Cash Back Cards Suck!

Just Kidding (Kind Of)

I understand why people get cash back credit cards - they are simple to understand. Spend money, get a certain percentage back, no real thinking involved. Generally, cash back cards also have no annual fees, and are easier to get approved for with a lower credit score.

So why complicate a good thing?

The banks are deceiving you with cash back!

The banks are deceiving you with cash back!

Strategic Maximizing

Well, the truth is travel hacking is a game. Yes, cash back gives you a small semblance of victory. But the only way to win big is by using a travel rewards card. I do use a cash back reward card, but only in conjunction with my travel card.

As I reflect on my points travel life, I realize I have been on some amazing trips. These were trips I could never have gone on if I only used a cash back card. Let me explain.

Some of the best no annual fee cash back cards offer 2% back on all your purchases. Others offer 3% back on dining purchases, and 2% back at grocery stores. For every $1000 you spend, you can get somewhere in the range of $20 to $30 back. Not bad, and certainly better than nothing.

With my Chase Sapphire Reserve card, however, I earn 3x points on all my travel and dining purchases. For every $1000 I spend on eating out, I earn 3,000 Chase Ultimate Rewards Points. If these points were worth 1 cent each, they would be worth $30. This would amount to the same value proposition as a cash back card.

But remember, with the Chase Sapphire Reserve every point is actually worth 1.5 cents each. So I really earn $45 back, or 4.5% back, on my dining purchases.

4.5% back on a recent visit to Arnaud’s (New Orleans, 2019  ©  JOEL ANG PHOTOGRAPHY)

4.5% back on a recent visit to Arnaud’s (New Orleans, 2019 © JOEL ANG PHOTOGRAPHY)

Luxury Trips

4.5% back is better than any other cash back card out there. But remember what I said about winning big? My travel rewards card has allowed me to stay at hotels and fly in cabins I would otherwise never be able to afford.

Of course, I realize not everyone wants to or can have these luxury experiences. Sometimes getting $100 to pay off a phone bill is more important than staying at a nice resort in Florida or in the Caribbean. I know I have been given the incredible gifts of health, vacation time and some financial stability, all of which allow me to travel.

Having said that, I have talked about why I believe residents (and those with similar financial challenges) should get credit cards. With some sensible credit card use and budgeting habits, I am confident that everyone can go on trips they thought they could only dream about.

Let me give you a real life example.

In March 2017 when I was an intern, my wife and I took a much needed retreat to Costa Rica. We stayed at the Andaz Papagayo, an incredible hotel situated in the Guanacaste region of the country. Hotel rates were very high at the time, similar to what they are now.

Price you pay for luxury

Price you pay for luxury

There was no way we could afford to pay over $500 a night for a hotel!

If I used a 2% cash back card, I would have needed to spend $28,200 in order to earn enough cash to stay for one night. I do not know how many years it would have taken to earn enough to spend a few nights at the Andaz.

If I used my Chase Sapphire Reserve card and spent $12,500 in travel and dining, that would have given me enough points to redeem a one night stay. To break down the math, $12,500 in spending would have given me 37,500 points. If I redeem these points at 1.5 cents each through the Chase Portal, that would equal $562, about the cost of one night. Needing to spend $12,500 is way better than $28,200, but still way too much for my taste.

I have previously written about how I use transfer partners to get the most value for my points. Luckily, the Andaz Papagayo was/is steal at 15,000 points a night (sadly, this is increasing to 20,000 points a night come March 18th, 2019).

Do you see where I am going with this? 15,000 points is equivalent to $5,000 in travel and dining spend. That is still a fair amount, but also remember travel is a broad category for Chase. All Uber and Lyft rides, train and plane tickets, hotels, Airbnbs, and tolls all count for 3x points.

I think if you look at your personal spending closely, you might discover that you spend a lot more on travel and dining than you think. In any case, my wife and I accumulated points over a few months and spent a few days at the Andaz Papagayo for free! Honestly it remains one of our favorite hotels to date. The food and drinks were fantastic, and the setting was amazingly tranquil. I highly recommend a visit!

Sunset over Guanacaste (Costa Rica, 2017  ©  JOEL ANG PHOTOGRAPHY)

Sunset over Guanacaste (Costa Rica, 2017 © JOEL ANG PHOTOGRAPHY)

Mathematical Facts

I know I have said this before, but I just want to remind everyone that I am not compensated in any way for promoting the Chase Sapphire card. Honestly, I do not even get a referral bonus.

I just wanted to share my thoughts on cash back vs travel cards, and why travel cards are superior. Admittedly, I do use some cash back cards, but only in conjunction with my travel cards.

What does that mean? I will elaborate on this topic and share my personal credit card strategy for 2019 in an upcoming post! Stay tuned!