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The Debate Rages On: Is Team Cashback or Team Miles better for maximizing your credit card rewards?

The competition between earning cashback rewards versus frequent flyer miles on credit cards is a heated debate among personal finance enthusiasts. A recent podcast featuring two experts arguing the merits of each “team” made for an insightful and entertaining discussion.

The Guests:

Aaron Wong, founder of the popular “Travel Hacking” site The MileLion, represented Team Miles and advocated for collecting airline and hotel points for premium travel experiences.

Seth Wee, creator of the Sethisfy Personal Finance site, took up the counterargument for Team Cashback, highlighting the flexibility and simple value proposition of cold hard cash rewards.

The Basics of Miles vs Cashback

Miles allow using points accrued from credit card spending to purchase heavily discounted flights. However, miles have expiration dates and sweet spots that require planning.

Cashback, on the other hand, simply deposits a percentage of spending back into your bank account, with no miles account or blackout dates to manage. But maximizing some cashback cards requires spending in exact categories each month.

Three Ways to Earn the Most Rewards

1. Track spending categories and optimize cards monthly
2. Use multiple cashback cards to maximize rebates with signup bonuses and category spend
3. Redeem miles strategically for premium flights worth thousands in cash value

The Great Cashback vs. Miles Debate

The crux of the miles vs. cashback debate boils down to how each “currency” is valued by the consumer. As Aaron points out, “It all boils down to how exactly you value a mile…those people who travel more, travel in premium cabins will naturally find that their valuation of a mile is much higher.”

For frequent travelers able to redeem miles for ultra-expensive premium cabin flights, the per-mile redemption value can be extremely high. Aaron cites the example of a Singapore to Japan business class round-trip ticket that would cost over 100,000 miles but upwards of $4,000-$5,000 in cash.

However, Seth makes the counterargument that dedicating all spending to earning miles leads to inflexibility and even a form of “lifestyle inflation”:

“That actually leads me to my point where, you know, there’s a certain lifestyle inflation when it comes to business class flights…Once you get hooked on it, right? That becomes, uh, somewhat of a default mode of travel. And then you always have to be chasing your tails over, uh, you know, getting more miles, spending more to get that miles.”

The Value of Opportunity Cost

An insightful part of the debate focused on factoring in opportunity costs. Seth argues that forgoing an 8% cashback card’s earnings to earn just 4 miles per dollar spent means “each mile you are actually paying 2 cents for.”

Aaron concedes this is a high valuation, stating, “There are many ways to get it (miles) for much less than that.” However, he frames it as a worthy opportunity cost if used for an occasional premium travel splurge:

“If you told someone that there was a way to acquire a mile, let’s say one and a half cents range, right, and then redeem it for that ticket and treat that as a one time luxury that is now more of a slightly more affordable luxury than a 5,000 kind of luxury. You know, don’t do it every day, but for someone who’s looking at a, you know, once, once in a lifetime kind of trip, I don’t really see the harm in that.”

The “Earn Miles, Burn Cash” Approach

Ultimately, both experts seem to agree that a balanced approach utilizing both cashback and miles makes the most sense for many consumers. Seth advocates earning cashback for most everyday spending, then using that cash to “buy miles for cheap” when a premium travel redemption is desired:

“If you’re giving up 8% cashback to go for miles, you’re actually acquiring each mile at 2 cents, which is pretty higher than what you can acquire miles at. So why not use cashback cards? Earn a good amount of cashback, and if you really wanted that special business class flight, use those cashback to buy miles for cheap, right? At under two cents per mile.”

Aaron concurs with this approach, stating “If you can agree that 8% is better than 4 miles per dollar, right, then that should be the default card that we are using. So if one card is not enough, you get a second card. And even if you can only get one card, right, the default position should then be, I max out this card first, and then I put my excess spending on miles card.”

Maximising Credit Card Rewards

The two experts agree that no matter which “team” you’re on, it’s critical to maximize your credit card spending by using the optimal rewards card for each type of purchase category. As Aaron laments:

“It is so painful because I have seen people go, uh, during a CNY, uh, banquet lunch, go up to the counter and pay with a debit card. And I, I feel physical pain when I see that because it’s like, I mean, I don’t know how much you’re spending, but assuming it’s a four, four digit…they’ve just thrown away the opportunity to earn so many miles.”

Seth echoes the same sentiment: “If you’re using the wrong card for the kind of spend they’re making, you’re really leaving money on the table.”

5 Tips to Maximise Rewards on Credit Card Spending:

1. Use cashback cards for everyday non-bonused spend categories
2. Earn miles/points on travel and dining categories
3. Check if any cards earn periodic bonuses (e.g. 6X miles for 3 months)
4. Get multiple cards to maximize caps in each category
5. Always make sure to pay with a credit card, never debit!

Proper Strategy Combines the Best of Both Worlds

The experts agree a hybrid approach wins. Seth proposes using cashback cards primarily, but collecting leftover spending as miles for rare luxury trips.

Aaron seconds this, advocating cashback as the default with miles as a “special occasion” reward. With multiple household cards combined, lucrative cashback can pay for occasional business class miles redemptions.

Overall, their debate proves both programs hold merit when properly leveraged. Savvy cardholders targeting different life stages will tailor their strategy between cashback dollars versus travel rewards miles.

You can check their full interview on Chills with TFC, Episode 171on Spotify, YouTube, Apple podcast for a heated but friendly debate showcased the pros and cons of each “team’s” credit card rewards strategy. While earning miles for aspirational premium travel has its appeals, a simpler cashback approach has undeniable benefits too. The wisest move may be to earn cashback for most purchases, but leverage miles/points judiciously for luxury travel redemptions to get the best of both worlds.

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