Credit Card Points vs. Cash Back: 20 Pros and Cons to Consider

Credit card companies offer a lot of incentives to convince consumers and businesses to choose their cards over those offered by their competitors. Interest rates play a big role and it’s common for carriers to offer low or no interest for balance transfers.

While interest rates are important, they’re not as flashy or appealing as the promise of rewards. Rewards cards fall into two basic categories: credit card points and cash back.

Which is the better option? To help you decide, we’ve created this guide to help you compare credit card points vs cash back and give you the pros and cons of each. Here’s what you need to know.

The Pros and Cons of Credit Card Points

Reward cards that allow you to earn points for your purchases can be beneficial, as long as you understand the risks and rewards of having one. Let’s start with the pros:

  1. With most points cards, you’ll get an average of 2 points for every dollar you spend. That means if you spend $1,000, you’ll get 2,000 points to redeem for gift cards, merchandise, travel and more.
  2. Some of the rewards you can get with points are big ticket items, such as airline tickets. In many cases, points may be better than cash back if you’re saving up for a family vacation or another big purchase.
  3. Many points cards offer an initial bonus that can yield you 10,000 points or more in your first month or so of using the card, provided you meet the spending threshold.
  4. There is a wide array of points cards available and it’s easy to find one that offers high points in your biggest spending category, whether that’s travel, gas or something else.
  5. You may be able to take advantage of partnerships with chosen retailers to get extra points for your purchases, including both long-term partnerships and short-term deals.

There’s no denying that point cards have their benefits, but there are a few potential downsides that we think you should be aware of:

  1. Interest rates may be higher for rewards cards than they are for non-rewards cards and it’s important to read the fine print to make sure you understand how much interest you’ll be accruing if you don’t pay your balance in full each month.
  2. A lot of points cards charge annual fees, and the average is $110 per year. Depending on what your spending is, you may find that the fee outweighs any value you might get from the points you earn.
  3. There may be limitations on how many points you can earn in some categories. It’s essential to read the entire agreement to ensure you understand how the points system works and what, if any, restrictions apply.
  4. Credit card points usually come with an expiration date. There’s no point in having a rewards card if you never do anything with the points. You may also be at risk of losing points if your card goes dormant – so make sure you understand the limitations.
  5. Finally, when there’s the promise of earning points, it’s easy for some people to spend more than they can afford. If you’re considering a card that offers bonus points, make sure you aren’t buying unnecessary items to meet the spending limit.

Most of these cons are things you can mitigate and control by doing some research and being responsible with how you use your points card.

The Pros and Cons of Cash Back

The other rewards card alternative to consider is a cash back card. There are some significant benefits to having a cash back card. They include:

  1. Cash back cards offer obvious and immediate value. You’ll always know what your rewards are worth because the card uses a percentage instead of a point whose value can change.
  2. You have a lot of versatility in how to use cash back rewards. You may choose to apply your cash back to your credit card balance, transfer the money to your bank or even have a paper check mailed to you. You may also be able to redeem cash back for gift cards and travel.
  3. Unlike points, you don’t need to wait to use your cash back. It can take a long time to accumulate enough points for a big purchase, but cash back can be used to pay daily expenses as soon as you accrue it.
  4. As is the case with points cards, you can choose from a wide array of options, including cards that reward spending in chosen categories such as travel, gas or groceries. You may also find special limited-time offers that you can load onto your card to earn extra cash back.
  5. Many cash cards offer an introductory bonus if you meet their specified spending threshold.

Many of the cons that applied to points cards also applied here, and there are some others to consider as well:

  1. As was the case with points cards, interest rates for cash back cards can be higher than typical interest rates. Some cards offer a low introductory rate but you’ll need to be careful to read the fine print to make sure you understand when it expires.
  2. Likewise, there are often annual fees to consider. The same average of $110 applies and even cards that waive the fee for the first year will often charge a fee after that.
  3. Some cash back cards put a cap on how much cash back you can earn in certain categories, so you’ll need to read your agreement carefully to make sure you’re getting the rewards you expect.
  4. If you have a cash back balance on your statement and you miss payments or stop using your card, you may lose your balance.
  5. The same spending issues that apply to points cards may apply here. Remember not to spend money that you can’t afford.

Cash back cards offer spending flexibility that can be appealing if you want a way to offset your short-term expenses.

Which Card is Right for You?

Listing the pros and cons of points and cash back credit cards can help you to evaluate credit card offers and choose the rewards card that is best for you. Here are some pointers to help you decide:

  • Read important sections of any card agreement before you apply. We know there’s a lot of opaque legal language, but pay special attention to anything related to:
    • Interest rates
    • Annual fees
    • Late fees
    • Rewards accumulation and limitations
    • Rewards expiration dates
    • Rules regarding card dormancy or inactivation
  • Think carefully about bonus offers and whether they are advantageous to you. It may be worthwhile to sign up for a card that offers significant bonus points or cash back if you know you’ve got to make purchases up to that amount anyway. However we would never recommend spending money you don’t have just to get the rewards.
  • Decide whether you’re more interested in saving up for a big purchase or getting cash that you can use to offset your credit card balance or other regular expenses. If you’re saving for a family vacation or a wedding, your best bet may be getting a points card and accumulating points to help you offset a big travel purchase whereas a cash back card may be better if you just want a way to pay less on your credit card each month.
  • Once you’ve settled on credit card points vs cash back, do an apples-to-apples comparison of your options before you apply for a card. Remember that credit card applications do have a slight negative impact on your FICO score, so you should apply for the card you want the most.

After you get your new rewards cards, we suggest visiting the card’s website to get a handle on what rewards and bonuses are available. With a lot of cards, you won’t be able to view your options until you have been approved and create an ID.

Keep in mind that a lot of rewards cards offer short-term perks around the holidays. For example, you might earn extra cash back when you buy from Amazon or Target, or you might be able to get bonus points on all your holiday shopping.

You’ll need to check in with the rewards center regularly to check out new offers and make sure that old ones haven’t expired. If you have more than one rewards card, keep in mind that it may be useful to track your spending. Limitations can sneak up on you if you’re not careful. By tracking everything using an app or spreadsheet, you can be sure to maximize your points or cash back and get the most from your new rewards credit card.

Applying for a new rewards credit card is a big decision. We hope that the credit card points vs cash back pros and cons we’ve listed here will help you to evaluate your options, choose the right card for you and your family, and make the most of any rewards you earn.

In the market for a new rewards credit card? Click here to learn about Addition Financial’s Premier Cash and Premier Rewards card, both with affordable credit union interest rates and competitive rewards.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.


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