CREDIT CARD CASHBACK
I'll start by explaining cashback credit cards first, because i feel like these ones are pretty self-explanatory.
It's basically just for every dollar you spend you get a certain amount in cashback.
So for instance, if you get two percent back on restaurants, and you spend ten dollars at a restaurant on that credit card, then you're going to end up getting 20 cents back in the form of cashback on that specific card, obviously, 20 cents cashback is not very much money, but if you were going to spend money at the restaurant.
Anyway, then you might as well get a little bit of a reward because if you spend on average two thousand dollars a month on your credit card at one percent cashback.
then you're getting twenty dollars cashback every single month to do the spending that you're already going to be doing if you're using cash or a credit card, so you might as well get the rewards, but if you happen to be spending more on your credit card, just because of the rewards then i, probably wouldn't bother because if you are paying interest on your credit card, it's probably about 18 in interest.
So if you're paying interest on your credit card at 18, but you're only getting back one percent in rewards then you're losing 17 and i would never advise doing that i advise paying off your credit card statement every single month.
so that you don't pay any interest and you can still get the rewards now typically with cash back credit cards the money that you earn as cash back is going to end up in a separate account and sometimes the credit cards require little thresholds in order to redeem that money.
So sometimes they might have a 25 threshold where you've got to earn at least 25 bucks before you can redeem it.
And sometimes the credit cards don't have a threshold.
So even if you want to redeem 20 cents some credit cards allow you to do that, but just keep in mind every single credit card's different.
Most of them are pretty competitive in the sense that they're not going to make you have a giant threshold before you can get cash back and they are pretty easy to use.
because if you want to redeem the cash back on your credit cards, it's really easy to do because most credit cards allow you to do what's called a statement credit, which means for instance if you're gonna redeem a hundred dollars in cashback.
then they'll just push that right back onto your statement just like when you buy something and then you return it with the credit card, it's the same concept and then some credit cards will let you redeem your cashback by actually taking that money and moving it into the bank account of your choice.
i personally like doing this because it's kind of like double-dipping because if the money goes back straight to your credit card, you can't actually get rewards points on the cashback, but if you send it directly to your bank account, then technically you could spend the money that you got in cashback on your credit card, and then just pay it off because you already have that money in your bank account.
So for instance if you redeem 600 bucks cashback, and it goes into your bank, then just spend 600 on your credit card, and you'll also get the cashback on that 600 that you're spending just because you move that money into your bank account rather than doing it as a statement credit.
but just remember that every cashback credit card is going to be different some of them only allow you to do statement credits and others allow you to do both meaning statement credits or transferring the money to a bank account of your choice.
So just remember that they're all different.
CREDIT CARD POINTS
Now the difference between cashback credit cards and points credit cards as far as points credit cards go the way that they typically work is for every dollar you spend you're going to get x amount of points based on the credit card you're using some credit cards might be 10 points per dollar spent maybe a hundred points, maybe even a thousand.
but really it just comes down to the dollar amount that they're worth because at the end of the day you're going to be redeeming those points for either flights hotel stays or maybe even gift cards and different things like that.
So, let's pretend that you earn 10 points per dollar spent and you spend 2500 on the credit card.
Well that's going to end up being 25 000 points.
So if you end up going into the gift card section, and you see a gift card that's worth twenty five dollars, and it cost twenty five thousand points, then it's obvious that you're getting a one percent return on all of that spending now, if that gift card happened to be like fifteen thousand points or even ten thousand.
then you know that you're getting more than one percent and that might be a better value than cashback based on the category that you're spending.
It really just depends on the math because that's what you have to do here is just find out apples to apples whether cashback or points are going to be worth it for what you're spending your money on and everything like that.
So even if you spend 2 500 bucks on your credit card, and you end up getting 25 000 points or even 250 000 points the points don't really matter.
It just comes down to the value of the redemption versus how much you're spending on the card and what you're getting back in the form of a reward.
so where it can get a little bit confusing is if you have a hotel credit card or an airline credit card, because technically speaking they are using rewards points to redeem for hotels and flights.
but you need to know for sure if you're getting a good value based on how much you have to spend on the credit card to actually redeem the value in the form of a hotel or a flight because the most confusing part about the price of hotels and flights is that it's always going to be fluctuating based on demand.
so you have to know for sure if you're getting the best value out of those redemption points based on when that demand is when you need to use the hotel or the flight and i'll show you exactly how i do that.
So, let's pretend that you have a hotel credit card and you accumulate 150 000 points over a certain amount of time and now you want to redeem those points for a specific hotel on a specific date.
let's also pretend that it costs 150 000 points to get that room for free now, what i would personally do at this point is hop online and check how much that actual hotel is going to cost you on that specific date, so you can check hotels.com.
You can check orbits, whatever you want to do.
Just find out how much that hotel is going to cost you.
So let's pretend it actually costs you 75 in total to get that room.
If you were just paying cash for it or you're going to redeem 150 000 points to get that room for free with your rewards card.
Now, let's say that you had to spend 15 000 on that credit card in order to accumulate 150 000 points.
Well now we can actually do the math ourselves because we know exactly how much that hotel is costing us versus how much we had to spend on the credit card to get those points and redeem them for a free hotel stay because if you spend fifteen thousand dollars, and you get one percent back in the form of rewards, then that is equivalent to a hundred and fifty bucks.
And so if that hotel is only costing you seventy five dollars in real life, but you had to spend fifteen thousand dollars on the credit card to get it for free then really you're only earning half a point in rewards on the hotel card, and that is not worth it because most credit cards.
You can at least get one percent back on all of your spending.
So if you are not getting at least one percent back, then that is not a good value, and you should probably get a different credit card.
FINAL CONCLUSION
So what it really comes down to when you're comparing cashback credit cards versus points credit cards is how much money you have to spend on the credit card in order to redeem it for something of value as far as a percentage goes because most cards nowadays have at least one percent back on everything and they even have more in different categories.
So definitely shop around for different cards, especially if you're not getting at least a one percent return on the money that you're spending.
So now we think you understand every single difference between cashback credit cards and points credit cards.