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When you’re looking for a reward credit card, the first decision that you’ll have to make is whether to earn cash back or travel rewards. And the choice you make says as much about your priorities as it does your taste in credit cards.

Travel Rewards Credit Cards vs. Cash-Back Credit Cards

For many years, it was unusual to find a cash back card that offered more than one percent back on all purchases. Back then, airline miles were very easy to redeem for award flights, and it wasn’t too hard to receive two cents or more in value per mile redeemed. But as rate of return on cash back rewards card have increased, the value of frequent flyer miles has gone down. As a result, choosing between cash back and travel rewards can now be tough.

The Case for Cash Back Cards

Let’s face it, you can’t pay your mortgage with points and miles. You have to use some form of cash. Cards like the Citi Double Cash Card can offer you up to 2% cash back on all purchases (1% when you buy plus 1% as you pay), which is more valuable than a point or mile most of the time. And when you combine that card with one that offers good category bonuses, you can earn even more cash back. For example, the Costco Anywhere Visa® Card by Citi offers you 4% cash back on eligible gas on the first $7,000 anually, then 1%, and 3% cash back on restaurants and eligible travel purchases. Also, the Blue Cash Preferred® Card from American Express offers 6% cash back at US supermarkets (on up to $6,000 per year in purchases, then 1%) and 3% at U.S. gas stations.

Related Article: The 4 Credit Cards You Should Keep and Why

The Case for Travel Rewards

It’s true that airline miles aren’t worth nearly what they used to be, especially for domestic travel in economy class. For these seats, you’re usually better off just buying a discounted ticket rather than searching for a way to use your miles. But at the same time, there are some credit cards that offer you points that you can transfer to miles, and these cards can offer you bonuses on certain types of spending.  For example, the Chase Sapphire Preferred Card offers double points on all travel and dining, and these points can be transferred to airline and hotel partners. Or, The Platinum Card® from American Express that offers you 5x points on flights booked directly with airlines as well as prepaid hotels booked with Amex Travel. These points can also be transferred to airline or hotel partners. Other cards like The Blue Business℠ Plus Credit Card from American Express offer more than one point per dollar spent

And when you transfer points like Chase Ultimate Rewards or American Express Membership Rewards to airline miles, and you redeem those miles for tickets in business or first class, you can often receive several cents in value per point redeemed. For example, imagine you spent $20,000 on airfare and hotels last year. Had you used a great card like the Costco Anywhere Visa, you would have earned 3% cash back, which would be $600. But if you used an American Express Platinum, you would have earned 5x, which would amount to 100,000 Membership Rewards points. You could then transfer those points to Virgin Atlantic, and redeem them for a round-trip award ticket to Europe, on Delta, in Business class. Clearly, this award is worth several thousand dollars.

Making the Right Decision for Your Needs

There are problems with using travel reward points and miles for international business and first class flights. First, you usually have to book those awards far in advance to find them at the lowest mileage levels. You may also have to be flexible with your dates and will have a hard time finding more than two award seats on a flight. Also, it takes a significant amount of travel knowledge and skill to find and book these high-value awards, and not everyone knows how to do it. And finally, some people might not value international business class awards that highly, or even have the desire to travel that often. In contrast, it takes no knowledge, skill or luck to redeem your cash back.

By closely examining your reward card priorities, you can make the right choice when it comes time to decide between earning points, miles or cash back.

Intro image by VGstockstudio via Shutterstock
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