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Miles, Points, or Cash: Which Rewards Credit Card is Worth More?
[September 7th, 2014]
Navigating the rewards credit card arena can be confusing. With points, miles, cash back, rotating categories, promotional periods, no-interest, low-interest, balance transfers, and signup bonuses, people can easily get frustrated trying to figure out how much value they are really getting out of their credit cards.
If you’d like to get the best deal and the highest value rewards, remember this: it’s not as confusing as it seems. Consider this your handy decoder ring for figuring out which rewards credit card will pay you back most handsomely. We will look at three types of rewards: miles, points, and cash back.
Miles credit cards are sometimes just another name for cash back or points cards, so be careful. Cards like Discover and Capital One have miles cards that let you apply your rewards points to travel purchases, as a statement credit. These aren’t really miles rewards credit cards, although they are marketed that way. The great thing about them is, they’re flexible. You can cash in your “miles” on any flight, anytime, any airline, with no restrictions or blackout dates. But a true miles credit card, like one offered by a co-branded airline card, really does let you earn frequent flyer miles. These are still flexible, in most cases, if they can be used on partner airlines in the same alliance. It’s also harder to attribute a fixed value to these miles, because depending on what flight you redeem them for, they will be worth more or less. Remember that on any given flight, people pay vastly different amounts for their seats. In general, if you use your miles right, these type of miles credit cards can reap high value rewards.
Points credit cards give you a certain number of points per dollar spent. The base amount is one point per dollar, and certain cards offer more for different purchases. A dining rewards card may offer three points per dollar on restaurant purchases, and a gas rewards credit card might give six points per dollar on fuel purchases. Points can then be redeemed for gift cards, statement credits, travel rewards, or merchandise. The rule of thumb with points cards is, gift cards usually offer the best redemption value. Choose your favorite retailer and order a gift card, then use it yourself or give it as a gift. Points rewards cards usually have a large network of participating retailers to choose from.
Cash back cards operate pretty much the same way points rewards credit cards do, but instead of giving you one point per dollar spent, they give you 1% back on each dollar you spend. That’s the base threshold. Rewards credit cards with rotating categories offer 5% back per dollar spent in certain categories that change each quarter. The 5% reward is usually capped at $75 back per quarter, or after $1,500 in purchases. After that, you’ll get your 1% per dollar reward if you make more purchases in that category. Cash back cards usually also let you redeem your rewards for a gift card or merchandise, as well as a statement credit or a check.
One last tip: no matter which type of rewards credit card you have, remember to make your payments on time each month and abide by all terms and conditions. If you fall out of good standing with your card issuer, all your accrued rewards will often disappear.
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