a round trip coach seat for well under $500 from any two destinations in the continental United States. So using the airline points to buy a round trip ticket from Atlanta to New York just does not make sense, as an example. In fact, there aren’t many examples that DO make sense.
So the next time you’re in the market for a rewards card keep a few things in mind please…
1. If you’re paying the bills then it might be a better idea to get a cash back card rather than an airline points card
2. If you don’t understand the program terms then don’t sign up for the card
3. If you revolve a balance from one month to the next and pay interest, you’re likely to pay more for the reward than it’s worth.
John Ulzheimer is the President of Consumer Education for Credit.com and owner of 2StepCredit.com. He is an expert on credit reporting, credit scoring, credit score ratings, and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He is a weekly guest on FOX’s The Willis Report and is the credit blogger for the New York Times and Mint.com. He has served as a credit expert witness in more than 65 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
