Cash Back Credit Cards vs. Rewards Credit Cards

So you're looking to put a new credit card into your wallet or purse. The good news is that there are dozens of credit card offers out there that can help you accomplish that goal. The bad news is many of them are so different from one another that it's difficult to figure out which one is best for you.

For instance, should you select a credit card which offers cash back, or one which lets you earn rewards points (or airline miles)?

Cash back credit cards offer several advantages: 

• The money goes directly into your pocket without you having to take steps to "redeem" your rewards like you have to do with points.
• You never have to wonder how much your rewards are worth, because a dollar will always be worth a dollar.
• You won't have to deal with as many restrictions or rules to get your rewards; after all, there are no "blackout dates" for getting cash.
• You can spend your rewards on anything you want (or put it into savings), not just what the credit card issuer's "catalog" offers you.

With that being said, there are also several good reasons for opting for rewards credit cards, including:

• They have better signup promotions, such as several thousand points once you use the card or tens of thousands of points if you spend a certain amount during the first several weeks of membership.
• When you redeem your rewards points, you can often get better deals on certain items or services (for instance, 2000 points may get you a $25 gift card instead of $20).
• Many of the packages, upgrades, and events which are available for redemption cannot be purchased on the open market -- like NASCAR experiences, private concerts, or VIP movie parties.
• Rewards credit cards actually make you feel like you're getting a "gift" for yourself; and isn't it better to receive a Christmas or birthday gift that you like instead of plain old money?

 Of course, both rewards credit cards and cash back credit cards have their drawbacks, too.

• Both of these types of credit cards may have higher interest rates, and they're also more likely to charge you an annual fee.
• Although most of these cards have a base rate of 1% cash back or one rewards point for every dollar spent, they often increase that rate based on what you use the card for. Because these "preferred spending "categories change often, you should keep up with which ones give you greater rewards.
• Cash back credit cards may not give you your bonuses except once every quarter or year, and there may be limits on how much cash back you can receive annually. On the other hand, rewards credit cards can subject cardholders to blackout dates or redemption fees when they try to cash in their points. Rewards catalogues only offer a limited selection of items at prices which are inflated based on how many points are required to "buy" them.
• With a rewards card, if you don't use your rewards points, they can expire.

As you can see, there's no easy answer to this dilemma, it really depends on what you are wanting from credit card incentives. If you are the type of person who likes treating yourself to a reward periodically, then you might gravitate toward reward credit cards. However, if you are a bottom-line individual who wants the freedom to choose exactly what you want to do with your rewards, then cash back credit cards may be right for you.

Whichever route you choose, make sure to read all of the fine print regarding rewards points or cash back -- and don't forget about other factors like annual percentage rates, annual fees, and additional perks, which play a big role in choosing the perfect credit cards for your lifestyle.