In a previous article, I discuss the benefits of using credit cards. In addition, I talk about the type of people who should not use credit cards despite the benefits.
When it comes to choosing a credit card, the way to get the most bang for your buck is to pick one that will give you the most rewards for your spending. A cash back or travel rewards credit card is the easiest way to use everyday purchases to give your budget a boost.
Is the best option a cash back credit card or a travel rewards credit card? Of course, the answer depends on your lifestyle.
In this article, I will outline the different categories of credit cards and provide my opinion on which type is better.
Cash Back Cards
Flat Rate
Flat rate cash back credit cards give you the same rewards on every purchase. Typically, these cards do not limit the amount of rewards you can earn.
Most credit cards offer at least a 1% rate. However, there are certain cards that offer up to 2%.
If you value simplicity above all else, flat rate cards may be a good option.
Tiered
Tiered cash back credit cards pay higher rates in specific categories. This is usually capped up to certain spending limits. On all other categories, there is typically a lower rate of 1%.
For example, a tiered credit card may offer 3% at gas stations, 2% at restaurants, and 1% on other purchases.
If your spending tends to be concentrated in the higher-earning categories, a tiered card may make more sense than a flat rate card.
Bonus Category
Bonus category cards offer a high cash-back rate on specific categories that change every quarter and a 1% flat rate on other purchases. Typically, there is a cap on bonus category spending up to certain spending limits.
For example, this type of credit card may offer 5% at gas stations in January-March, grocery stores in April-June, restaurants in July-September, and department stores in October-December.
A bonus category card can work if you think that you will spend a lot in each bonus category every quarter.
Travel Rewards Cards
Airlines & Hotels
Most travel rewards credit cards work on a points-based system. For example, you earn points (or miles) for each dollar that you spend. Depending on the specific card, you may earn more points for spending at certain airlines or hotel chains.
Typically, these points can be redeemed in many ways such as discounted airfare, hotel stays, dining out, discounts on cruises, etc. Redemption policies vary depending on the credit card.
Which is Better?
As mentioned before, it depends on your lifestyle. However, I believe travel credit cards are often not the best option for the average person.
Additionally, cash back credit cards are more flexible. This is especially true if you pair them together. For example, you could use all three types of cash back cards to maximize rewards. I personally utilize this strategy and average around 4% cash back on all my purchases.
Final Thoughts
If you decide to use multiple credit cards to maximize rewards consider the following points.
- Having multiple credit cards means you have to work harder to manage them. Missing due dates or carrying a balance can result in costly late fees. Multiple missed payments can lead to increased interest rates and hurt your credit score. Additionally, you will have to remember which card to use for certain expenses to maximize rewards.
- It is easier to run up debt when you use multiple cards. Make sure you use your cards the way you planned.
- If you start applying for many cards within a short time, it can hurt your credit score. Therefore, do not build up your credit card portfolio quickly.
- Do not churn credit cards just to earn introductory bonus rewards. In my opinion, every card should have a long-term purpose.
- Do not apply for credit cards with annual fees unless the benefits outweigh the costs.
