credit card rewards
Family Travel Hacking Guide

Family Travel Hacking Guide 13: The four different types of credit card rewards

To do: Examine the credit cards in your wallet and try to determine which type of rewards they earn.

One thing I’ve noticed writing this guide is that beginner’s guides are difficult to write! How best to cover the plethora of information? I guess the options are write briefly or try to cover everything and have people use it like an encyclopedia of sorts. I’ve chosen the latter :P.

But I digress…

Before we get to applying for credit cards, we need to understand the four types of credit card rewards out there that are relevant to travel hackers. Each reward type deserves a place in your overall strategy when utilized correctly.

Cash Back

The saying “cash is king” applies in the miles and points world as it does in the rest of the world. It’s easy to get enamored with where miles and points can take you, but if you ignore cash you ignore it at your own peril.

Cash back credit card rewards are simple. Sign up for a card and they will give you $X in cash if you spend a certain amount of money in a certain amount of time. Generally, the best cash back cards offer you 2% cash back on all of your purchases (e.g., Fidelity Visa). While that’s not sexy, that’s the only thing that will help you if you ever need money in the real world.

credit card rewards

Some other cards have special bonus categories where you can get up to 5 or even 6% cash back in certain categories. Those are cards worth looking out for, though most of them have a cap on cash back these days (like the AMEX Blue Cash).

Cash Back Equivalents

Jennifer Garner loves talking about all the “miles” she earns with her Capital One card, but it’s important to understand those aren’t actually “miles” in the traditional sense of the word. They are a term that Capital One uses to describe the rewards that you earn that can be applied towards travel. These rewards are essentially cash back – if you use them for travel.

Capital One calls them “miles” because you use them for statement credits to offset your travel expenses. The card earns 2X miles per dollar spent, so you are essentially earning 2% cash back rewards if used on travel.

credit card rewards

If you want to redeem these points for cash back, however, they are only worth half as much. That’s why I differentiate between cash back credit card rewards and cash back equivalents – if at some point I need the cold hard cash form of my reward, sometimes cash back equivalents might not be worth as much, so it’s important to do your research.

Frequent Flyer Program miles

Way back when, airlines came up with an incentive program to keep people traveling with them. Fly a certain airline, earn miles, use those miles to redeem for free flights.

While much has changed, the frequent flyer programs still remain intact. Almost every airline has a co-branded credit card that can help you to earn miles. These miles can be used only on that particular airline and its partners (which are important to learn, subject of Part 3 of the guide).

credit card rewards

The important thing to understand about frequent flyer miles for airlines is that they have no cash value. They are earned by the airline and the airline can choose to cancel it’s loyalty program at any time (Alitalia just did this recently).

Frequent flyer miles can be leveraged into great redemptions that will stretch your miles far beyond their cash values. They also can be used to gain more value than you would if you paid in cash. You just have to know how to use them well (Part 3!).

Transferable miles and points

The most powerful credit card rewards are generally transferable miles and points. Ultimate Rewards, Membership Rewards, and other transferable currencies can be used in multiple ways.

1) They often can be used as cash equivalents to pay for travel, often at rates higher than 1 cent per point (like 1.25, for example). This squeezes a bit more extra value out of the points.

2) They can be redeemed for cash or gift cards, though sometimes at reduced rates like cash equivalent cards

3) They can be transferred to frequent flyer programs.

credit card rewards

That last point is what generally makes transferable credit card rewards the most powerful tool in a travel hacker’s arsenal. As you earn your points, you can transfer them to various frequent flyer programs as needed. That means you can build an entire award ticket with them or just top off an account if you’re a few miles short. Or you can use the points as cash equivalents if necessary.

Flexibility is key, and transferable points offer the most.

Final Thoughts

If you want to maximize credit card rewards, it’s important to understand the different types available to you. You need to combine that knowledge with your travel goals to come up with the best possible strategy for your credit card applications. As always, be sure to avoid ALL credit card debt, otherwise your rewards will be meaningless.

To do: Examine the credit cards in your wallet and try to determine which type of rewards they earn.

Family Travel Hacking Guide Index


Set a Travel Goal

Using and Tracking Frequent Flyer Programs

Who to Follow on Social Media

Part 1: Saving Money on Cash Flights

Saving Money on Cash Flights

How to find cheap airfare with airfarewatchdog

Finding cheap airfare with The Flight Deal

Finding the cheapest airfare using Kayak alerts

Using Hopper to monitor flight prices

Using Google Flights to search airfare

Part 2: Earning miles and points efficiently and cheaply

The power of miles and points


Just an average joe trying to fly his family for less

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