Sunday, November 6, 2011

Miles/Points vs. Cash back - Which one is better?

Cash back - For the majority of people and the majority of situations, I personally believe that you are better off with cash back than with miles or points.

Here is why:

1) With Miles, you get less money back -

If you have the right credit cards, you will almost always get a higher percentage back with a cash back credit card for standard purchases.  With cash back credit cards, you are able to get at least 2% back on every purchase and sometimes up to 6.25% back in certain categories (look for the Discover card).

When it comes to miles cards, if you do the math you usually will get 1% back or maybe 1.25% back.  You will be very hard pressed to find anything close to 2% without an annual fee.  Here is an example from one random website.  They have one card (Capital One) that gives 2 miles per dollar but it has an $59 annual fee, the rest pretty much give you one mile per dollar spent.

2) With Miles, you have to spend your money on specific items (for most cards)

When you get miles or points, you are usually required to buy plane tickets, book hotels or buy ipods with the rewards you have built up.  Why box yourself in for a lower percentage?  You could take the 2% back you get from your 2% Fidelity card and use that money for the same flight but it will end up costing you less!  If you get cash back, you can spend your money on what you really want/need to and you are not forced to do anything.

How many times have you heard stories of people who built up thousands of miles with no real way to use them for years!

Two good reasons to like miles cards

1) I like the feeling of free stuff

I can't argue with emotions.  Some people really like the feeling that they aren't paying for their flights or anything else they get from their rewards.

Here is my suggestion for you.  Take the money you get from your rewards credit card and put it in a separate account.  Let it build up until you have enough to buy the airplane ticket.  You will get the same ticket, but you will get there faster.

Some will say, "but then I won't spend the money on it."  My response: If you aren't spending the money on the items because you can't afford to or you don't think the item is really worth the money, so then why would you box yourself in with your credit card. Get a rewards card and use your money for groceries instead of vacations.  If you can afford the vacations but you just want to have the feeling of it being free, please continue using your rewards card in good health and enjoy your vacations.

2) If you are a very frequent traveler, there are a few great miles cards

I hope to be able to highlight some of these cards in the near future.  Some cards will give you free nights, others will give you free upgrades and others will allow extra luggage for you. which can save a lot of money.  Stay tuned!

As always, if anyone has any credit card that they like, please leave a comment with the card and I will try to look into it.


Adam said...

I like American Express Blue Cash. There is no annual fee. If you spend over $6500 in a year you get 5% cash back on groceries, gas and some other everyday expenses (most of my credit card usage) and 1.25% on everything else.

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