When it comes to credit card rewards, there are two things you could earn, either cashback or points/miles. Both systems are great! It’s especially good when compared to the alternative of earning nothing, or very close to nothing for all of your purchases. But which one is better for you?
Cashback is just like the name suggests, straight cashback. If you used a card that earned 2% cashback on your purchase, it would be the same as getting a 2% rebate. For every $100, you’d get back 2%, or $2. Cashback is a system that is easy to understand, and easy to use at all times without any sort of weird fluctuations.
Now though, lets talk about points/miles. The first thing to understand about points and miles is that depending on the issuer, they have different values. Think about comparing different currencies. 1 Ultimate Reward point from Chase is worth a lot more than 1 Hilton Honor Point. If you just took a look at the total points for a sign up bonus for instance, you would think that 100,000 Hilton Points would be worth twice as much as 50,000 Ultimate Reward Points. This is why it’s crucial to take their value into consideration.
The second thing about points and miles is that their value can technically change, either before you use them, or what you use them on. If a company devalues their points by a sudden change, then they are instantly worth less. While we give certain value to point, if you spend the points on something that doesn’t earn you much, then you didn’t get the value stated. For instance, if some points were worth 1 cent per point, and you redeemed them for gift cards at 0.5 cents per point, that’s technically what they were worth to you, at that time, even if the community as a whole thinks they have much more value.
The Case For Points/Miles
The aspect that makes points and miles so attractive is the potential to use these points correctly. While each company will want you to use your points for things that aren’t that valuable, the real value comes in when we redeem the points for miles. While some redemptions give us fractions of a cent per point, if we redeem the same points for travel, that value could multiple up to 2 cents per point. Instead of directly spending our own money, the points can be redeemed for things such as hotel rooms or airfare. Sometimes this comes with incredible value.
As an example, it’s not uncommon for there to be a first class trans-ocean ticket for upwards of $10,000. If we were to use points, we could get the same deal for $1,000 worth of points. Image how long it would take to save $10,000 in cashback, vs $1,000 in point? Much longer! With a redemption like this, we are getting 10 cents per point, something that’s unheard of with cashback.
Of course, as with any point currency, it’s crucial that before you redeem any point, you make sure that it’s a worthwhile redemption. Otherwise, you are not only spending more, but you’re wasting your time by getting all of these points in the first place.
While cashback is a very easy to understand system, the value that you can get from cashback is very limited. You know exactly what you’re getting! The problem is that unless you spend an absolutely huge amount of money, it will take a lot to get any sort of worthwhile benefit.
With points/miles, the values are not fixed. Using points for traveling is the best possible way to redeem these points, and oftentimes there will be some sort of multiplier. This allows people to get better value for their travels, but is really the cornerstone of travelhacking.
Would you rather pay $2,000 for a hotel room for 1 night in a luxury hotel, or 30,000 points? I’ll let you decide on which is the better play.
Is your current setup a cashback or points/miles one? Let us know which cards you use together in the comment section down below.