Cashback Credit Cards Vs. Airline Rewards Cards: Choose Wisely

With fewer and fewer people flying and with higher fees on airline reward cards , it may benefit you to switch to a cashback credit card. Following enactment of the Credit CARD Act, fees are anticipated to rise higher, so now may be a good time to swap the airline card out.

Let’s examine the current scenario. If you have an airline reward card that’s tied to a single carrier, chances are good you’re paying the highest fees. For example, you’ll pay $85 annually just to use your The Delta Gold Card. And high fees can easily erase the rewards you’d get from an airline card. Alternately, regular reward cards typically don’t carry annual fees. You’re not getting great benefits if you don’t use your airline card that much, anyway. Based on a 25,000-mile requirement, you’d need three years to earn a flight if you charged $8,500 annually on the card. Toss in three years of annual fees, and you’d have the money to buy a domestic ticket.

At the same time, you would have earned $250 by using a cashback credit card with a flat one percent rebate by spending $25,000 on purchases. Even better, if you used a tiered cashback card like the American Express Blue Cash Card, you could earn as much as a five percent rebate. It could add up to as much as a $990 rebate if you spent $25,000 on every day purchases. At minimum, you’d earn a $310 rebate, more than the value of the domestic ticket. With reduced travel and higher fuel prices, airlines could easily carve the benefits of their programs with as little as 15 days’ notice by mail. They could increase the number of qualifying miles, or reduce or eliminate the reward entirely.

Is There Value to Airline Cards?
Despite the disadvantages, airline reward cards can still be worthy if you have to purchase last-minute travel and are holding a ticket voucher. And rewards tickets are valid even if fares increase. Some people like to award their miles to a family member as a birthday or holiday gift. Another plus is the instant credit for miles–sometimes up to thousands of miles–for acquiring a card. No such equal bonuses are offered by cash-back card companies.

Look around and you’ll see that many airline cards have adopted reduced mile awards as incentives. Say that your plan requires 25,000 miles to qualify for a round-trip ticket and you can’t see rounding up the necessary miles. Some airlines will remove your accumulated miles if you don’t complete them before a certain date. Now, some airlines allow you to discharge your current miles against a discounted fare. Some come in the form of vouchers toward a future ticket purchase.

There are so-called hassle free airline rewards cards that are not associated with carriers, including those for travel reservation companies and other organizations. Most require applicants to hold excellent credit. Do the math for yourself. For many of us, the cashback rewards cards offer more incentives than airline cards.

Curtis Arnold, a nationally recognized consumer educator and advocate, has been educating consumers about credit cards since 1998. New! Curtis is the author of “How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line” (FT Press, 2008). He is also the co-author of the upcoming Complete Idiot’s Guide to Person-to-Person Lending (Alpha Books/Pengiun Group USA, April 2009), a contributor to The Ultimate Allowance (InnerWealth Publishing, 2008) and is extensively featured in 42 RulesTM for Driving Success With Books (Super Star Press, January 2009).
Curtis is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues.
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