So the question is what's the difference between cash back credit cards and points credit cards
because a lot of the time they can't feel like they're the same type of rewards card
but there are some pretty big differences that i want to address in this video
and that's exactly what we're going over i'll start by explaining
cash back credit cards first because i feel like these ones are pretty self-explanatory
it's basically just for every dollar you spend you get a certain amount in cash back
so for instance if you get two percent back on restaurants and you spend ten dollars at a
restaurant on that credit card then you're going to end up getting 20 cents back in the form of
cash back on that specific card obviously 20 cents cash back is not very much money
but if you're gonna spend money at the restaurant anyway then you might as well get a little bit of
a reward because if you spend on average two thousand dollars a month on your credit card
at one percent cash back then you're getting twenty dollars cash back every single month
to do the spending that you're already going to be doing if you're using cash or a credit card so you
might as well get the rewards but if you happen to be spending more on your credit card just because
of the rewards then i probably wouldn't bother because if you are paying interest on your credit
card it's probably about 18 in interest so if you're paying interest on your credit card at 18
but you're only getting back one percent in rewards then you're losing 17 and i would never
advise doing that i advise paying off your credit card statement every single month so that you
don't pay any interest and you can still get the rewards now typically with cash back credit cards
the money that you earn as cash back is going to end up in a separate account and sometimes the
credit cards require little thresholds in order to redeem that money so sometimes they might have a
25 threshold where you've got to earn at least 25 bucks before you can redeem it and sometimes the
credit cards don't have a threshold so even if you want to redeem 20 cents some credit cards allow
you to do that but just keep in mind every single credit card's different most of them are pretty
competitive in the sense that they're not going to make you have a giant threshold before you can get
cash back and they are pretty easy to use because if you want to redeem the cash back on your credit
cards it's really easy to do because most credit cards allow you to do what's called a statement
credit which means for instance if you're going to redeem a hundred dollars in cash back
then they'll just push that right back onto your statement just like when you buy something and
then you return it with the credit card it's the same concept and then some credit cards will let
you redeem your cash back by actually taking that money and moving it into the bank account of your
choice and i personally like doing this because it's kind of like double dipping because if the
money goes back straight to your credit card you can't actually get rewards points on the cash back
but if you send it directly to your bank account then technically you could spend the money that
you got in cash back on your credit card and then just pay it off because you already have
that money in your bank account so for instance if you redeem 600 bucks cash back and it goes
into your bank then just spend 600 on your credit card and you'll also get the cash back on that
hundred dollars that you're spending just because you move that money into your bank account
rather than doing it as a statement credit but just remember that every cash back credit card is
going to be different some of them only allow you to do statement credits and others allow you to
do both meaning statement credits or transferring the money to a bank account of your choice so just
remember that they're all different now as far as points credit cards go the way that they typically
work is for every dollar you spend you're going to get x amount of points based on the credit
card you're using some credit cards might be 10 points per dollar spent maybe a hundred points
maybe even a thousand but really it just comes down to the dollar amount that they're worth
because at the end of the day you're going to be redeeming those points for either flights
hotel stays or maybe even gift cards and different things like that so let's pretend that you earn 10
points per dollar spent and you spend 2500 on the credit card well that's going to end up being 25
000 points so if you end up going into the gift card section and you see a gift card that's worth
25 and it costs 25 000 points then it's obvious that you are getting a one percent return on all
of that spending now if that gift card happened to be like 15 000 points or even ten thousand then
you know that you're getting more than one percent and that might be a better value than cash back
based on the category that you're spending it really just depends on the math because that's
what you have to do here is just find out apples to apples whether cash back or points are going
to be worth it for what you're spending your money on and everything like that so even if you spend
2500 bucks on your credit card and you end up getting 25 000 points or even 250 000 points
the points don't really matter it just comes down to the value of the redemption
versus how much you're spending on the card and what you're getting back in the form of a reward
so where it can get a little bit confusing is if you have a hotel credit card or an airline credit
card because technically speaking they are using rewards points to redeem for hotels and flights
but you need to know for sure if you're getting a good value based on how much you have to spend
on the credit card to actually redeem the value in the form of a hotel or a flight because the
most confusing part about the price of hotels and flights is that it's always going to be
fluctuating based on demand and so you have to know for sure if you're getting the best value
out of those redemption points based on when that demand is when you need to use the hotel or the
flight and i'll show you exactly how i do that so let's pretend that you have a hotel credit card
and you accumulate 150 000 points over a certain amount of time and now you want to redeem those
points for a specific hotel on a specific date and let's also pretend that it costs 150 000 points to
get that room for free now what i would personally do at this point is hop online and check how much
that actual hotel is going to cost you on that specific date so you can check hotels.com you can
check orbits whatever you want to do just find out how much that hotel is going to cost you so let's
pretend it actually costs you 75 dollars in total to get that room if you're just paying cash for it
or you're going to redeem 150 000 points to get that room for free with your rewards card now
let's say that you had to spend 15 000 on that credit card in order to accumulate 150 000 points
well now we can actually do the math ourselves because we know exactly how much that hotel is
costing us versus how much we had to spend on the credit card to get those points and redeem them
for a free hotel stay because if you spend fifteen thousand dollars and you get one percent back in
the form of rewards then that is equivalent to a hundred and fifty bucks and so if that hotel
is only costing you seventy five dollars in real life but you had to spend fifteen thousand dollars
on the credit card to get it for free then really you're only earning half a point in rewards on the
hotel card and that is not worth it because most credit cards you can at least get one percent back
on all of your spending so if you are not getting at least one percent back then that is not a good
value and you should probably get a different credit card so what it really comes down to when
you're comparing cash back credit cards versus points credit cards is how much money you have
to spend on the credit card in order to redeem it for something of value as far as a percentage goes
because most cards nowadays have at least one percent back on everything and they even have
more in different categories so definitely shop around for different cards especially if you're
not getting at least a one percent return on the money that you're spending now if you do
happen to be in the market for a new credit card i have an affiliate link to creditcards.com in
the description below so go ahead and check them out if you have an interest because they have a
very large selection of credit cards to choose from including different categories so if you
just want to check out cashback or travel you can compare different cards from them
and you can find out exactly which one works for you so check them out if you have an interest
also if you just happen to find this channel i'm jason with honest finance and i make a
lot of videos on different topics that'll give your life and your finances more value so feel
free to subscribe if you're into this type of content but thanks for watching have a great day