Cashback vs. Rewards: Which credit card maximizes your spending? | Mint

The credit card you choose can really make a difference in your financial life. It is just so hard to choose between a rewards credit card and a cashback credit card with all these alternatives. Let’s break it down by dissecting their salient characteristics and help you find the card that best fits your spending habits and lifestyle.

What are credit cards?

A credit card is one kind of financial instrument provided by banks and other bodies that lets you borrow money for purchases or payments up to a certain amount. The credit cards mostly come with rewards such as cash back, reward points, and other exclusive offers. It needs to be used wisely since timely payment affects your ability to maintain a good credit score and avoids high-interest fee charges.

What are cashback credit cards?

Cashback credit cards are simple and lucrative. They offer to pay you back in cash for a percentage of your purchases. You can use this cashback in a number of ways:

• You can subtract it from future purchases.
• You can transfer the funds to your bank account.
• You can use it as a credit to your card balance.
• You can save money easily if you use your card for daily needs, such as groceries, gas, or dining.

What are the advantages of cashback credit cards?

1. Simple: Easily understandable, especially the new cards.
2. Guaranteed savings: As opposed to reward points, whose values could be potentially different, cash back rewards are crystal-clear and fixed.

Who should choose a cashback credit card?

• Those who have never used a credit card before and who prefer a plain rewards program.
• Various spending types of people desire to save money consistently in a number of areas.
• People looking to save on ordinary expenses such as electricity, groceries, and gasoline.

What are reward credit cards?

With rewards credit cards, you might earn points, miles, or cash equivalents for each purchase. These incentives can be used to redeem cashback, gift cards, products, travel savings, and much more. Some reward cards provide tiers of points for specific spending categories, like eating or travel.

What are the advantages of reward credit cards?

1. Flexible redemption options: The award can be redeemed in cash, products, or travel miles.
2. Only incentives: A lot of the reward cards provide generous welcome bonus along with other perks such as travel and lifestyle incentives.
3. Increased value: Reward points could increase in value over time thereby offering even more significant savings for specific redemptions.

Who should choose a reward credit card?

• Credit card users who understand the points schemes and are comfortable with managing redemptions.
• Frequent travellers who enjoy having the added benefits along with the miles on their travel.
• Spending-oriented customers in niche categories, such as dining, entertainment, or luxury goods.

Mohan K, Founder of TechFini says that “Cashback cards offer a percentage of consumers spending back as cash, making them ideal for those who want a simple, straightforward benefit. On the other hand, rewards credit cards earn points for every spent, which can be redeemed for travel, merchandise, gift cards, or even cashback. If consumers prefer simplicity and direct savings, a cashback card may be best, but if consumers travel frequently and are willing to put in the effort to manage their points, a rewards card may offer greater value.”

In conclusion, you will decide whether to go for cashback or rewards credit cards based on your purchasing habits and financial goals. Consider interest rates, annual fees, and how easy it is to redeem rewards when making your decision. You can match card selection to your needs to optimize your benefits and cut costs even further.

(Note: Using a credit card carries its own set of risks)