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Cash Back Credit Cards: A Way to Fight Bad Airline Rewards

Author: Christopher Williams

What started as a simple idea around 1980 has grown into a full-blown cottage industry. Airline frequent flyer programs have expanded to include hundreds of millions of members in the United States alone, and the constant changes to terms and conditions have generated consumer angst and a government investigation.

Generating mileage is easy, but redeeming has become more difficult. That's why those who plan travel via their charge cards need to consider not just travel cards, but cash back cards as well.

There's no question that earning mileage or points through an airline frequent flyer program can be fun and addicting. And there are more ways than ever to pile up those miles, particularly when you make purchases with the right charge card or credit card.

Earning via a travel card is one particularly easy and common method. When it comes to travel cards, spending limits can vary considerably, so it's critical that you obtain the proper card. And, as noted in Top Airline Miles Credit Cards, the larger the annual fee, the lusher the bonus-miles rewards are.

The challenge, of course, is to put those miles to good use by securing reward trips or, at the very least, upgrades to business class or first class. But securing such rewards is growing tougher.

The Redemption Challenge

While racking up miles has never been easier, redeeming them for travel has gotten much harder in recent years. For one thing, passenger load factors – the percentage of occupied cabins – have soared to all-time highs, so there are fewer empty seats available than ever.

What's more, a series of mega-mergers over the past decade has whittled several major airline programs into the Big Three: American, Delta and United. That translates into more members fighting over fewer seats.

As mileage expert Tim Winship noted of the American-US Airways merger, When the programs are combined and members' miles are consolidated into single accounts, there will be more elite members competing for upgrades. And with the post-merger shedding of redundant flights, there will be fewer first-class seats with which to accommodate those upgrade requests.

In 2015 PricewaterhouseCoopers noted that almost 10 trillion frequent flyer points had remained unredeemed worldwide through 2013: As this liability continues to grow with the expansion of [frequent flyer program] partnerships, and as planes fly with fewer vacant seats as a result of improved load factors, it is increasingly difficult for customers to redeem points for airline tickets.

Retirees with flexible schedules are in a better position than most travelers to redeem airline awards. That's because that kind of flexibility allows program members to fly when the airlines have the available space. Read more in Tips for Retirees on How to Use Up Airline Miles.

What about the rest of us, who have obligations that keep us from jetting off when it's convenient for the airline rather than for us?

Good Old Cash

There is a viable alternative for travelers, and that's to seek cash back rather than mileage from a charge card. As Winship advises: Cash always trumps loyalty points with the same value, because cash can be spent on anything, not just travel. And with loyalty programs' value in continual free fall, who knows what the value of a loyalty point is?

Of course, if you do choose to start collecting dollars rather than miles, you may be wondering what to do with all that mileage you've already earned. Randy Petersen, the guru of airline mileage programs, summed it up by saying there are two situations when redeeming award credit card miles for merchandise rather than travel makes perfect sense:

  1. When your personal financial situation makes it prudent to watch your pennies.
  2. When you simply have too many miles and points.

You need to spend enough to make such a cash back card worth it. And you need to calculate interest rates, since paying interest can wipe out any gains.

Once you do determine you'd like to opt for a cash back card, here are a few key points to contemplate:

  • Does the company charge an annual fee? Many of these cards do not impose such a fee. However, in some cases the fee may pay for itself; consider that American Express offers the Blue Cash Everyday Card with no annual fee, and also offers the Blue Cash Preferred Card with an annual fee of $75. However, the second card offers higher cash back percentages and higher cash bonuses so it may make more sense for some travelers.
  • What are the cash back percentages on purchases? You'll want to know for purchases made at retailers, such as supermarkets, gas stations, department stores, etc.
  • Are there one-time cash bonus payments? They may range from $100 to $150 or even $250, but it's all in the fine print, so check it out first.
  • What are the terms and limitations? There is plenty of fine print when you open a new charge card or credit card account. You'll want to check into not just the terms and limitations, but also the balance transaction fees; expiration policies; or whether there are foreign transaction fees, etc.
Cards to Consider

There is no shortage of cash back cards available. The Points Guy has created a very helpful Cash Back Rewards Cards From Our Partners guide that provides details on quite a few.

You also should consider Credit Card Tune-Up's online calculator, which allows you to estimate your monthly charge expenses and then determine which card gives you the greatest reward value, minus the annual fee.

Here are links to further information on popular cash back cards:

  • American Express Blue Cash Everyday Card
  • American Express Blue Cash Preferred Card
  • Capital One QuicksilverOne
  • Chase Freedom
  • Citi Double Cash Card
  • Fidelity Rewards Visa Signature Card
The Bottom Line

It's getting harder and harder for the average traveler to redeem mileage for reward trips and upgrades to business class and first class with the airlines. For those who can't make the redemption process work, a cash back charge card or credit card could make a lot of sense, particularly since some or all of that cash can be used to travel.

You may also be interested in reading Find the Top Cash Back Credit Cards and Top Credit Cards With 2% Cash Back.

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