Mark Carolin

Posts Tagged ‘Commodity’

Today, credit cards are becoming a very popular commodity among consumers and small business owners alike. It’s no wonder that banks are feeling the competition as better offers from competing banks keep getting better. The new craze is the “incentivized” credit card. You may know them as rewards or cash back credit cards.

Banks encourage spending with their issued credit card by giving back to the consumer in the form of cash or rewards points that you may redeem for merchandise or even airline miles. Although this may seem like a win-win situation, there are advantages and disadvantages to both types. Let’s explore this further.

Rewards Credit Cards

As sated before, a rewards credit card allows you to earn points for each purchase you make using the card, which can be redeemed for prizes or merchandise when enough points are accrued. A major disadvantage to a rewards card is that most of them only allow you to accrue points if you buy something from their allowed merchant list. This can be great if you shop at a store on their merchant network frequently – however the drawbacks are very obvious. Another disadvantage is the lack of merchandise or prizes available for the consumer to redeem. Although banks are getting better at creating a wider selection, you are still limited to what they allow you to purchase with your accrued points. Most cards also require a minimum amount of points to be accrued before spending. This can be a hassle if you don’t use the card much, or the prize you want is far out of reach.

Before applying for a rewards card, be sure to check out their merchant list. If you can’t find anything you like, you’re probably better off elsewhere.

Cash Back Credit Cards

A cash back credit card allows you to directly earn a percentage of every dollar you spend using the card. Many people prefer this type of rewards card because it is a no hassle, no haggle way of earning back for every purchase you make. There are no points to redeem or accrue, usually no “merchant network” to mess with, and no minimum required spends to earn back cash.

The only real drawback to a cash back card is usually the amount you gain is fairly insignificant to the amount you spend. A rewards card will generally give you more points per dollar spent than the cash back card will.

The Verdict?

The real choice is up to you. Do you prefer the no hassle, yet small amount in cash back over a rewards card that limits you to a few select merchants?

Cash back and rewards credit cards both have their advantages and disadvantages. Which is best for you?