Cashback vs. Travel Points: Where Should Beginners Start (Simple Guide)

Anyone who has an interest in credit cards has found themselves faced with this question:  Do I start out with cashback cards, or do I get in the points and miles game with travel credit cards?  And I’ll be completely honest with you; I’ve used both and there are benefits to each system.  Personally, I feel the main question you’ll have to ask yourself is do you want a simple setup?  Or do you want to commit to learning the points and miles system so that you can travel?  Either way there’s no wrong answer, so we’ll dive into each side of the conversation and at the end YOU decide which is the best for you.

Now let’s jump in!  We’ll start with Team Cashback.  To keep it simple, cashback cards are best for those that want simplicity in their setup.  They also work better for those that may not have really high spend on a month-to-month basis. The reason I say that is because nowadays you tend to need quite a few points to have enough for redemptions meaning your spend needs to be higher to earn points faster.  But that’s not to say that cashback cards can’t work well for those that do have high monthly spend and want a simpler setup because there’s nothing stopping that either.  Cashback cards are inherently easier to understand than their travel points counterparts.  Yes, there are bonus categories on these cards that one will have to remember to maximize the cashback they can earn.  But after that, you’re simply earning a small portion of your money spent back.  There’s no memorizing different points currencies from different hotels and airlines.  There’s no remembering how to calculate the value of a particular flexible points currency or which transfer partners you can transfer those currencies to.  You simply earn good old US dollars based on your spending and from there you can re-deploy that money into something else.  So, while right now I don’t really use cashback cards like I used to, I firmly believe that they can work for some that maybe aren’t looking to travel or simply don’t want to do the mental gymnastics that can come with travel points and miles.

Next up is Team Points and Miles!  This is where I currently house my credit card strategy.  If you’re interested in travel points and miles and have already decided that’s the route you want to go, you can read more about that HERE.  Now, travel points and miles are a bit more complicated than earning cashback.  At the same time, I personally feel they are also that much more rewarding, and once you learn how they work and how to use them to your advantage, there’s almost limitless possibilities of what you can accomplish with them.  With travel points and miles, you have two main avenues that you can choose from.  The first avenue you can go with flexible points currency cards, which allow you to earn points that can then be transferred out to different transfer partners.  These kinds of currencies give you a lot of flexibility because the points can be used for airlines or hotels or both (if you have that many points).  But with the flexibility also comes the complexity.  When transferring out to transfer partners, you’re no longer dealing with the currency from the credit card company, you’re now working with the currency of the brand that your transferring points to, whether that’s an airline partner or hotel partner. 

The second avenue you can go down with travel points and miles is to get a co-branded credit card with your favorite hotel brand or airline.  This is where your options get even broader and why the travel points and miles side of the credit card game gets so complex so fast.  For example, one of the cards that I use is the American Express Hilton Honors Surpass card. Co-branded simply means a hotel or airline partnered with a bank and said bank offers a card that will earn that company’s point currency. If you want to read more into this check out this post HERE. So if you are dedicated to certain brands and those are the only brands that you use, this might be the route for you.  Many of the individual brand credit cards also give you status through their co-branded cards, so this can also be a good way to earn status with your favorite brands without the spend required to earn the status had you simply booked rooms or flights with them.  Now there’s a “secret” third avenue that you can go down too.  Ok, maybe it’s not so secret, but you can do a mix of Avenue 1 and Avenue 2 and get a co-branded card and a flexible points currency card.  This gives you flexibility on your hotels; while ensuring you can get status with your favorite airline or vice versa.

The point of this post isn’t to sway you to one side or the other or to tell you that one way is better than the other.  I personally utilize travel points and miles more than cashback, but that’s not what will necessarily work best for everyone.  I want to give you the information so you can decide for yourself.  Maybe you don’t want to travel much but the cashback you could earn on cards can help you reduce some of your costs since you would earn a small percentage back on each purchase.  Maybe you’re in the opposite boat and you dream of travelling the world and points and miles fit your goals.  Or it could be a mix of the two.  The point is to do what works best for you!

Now, you may be thinking what makes me credited to talk about both cashback cards and travel points.  Well at some point in my decade and a half journey I’ve used cashback cards of different sorts, and I’ve also used travel point cards of different sorts.  Even now, where most of my cards that I use are travel points cards I still have one or two cashback cards that are used on occasion.  To be honest with you, the main reason that I use travel point cards is because my wife and I love to travel.  We go on at least one big trip per year and multiple small ones throughout the year too.  So, if travel is something that you love to do or you’d like to do, then travel point cards could work well for you.  Imagine going about your daily life putting your regular spend on a credit card and then after a while of saving up your points, you’re able to pay for most of or at least part of your trip.  But let’s say you’re not a huge traveler and don’t really have the desire to travel, then cashback cards are probably more suited for you. 

So, what next?  I would recommend starting with an analysis of what you truly want to do.  Again, there are no wrong answers in this hobby.  Do you simply want to earn some money back on your everyday spending that you can put back into savings or reinvest in some other ways?  If the answer is yes, then cashback cards are for you.  Are you looking to travel (domestically or abroad) to see more of the country or the world?  If you answer to this question is yes, then travel point cards are the route you’ll want to take. Another thing to keep in mind is that you should use any credit cards you end up getting responsibly.  While this isn’t financial advice, I would highly recommend before signing up for different cards that you make sure you’re prepared to use them responsibly.  If you do this, whether you’re using cashback cards or travel cards, you’ll get the most out of the rewards that you’re getting since you won’t be paying any interest and simply using the cards as a tool to earn the rewards on money you would be spending anyways.

To wrap up, credit cards are such amazing tools that are at our disposal if we can use them responsibly.  And whether you’re using them to cut down on your costs by earning cashback or using them to help pay for your next big adventure, they can be a great way to help you get a little closer to your goals.  No matter which “team” you choose to go with you can make credit cards work for you.  And the best news of all, is that if your goals change you can always change your credit card strategy to better fit your new goals.  So don’t feel that you are stuck with whatever cards you start with because you can always switch it up later on!