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Which is better? Frequent flier or cash rewards programs?

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
When choosing a credit card, is it best to choose a cash back card or an air miles reward card? I once read that credit card companies buy miles at very cheap prices and that it's not worth getting a card with air miles. Is this true? Thanks. -- Samantha

Answer for the CreditCards.com expert

Dear Samantha,
Your question comes at a very good time. The airlines and their frequent flier miles programs have been in the news recently. What has taken place is that many airlines are now charging or will soon begin to charge a fee for flights purchased with frequent flier miles. Delta is charging a fee of $25 for U.S and Canada trips and $50 for all other reward trips. Northwest is charging fees up to $100 and American is charging fees of $25 for domestic, $50 for transatlantic and $100 for flights to Asia.

Add to the fees charged by the airlines to use the miles, any annual fee that you may have associated with a reward card and going for a reward card with air miles may not be your best bet financially.

As with any new credit card acquisition, you need to look at what is best for your needs. Most rewards cards have a higher interest rate than nonrewards cards. So, if you are planning to carry a balance on the card, which I don't recommend, then you need to take that into consideration when determining what card to choose.

Below are several things to consider when deciding between a cash reward or an air miles reward credit card:

  1. No fees are attached to a cash reward. You will not have to pay a fee for a "fuel surcharge" or a fee if you need to change your plans.
  1. The value of cash cannot be devalued. In other words, once the cash reward has been issued, its value will not change. A miles reward may be devalued by requiring you to have more points or "miles" to purchase the same rewards.
  1. Cash can be used anywhere for anything. As an example, if you were to spend $25,000 on a cash reward card, it is likely that you would receive $500 - $800 in a cash reward that you could use to purchase airline tickets any time without any restrictions.
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For more on this topic, check out this video:
Getting the most from rewards cards

When choosing a rewards card, keep in mind that you will want a card that rewards you for using the card that is typical for your use. Look for a card that gives you rewards right away and will credit your account in increments of $25 or $50 if you are not a big spender. Also, some rewards cards give you 3 percent back on the top three categories for which you spend, such as gas, groceries, drugstore, etc.

To make a wise choice on your rewards card, I suggest you do some online research at CreditCards.com.

Remember that with any credit product you need to have a clear plan as to how you will pay the bill once the statement arrives. If you plan to carry a balance, how much can you comfortably afford to carry? Don't add a card unless you have a plan in place for repayment.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: August 4, 2008


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Credit Card Rate Report

Updated: 08-30-2014

National Average 15.06%
Low Interest 10.37%
Balance Transfer 12.73%
Business 12.80%
Student 13.27%
Cash Back 14.94%
Reward 15.04%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

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