Get a 2% Cash Back Card or Travel Rewards Card?

Somehow, despite not telling many friends and family about our little old blog over here, I still get engaged in many discussions about whether to get a cash back card or travel rewards card. Part of this may be because I actively encourage friends and family to dump their Southwest card. But also, friends and family do know about things like my awesome first class honeymoon trip and want to know if travel cards make sense for them. For many though, a 2% no annual fee cash back card like the Citi Double Cash Card or (if you qualify) the USAA 2.5% cash back card actually make more sense!

In the below example I want to talk about when a cash back card makes more sense based on spending habits. And of course, travel habits! Although I am a lover of travel, not everyone is, and that’s OK!

USAA Limitless Cash Back Card
USAA 2.5% Cash Back Card – awesome if you can qualify!

Cash back card or travel rewards card

There are two main things to think about when deciding what credit cards to get and use:

  1. Where do I spend most of my money?
  2. What do I want to do with the rewards from my money?
What do I spend most of my money on?

This is a big key point. If most of your money spent is at Target, Amazon, Costco, or retail, then a travel rewards card may not be right for you. This is because most rewards cards reward dining, travel, gas, and groceries.

However, if you spend most of your money on dining, travel, gas, or groceries, there are awesome cards out there to get you points or miles! I’m going to use the Chase Sapphire Reserve as my example because 1) it’s my (and every other bloggers) favorite and 2) that’s where most of my money is spent because I’m an “experiences” sort of spender.

Annual spend required to “make” money on the Chase Sapphire Reserve (CSR)
Chase Sapphire Reserve
Chase Sapphire Reserve

You may know by now I’m a numbers geek.  It is important to know how much you should spend to get the CSR and know whether it’s worth it. Keep in mind:

  1. $450 Annual Fee
  2. $300 Travel Credit
  3. This means I actually value the annual fee at $150

In order to get enough points to cover (what I consider to be) the annual fee of $150 you need to spend at a minimum the following in 3x bonus categories:

  • 10,000 points a year (valuing CSR points at 1.5 cents, which they are easily worth) which means $3,333 a year in annual spend on dining or travel

Keep in mind though, that just covers the annual fee. So $3,333 in a year would get you $66 back on a 2% cash back, no fee, card. This means you really need to spend quite a bit more to “get ahead” vs. a 2% cash back, no annual fee card.

  • If you spend $10,000 a year in bonus categories you will get back 30,000 Chase Ultimate Rewards points worth $300 towards travel after covering your $150 annual fee OR $200 in cash back with a 2% no annual fee card. 

What I’m saying is you really should analyze how much you’re spending in categories to determine whether annual fees are worth it.

What are my goals with my credit card return?

This is a very key point. I value the Chase Sapphire Reserve annual fee at $150 since I would spend the $300 travel credit with no issues. Some people though, may go on a couple road trips a year, stay with family, or go camping.  So if your travel goals will not allow you to use the travel credit (keep in mind it includes Uber and lots of categories!) then the rewards points will obviously not go to use either.

The Sapphire Reserve does allow you to use points for 1.5 cents each on hotels or flights through their travel portal. Which means not having to find tough award availability by transferring points. But other travel rewards cards you need to transfer to a partner airline or hotel which also isn’t ideal for some and they just want cold, hard, cash.

Bottom Line

If you never travel, don’t spend around $800 a month or more in bonus categories, or don’t want to deal with the hassle of finding award availability, a cash back card may be right for you. If you just don’t want to find award availability but do travel and spend money on dining, the Chase Sapphire Reserve is still a good pick if your spending habits are right.

Wondering if your credit card strategy is the right one? Feel free to drop us a comment or contact us!

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