Today i’m going to talk about whether you should get cash back credit cards or travel credit cards.
so this is probably one of the most popular and commonly asked questions.
I get and I think there’s a lot of confusion around it I think when people think of travel credit cards. they think of people who are traveling every week and obviously those people do benefit from those cards.
But today I guess I wanted to write about how a lot of people even if you do only one trip a year you can get a lot of value. here as kind of a starting point for someone who knows that they’re not going to travel at all this year or next year or any subsequent year.
Then obviously go back with cash back cards because they probably make more sense but if you even have that one trip a year. maybe you’re visiting grandma, maybe you’re going to Disneyworld, maybe you are doing a vacation for an anniversary. then getting those travel credit cards can give you outsized value.
What are the really big advantages of cash back credit cards is that you know exactly.
What’s going on you know the numbers to plug into the equation and you know exactly. how much value you are getting.
So you’re spending this much at this multiplier and this is the expected value from that card, both travel cards that’s a lot more complicated. and I think that’s kind of why people are a bit more hesitant and the main reason is because values change often and again you might not know where you are.
Necessarily going travel cards fall into a lot of different groups I kind of categorize them into efficiency, emergency and aspirational efficiency to me is going to be something like the Chase Sapphire Preferred or the Reserve or the Capital One venture card.
Where you are effectively using the points for their fair value based off of travel rates. so when they say that the points are worth 1.5 cents per points.
So if you have 50,000 points that’s worth 750 as long as we get value from the card as long as you come out ahead from the annual fee. these cards make sense for the most part.
this is just a math equation it’s a more complicated math equation but still a math equation nonetheless.
Another way to think of it is kind of like a Groupon. where you are putting the money up front but as long as you use that perk you’re going to come out ahead group.
To me is going to be the emergency group so again if you have one that you think you might be taking, maybe someone’s getting married, maybe someones coming up in age. that’s not wood or maybe someones graduating something else is happening, someone is having a kid by having that emergency one it means that.
You can kind of use the points in an advantageous way for this we’re typically talking about transferring the points out to airline partners so something like.
United something like American Airlines. where you know that. you’re getting more value from the points by transferring it outs a good example of this might be United. where last-minute flights if you have to fly somewhere tomorrow might be extremely expensive but if you use points you’re paying that fixed rate as long as you find safer availability category.
is if you’re someone who’s doing aspirational stays so again if you have an anniversary honeymoon or if you just like traveling in style.
then this works out pretty well because by getting that card. you’re getting outsized value. you’re getting more value than you would otherwise get from cash back the main reason for this is.
Because when you use points for aspirational stays you’re going to get substantially more value. some people feel like this valuation isn’t really fair. but for me and for a lot of other people it’s a way to experience something that they otherwise wouldn’t pay for.
So again maybe you’re going to a hotel that would otherwise cost 500 or $1,000 a night and Bora Bora or the Maldives one of the other benefits of this route is that you oftentimes do get upgrades.
Because these cards do come up status so you might book the most basic room and then you get upgraded two or three-bedroom Suites.
I think for most reading. My biggest recommendation would be sitting down spending five minutes looking at the numbers and running through your specific circumstances.
So how much do you spend at a B and C and then what would happen if you allocated that to hitting a minimum spends or again just to applying to the other card and using it for those specific multipliers.
I think a lot of people are going to be surprised once they do this just because when you look at the return on spend for most cash back cards.
You’re probably getting something between two to five percent back yes, there is a sign-up bonus but that’s going to be a relatively small portion when you look at these travel cards, when you look at their signup bonuses. you’re looking at something like $500 or $1.000 dollars in value if not more especially if you land a crazy upgrade running through a quick example.
The current signup bonus for the American Express dr. gold card is going to be 50.000 Delta points after $1,000 a minimum spend in the first three months typically you can get about 1.2 cents per point for Delta points but at a minimum. you’re going to get one cents per points
50.000 points 1 cents for each of these points that is going to be worth
$500 dollars in value if you want to be a bit more aggressive.
And you want to wait for a deal we’ve actually seen Australia deals from the US for that same 50,000 points keeping it simple though here you’re getting $500 dollars in flight value for a thousand dollars to spend that.
You’re already going to do if you compare that with the uber card yes you get that hundred dollars on a bonus. and yes you’re getting four percent back on all of our dining but in order to get the same $500 in value.
You’re going to need to spend almost $10,000 dollars you’re getting that $100 sauna bonus and then in order to create another $400 in value.
You’re going to need to spend at that %4 rate $10,000 dollars so again here you can kind of see how powerful signup bonuses can be just.
Because they offer outside value you do have to pay an annual fee for the gold card if you decide to keep it after the first year. but for most people and for a lot of people the strategy is that you.
Downgrade that gold card to the Delta blue card which doesn’t have an annual fee. you do this when the next annual fee hits just because if you downgrade within 30 days of that fee hitting then.
They are going to refund you that fee this basically means that you’re not paying and you will feed in the first year because it’s waived.
And then when the second one does hit you’re the second one does hit you’re quick pro tip but do not downgrade it within the first year. because American Express will see that as abuse do it in month 13 in the second year at the beginning of it’s for a lot of people in this community and for me personally this is how I get so much value for my travel cards and this is how I travel so often just because there was so much value to be had just by hitting minimum spends.
We were cut but the hotel ended up shooting some fireworks because it was someone special occasion if you are someone learning more about any of these cards pretty easy way to support me.
Thanks for reading!