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Cashback v. Airline Credit Cards: Which Are Best?

04/20/2015 04:48 pm ET | Updated Jun 20, 2015

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Consumers shopping around for a rewards credit card are often faced with a choice between different rewards types. The two most popular choices tend to be cash back and airline credit cards. The type of credit card that will provide you with the highest value will depend on a number of factors, which will differ by behavior and spending habits. This guide will help consumers come to understand whether cash back or airline credit cards work best for them. To that end, all they need to do is answer, for themselves, the following four questions.

  1. Will this be your first credit card? With the exception of a few, cashback credit cards come with no annual fee -- making them the ideal choice for a first credit card. It is best for your credit score that you keep your first credit account open as long as possible -- if your first credit card has an annual fee, you will always have to worry about the upkeep cost of that card, regardless of your financial situation.

The top airline credit cards, unfortunately, come with a cost. The median annual fee of an airline-affiliated card is $80. That is quite the price to pay, especially if your spending doesn't earn you enough to justify that price tag. Assuming, for example, that your airline credit card is averaging you a reward rate of three percent, based on your spending, you will need to make $2,667 in purchases every year, in order to simply break even on the cost of the average annual fee.

  • Do you care more about short-term bonuses? The average airline credit card bonus is worth $597, while the mean cashback bonus is just $37. This difference is night and day. Credit card sign-up bonuses can provide fantastic incentives for individuals to choose one credit card over another, at least if they're concerned about short-term profit boosts.
  • Since you are getting two percent back on everyday purchase with a good cash back card, versus just one percent on a typical airline credit card, it would take $56,000 in purchases before the difference between the average bonuses is compensated for. This, of course, is a simplified example which assumes you are not using the airline card to make purchases at a two percent+ rewards rate. If that was the case, you would have to spend a lot more money before the cash back card made up the difference.

  • How much do you like to micro-manage your finances? To maximize the rewards you get through an airline credit card, you must be willing to spend some time thinking about the way you are redeeming your rewards miles. The value of a single mile will differ based upon the itinerary you choose to book. For example, if you book a flight from NY to LA, for 50,000 miles how much value are you getting on each mile? If that flight would normally cost $500, you'd be getting a value of 0.01 for every mile. However, if that ticket is priced differently on the day of booking, say $300, your value depreciates to 0.006!
  • If you don't care about finding the best deals, and squeezing out the highest value for your airline miles, a cash back credit card is the better choice. These cards simplify your redemption, and are often just applied across the board to your credit card statement. There are no headaches about redemption, or optimal point usage.

  • What types of items do you buy with your credit card? If you're someone who only puts big-ticket items onto their credit card, an airline credit card will probably be your best bet -- provided that you actually do business with the airline whose credit card you sign up for. Cash back credit cards tend to shine for consumers with less focused spending, who simply put all everyday purchases onto the piece of plastic in their wallet.
  • A decent, flat-rate cash back card will reward you with two percent back on all purchases; whereas an airline credit card can produce returns as high as five percent on airline tickets, and only around one percent on everything else. Therefore, if you make only charge airline tickets to your credit card, then an airline credit card is undoubtedly your best choice. However, if you buy an airline ticket PLUS everything else under the sun, a cash back card can produce a superior value.

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