I very much like my rewards credit card. One of the dumber things I’ve done is not getting one sooner. I mean, it’s downright silly not to have one if you use the credit card for convenience only, and not for spending beyond your means. The only thing better than free float is to be paid for it!
Frugal Toad had a post that caught my attention: Is it time to trade in your cash back credit card? Before I read the post, I had an idea what the punchline was, but it didn’t turn out to be what I thought it was.
His take: Ditch the cash back credit card when you can do better. I certainly agree that it is fairly easy to do better than a cash back rewards card, especially if you travel regularly. The effective reward rate for airline reward cards is higher than the best cash back reward cards. If a card is going to lock me in to using my rewards with a particular merchant, airline, etc., I’m going to expect more reward.
For me personally, I like the cash. I’ll accept somewhere between 1% and 2% cash back if I can apply it directly to my bill. I get the benefit almost immediately, and I’m not forced to fly when I don’t really want to.
It’s not all about the rewards
Getting a higher percentage back if you are in a position to take advantage of it is as good a reason as any to trade in your cash back credit card.
But there is another reason, and it has nothing to do with the rewards.
It’s a good idea to get rid of a cash-back card if you start carrying a balance on it. Cash-back cards cost the issuer more — they’re paying the rewards, right? — so the cost must be made up somewhere else. Part of that can be in the interest rate charged on the balances. It stands to reason that non-reward cards will have a lower interest rate.
Actually, it’s a good idea to get rid of any credit card if you start carrying a balance, but this applies especially for cash-back cards.