Which Is Better: Cash Back or Rewards Only?

Credit card companies use cash back or other rewards programs to entice customers to sign up and use the credit card. Customers who maintain a satisfactory credit history can get cash in their hands due to making purchases or they can use rewards points to purchase items for free or at a significant discount. Both programs may be appealing to debtors for different reasons; in any case, rewards programs encourage debtors to use their credit cards more often than they might otherwise.

Pros of Rewards

Rewards cards allow consumers to get items for free or at discount prices after they have used the credit card for a certain period of time, presuming that they pay their credit card bill on time each month. Rewards often are appealing to consumers because they give them tangible benefits for using a credit responsibly, especially if they can get big-ticket items such as cameras or television sets at discounted prices or no cost as a result of good credit behavior.

Cash Back Advantages

Getting cash back may give you more freedom than getting rewards points. You can use cash to purchase any item you want, not just the items offered in the credit card company's rewards catalog. In addition, you do not have to spend the cash at all; you can save it, invest it or even credit it back to your credit card account. Having extra cash also comes in handy if you experience a financial crisis elsewhere around the time you are ready to cash in your rewards.

Risk

Both cash back and rewards-only programs encourage people to use credit more frequently than they might ordinarily. Since you will not get the rewards if you don't pay your credit card bill, you probably won't default on your credit card due to rewards programs; however, you may use more credit than you can really afford and have to put off making needed purchases to get your bill paid each month.

Considerations

Some rewards programs may only offer rewards that you are unlikely to use. For example, if a credit card offers rebates on airline tickets if you spend a certain amount, it will not be useful to you if you don't fly very often and have no reason to take a trip requiring air travel. Similarly, a cash back program that specifies which purchases offer cash back will not be useful if you have to purchase items that you don't ordinarily purchase to receive cash back, such as computer gear for a person who does not work with computers.