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3 Reasons to Get a Cash-Back Credit Card for Travel (and 1 Big Reason Not To)

Aug. 18, 2016
Credit Cards
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Travel credit cards are a favorite of the regularly jet-lagged, and rightfully so. They typically come with large sign-up bonuses and high rewards, as well as great travel perks. However, travel cards might not be the best option for the majority of American travelers. In fact, a cash-back card might better meet your needs for your upcoming trip and beyond. Here’s why.

1. You’ll get better value long term

If you’re going to keep your credit card long term, you’ll probably earn more rewards with a cash-back card. According to a recent NerdWallet survey, consumers need to spend at least $8,600 on travel per year for five years for a travel rewards credit card to be a better value than a cash-back card, but most consumers are spending much less.

The survey showed that Americans who spend any money on travel and have traveled in the past 12 months spend an average of $3,127 on travel expenses per year. Consumers spend the bulk of their money on everyday expenses such as groceries, gas and clothing, according to the most recent data from the Bureau of Labor Statistics.

The most valuable type of card for you also largely depends on how long you keep it. While it’s best that consumers keep and use their credit cards for a long time — it’s better for your credit score to have a high average age of accounts — consumers who plan on getting rid of their cards within a couple years will probably get a better value with a travel card. The sign-up bonuses are generally much higher on travel credit cards and outweigh the higher annual fees for several years. On the flip side, the longer you keep the card, the more you’ll need to spend to justify it.

2. It’s easier to earn the sign-up bonus

Many travel credit cards boast large sign-up bonuses, equal to hundreds of dollars’ worth of free travel. However, to earn these giant bonuses, you’ll likely have to spend between $2,000 and $5,000 in a three-month period. Depending on your budget, this may not be feasible without going into debt.

Those who spend less will have an easier time hitting the lower spending requirements of cash-back cards, usually around $500 to $1,000 within three months. Of course, the sign-up bonuses are smaller, but it’s not a good idea to go into debt for rewards, so a cash-back card is the smarter option for those who can’t reasonably pay off the spending required to earn a travel card’s sign-up bonus.

3. You can use the rewards on anything you want

Cash is king for a reason — you can use it on anything your heart desires. While travel cards typically require you to redeem your rewards on specific travel expenses, you can use cash back on travel costs or anything else.

In the sharing economy, travel expenses look different than they did a few years ago. Some travel credit cards don’t allow you to redeem rewards for Airbnb stays or rides from Uber or Lyft, but many consumers use these home- and ride-sharing options every time they take a trip. With a cash-back card, you can cover these expenses with free money instead of paying for them out of pocket.

Why you shouldn’t use a cash-back credit card for travel

For every rule, there are exceptions. If you travel to a foreign country at least once per year, you should probably get a travel rewards credit card instead of a cash-back card. There are two factors at play here:

  • Most cash-back cards have foreign transaction fees of around 3% on all purchases made in a foreign country. Travel rewards cards typically don’t charge this fee.
  • The average redemption values for rewards on international flights and hotel stays are higher with a travel rewards card.

For example, let’s assume you spend the average $3,127 on travel entirely overseas. By using a travel card instead of a cash-back card, you would earn an average of $26.05 more in rewards and save $93.81 in foreign transaction fees, assuming a 3% fee on all overseas purchases. That’s nearly $120 saved.

In the end, the best type of credit card for you is the one that gives you the best value. For most Americans, this is probably a cash-back card. For you, it could be travel rewards. Regardless, it’s important to do your research if you want to get the most rewards for your next vacation.

Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @Erin_El_Issa.

This article was written by NerdWallet and was originally published by U.S. News & World Report.