What are the pros and cons of cash back credit cards?

Cash back credit cards are worth it if the value of the cash back is greater than the cost of the card. The best cash back credit cards with the highest rewards rates and signup bonuses sometimes have annual fees. In that case, you need to be sure the cash back that you earn will offset the cost of the annual fee (and then some). For cash back cards that have no annual fees, the cash back is free money as long as you don’t get charged interest.… read full answer

Many cash back credit cards let cardholders earn more cash back than the cost of the annual fee. However, what you really want is a card that allows you to earn cash back as efficiently as possible. Some cash back cards give a flat cash back rate for all purchases. There are also cash back cards that will reward you more for bonus categories, like gas, groceries, or dining. The highest flat cash back rate is 2.5%. For bonus categories, you can earn up to 6% cash back.

Wherever you spend the most money on your credit card will determine whether a flat-rate cash back card is better for you, or a card that’ll earn you bonus cash back in specific categories. How many credit cards you want to have in total matters, too, as does your credit standing. The better your credit is, and the more income you have relative to your debt, the more credit card options you’ll have and the more worthwhile they’ll be.

If you’re looking for a new cash back card, check out the best cash back credit cards and find the one that’s most worth it for you. But remember, as with any card, you need to be sure to use a cash back credit card responsibly for it to be worthwhile in the long run. No credit card, regardless of the cash back rate, is worth it if you overspend and find yourself in debt with a damaged credit score.

Cash back vs. miles is a frequent debate among rewards credit card shoppers, but it’s like comparing apples and oranges. Both are fruit, or rewards that you earn on every purchase, in this case. And both have their virtues, though a lot depends on your personal tastes. For example, you always know how much cash back is worth, while miles tend to be more mysterious. Miles are also associated with travel, which is fun. But much like you can eat both an apple and an orange, there’s room in your wallet for a … read full answercash back credit card and a credit card with miles. The best approach is to use a cash back card with a high baseline earning rate for everyday purchases and a credit card with miles for travel expenses.

It’s still good to know how these two major rewards currencies compare, no matter how many credit cards you decide to get. So let’s take a look at some of their biggest similarities and differences.

Cash Back vs. Miles: Key Categories

• Best Credit Card: Citi® Double Cash Card – 18 month BT offer vs. Capital One Venture Rewards Credit Card
• Average per $1: 1.07% cash back vs. 1.18 miles
• Average Initial Bonus: $198.78 vs. 23,405 miles
• Can Be Devalued? No vs. Yes
• Expiration: Possible vs. Possible
• Typical Redemption Method: Statement credit vs. Eligible travel expenses

Averages are from WalletHub’s 2020 Credit Card Landscape Report. And if you’re wondering, rewards devaluation is when a credit card company increases the number of points or miles needed for a certain amount of redemption value, which decreases the value any unredeemed points or miles you may have. That’s not a concern with cash back because a credit card company can’t change the value of a dollar.

Cash back is just a lot more straightforward than miles because it’s already in dollar terms. So you’ll always know exactly how much you’re earning on a particular purchase as well as how much your unredeemed rewards are worth. With credit card miles, you have to compare the number needed for a certain redemption item – a flight, for example – to how much that item would cost if purchased normally.

But cash back and miles credit cards have a lot in common, too. For example, you’ll find a similar mix of rewards programs among both types of cards. Some offer the same rewards earning rate on all purchases. Some give you more rewards in designated bonus categories, if only up to a certain amount spent. And others offer even higher bonus rates in categories that change every few months. You’ll also find initial bonuses on both types of cards but only on some offers in each group.

For more information, check out WalletHub’s Credit Card Rewards Guide.

Using a credit card responsibly is better than paying with cash. After weighing the pros and cons of cash vs. credit cards, it is clear that credit cards have several major advantages that cash cannot match, from convenience and security to the ability to build credit. Many credit cards also offer rewards for making purchases. You can earn cash back, points or miles and redeem them for cash, gift cards, travel or merchandise. That effectively makes everything you buy a bit cheaper. Cash does not provide the same benefit.… read full answer

Most importantly, however, responsible use of a credit card will enable you to build the credit history needed to secure favorable terms for car loans, personal loans, mortgages and more. Assuming you could afford to pay for all expenses and necessities in cash, you’d have no established record of borrowing money and paying it back. Should the cash ever run out, you would face an uphill battle trying to obtain credit as a result.

Besides, you don’t even need to make purchases in order to build credit with a credit card. So if you don’t trust yourself to spend within your means, you could lock the card in a drawer and still benefit.

Still, there are instances where cash remains king. Let’s take a look at the pros and cons of these two major payment methods.

Cash vs. Credit Cards By Category

Ultimately, the battle between cash and credit cards is a win for credit cards. Fewer and fewer people now carry cash, instead using credit cards (or debit cards) for nearly all day-to-day transactions. And there are several good reasons for that, as you can see.

With that in mind, the next step is to find the right credit card. Our free, online credit card comparison tool allows you to apply filters and narrow your search to the cards best suited for your credit standing and spending preferences. You can also read our guide on How to Get a Credit Card for tips and advice about the process.