Chasing Credit Card Rewards: Is It Worth It?

Updated: February 2, 2021

How often do you actually use credit card rewards? It’s a question worth asking if earning points and cash back is one of the main reasons why you use a credit card.

One of the biggest reasons I was lured into using credit cards was to take advantage of the point system. But is chasing credit card rewards worth it? It may be if you can get better rewards and use them. According to a study by J.D. Power, 47% of users who switched to a new card in the past 12 months did so for better rewards. Yet in that same study, about 36% of users said they did not fully understand their rewards.

You may have signed up for a credit card that offers double points on specific purchases. Maybe you use a credit card for your normal expenses so you can rack up enough points to take a free trip. Our ultimate beginner’s guide on credit card points can help if you need a place to start. Do you have a grasp on whether or not your credit card rewards are worth it? Consider these factors below.

What can you buy with credit card rewards?

You can redeem your credit card rewards for just about anything including travel, gift cards, and cash back. In fact, the most popular redemption is cash back, according to a Bankrate report. Other popular redemption categories include:

  • Cash back
  • Travel
  • Gift cards
  • Amazon

If you are wondering what reward system is right for you, ask yourself this important question: if money were no object, what would you spend it on? For example, if I could blow big money on anything, I would spend money traveling the world. Therefore, I focus on earning and redeeming credit card points towards travel. You might use the cash back option to refocus money towards other financial goals.

Tyla Tenpenny, a 30-year-old from Kansas, uses cash back rewards towards student loan debt or travel. “I receive 5% back on certain categories each quarter and 1% back on everything else,” she shared. “It’s worth it to me when I can tackle other goals with the cash back that I receive.”

Tyla is able to redeem roughly $300 every few months and use it towards other goals. Take a look at your reward balance. See if you can regularly redeem your reward supply and put it towards your student loan debt or an upcoming vacation.

When is it a good idea to use a credit card for rewards?

Credit card rewards aren’t worth much if you carry a credit card balance. What’s the point in chasing rewards if you are stuck with credit card debt and a high-interest rate? Credit card points are only worth it if you pay off your credit card every month.

If you are paying that sucker off regularly then this is where you can get creative. You can either pay yourself out from your points bank on a regular basis or cash out at the end of the year. Admittedly, I’m a points hoarder. I like to accumulate points and cash them in for a big trip.

The year that I got married, I used enough points equivalent to $2,000 to book my honeymoon to Cancun. Weddings alone are a big expense, so this ended up being a huge cost savings for me and my boo. If I hadn’t amassed those points it would have been much harder for me to cashflow the trip.

Jessie Khoury, a 28-year-old from Texas, likes to wait for her credit card points to equal the amount of a $50 Amazon gift card. “I use the Amazon gift card to purchase Southwest gift cards because it has a better value than purchasing outright through my credit card rewards system,” she shared. 

To me, that seems like a lot of work just to get some extra Southwest credit, but perhaps I’m lazy. But for Jessie, it’s worth it. She has an upcoming trip that is saving her $100 just by redeeming her points for gift cards.

How quickly can you build up credit card rewards?

If you only use your credit card for an occasional purchase here and there, you won’t be able to build up your points balance quickly. A great way to build up your credit card rewards is to do two things: use one card frequently and put almost all of your purchases on that card.

The one thing that deters people from building up credit card rewards quickly is that they have too many credit cards. Those that have multiple cards with multiple banks can find it difficult to create a hefty points balance. Make sure that you can transfer points between cards if that’s the case. Chase offers the option to transfer points between Chase cards which makes it easy to cash in your points later.

Next, it is a good idea to put almost all of your purchases on one card. The more of your living expenses that goes onto one card, the more points you can earn. In many cases, credit card programs offer additional perks for spending categories.

A quick checklist to make your credit card rewards work for you

In summary, make sure you are doing the following to maximize your earning potential on those sweet, sweet rewards.

  • The points you are earning can be redeemed for something you love to spend money on.
  • Use one credit card and use it consistently.
  • If you have multiple cards, make sure you can transfer points between cards.
  • Determine how many points you have accumulated in the past year. If you haven’t redeemed any points since you opened the card, it might be time to reevaluate.

Justine Nelson is the founder of Debt Free Millennials, an online community to help millennials get out of debt. Justine enjoys writing and speaking about all things personal finance. This Midwest millennial paid off $35k in student loan debt and now resides in San Diego with her husband living the DINK life (Dual Income, No Kids).

Feature Image: Twenty20