CREDIT CARDS 101: Cashback vs. Points (Comparing Cash Back vs. Travel Rewards)

CASH IS KING! Or so they say... Let’s compare CASH BACK vs. TRAVEL REWARDS credit cards (points and miles) to see who the true king really is!

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THE REALITY
Cash and cash back credit cards = KING for everything EXCEPT TRAVEL.
Travel rewards points and miles = KING for TRAVEL.

FOR THIS VIDEO
We are comparing points & miles VS. cash back for TRAVEL.
We are speaking IN GENERAL (i.e. the majority of the time).
Exceptions do exist.

4 TYPES OF TRAVEL REWARDS POINTS
1. AIRLINE MILES: BEST value when redeeming with 1 airline and/or its airline partners. Example: United MileagePlus

2. HOTEL POINTS: BEST value when redeeming with 1 hotel company. Example: Marriott Bonvoy

3. FLEXIBLE POINTS: EQUAL value when redeeming for any flight, hotel, rental car, cruise, etc. Example: Wells Fargo GoFar Rewards

4. TRANSFERRABLE POINTS: BEST value when converting FROM bank points TO partner airline miles or partner hotel points. Example: Chase Ultimate Rewards.

NOTE: Some points are Flexible & Transferrable (Amex, Capital One, Chase, Citi)

VALUE OF TRAVEL REWARDS POINTS & MILES
- All points are NOT equal.
- All miles are NOT equal.
- On average, some points are worth ABOUT 1¢ each ($0.01). Some points are worth LESS than 1¢. Other points are worth MORE than 1¢.

WHEN YOU REDEEM TRAVEL REWARDS POINTS & MILES
You can get MORE, LESS, or EQUAL value compared to what they’re worth (on average). That’s because prices for flights, hotels, etc. CHANGE based on location, economy, type of room/class of service, seasonality, demand and more.

TRAVEL REWARDS EXAMPLES: Flexible & Transferrable Points Programs
- Chase Ultimate Rewards points | Average value = 2.0¢ each for travel
- Citi ThankYou Points | Average value = 1.7¢ each for travel
- American Express Membership Rewards Points | Average value = 2.0¢ each for travel
- Capital One Venture Miles | Average value = 1.4¢ each for travel

TRAVEL REWARDS EXAMPLES: Airline Miles
- American Airlines AAdvantage | Average value = 1.4¢
- Delta SkyMiles | Average value = 1.2¢
- Southwest Rapid Rewards | Average value = 1.5¢
- United MileagePlus | Average value = 1.3¢

TRAVEL REWARDS EXAMPLES: Hotel Points
- Marriott Bonvoy points | Average value = 0.8¢
- Hilton Honors points | Average value = 0.6¢
- IHG Rewards Club points | Average value = 0.5¢
- World of Hyatt points | Average value = 1.7¢

VIEW CURRENT POINT & MILE VALUATIONS
The Points Guy
https://thepointsguy.com/guide/monthly-valuations

2 SIDES TO THE STORY
- EARNING: Cashback vs. points & miles
- REDEEMING: Cashback vs. points & miles

2 CONCEPTS TO UNDERSTAND
1. Calculate Credit Card Return On Spend
(Translation: What is the cash-back equivalent for cards that earn points?)
This is the EARNING side of the story.

2. Calculate Point Redemption Value
(Translation: If I redeem points for Hotel A or Flight B, what value per point do I get compared to the average?
This is the REDEEMING side of the story.

CONCEPT 1: CALCULATE CREDIT CARD RETURN ON SPEND
(Category Multiplier) x (Avg. Point Value) x 100 = % Return On Spend

CONCEPT 2: CALCULATE POINT REDEMPTION VALUE
(Cash Price of flight, hotel, etc.) ÷ (# Points needed) x 100 = Value Per Point

Note: Include taxes & fees in the Cash Price IF your points or miles cover them. Otherwise exclude.

IN GENERAL
To win with points & miles for travel…

1. EARN points/miles when the Return On Spend is GREATER than what a cash-back card could give you for the same purchase.

2. REDEEM points/miles when their Point Redemption Value is AT or ABOVE their average value.

3. SAVE points/miles when their Point Redemption Value is BELOW the average.

Hope this helped you understand how to use credit card reward points effectively so you can travel the world for free (or close to it)! :D

And of course, when you’re not traveling, it’s ok to use cash back ;-)

#creditcards #creditcards101 #travelrewards