With all the bonus opportunities out there, it doesn’t take long to earn points with rewards credit cards. The hard part is deciding how to use them, and people have very different opinions on what to do here.
Some will save up a massive amount of rewards. I’ve known people sitting on millions of credit card points. Others spend their points like clockwork as soon as they can every month. What’s the best strategy? That depends on the type of card you have.
Save travel points to maximize their value
If you have a travel rewards card, save your points and be selective about how you use them. Travel points are normally worth more when you redeem them for travel expenses. If you use them for cash back instead, you won’t get as much value.
Here’s an example: Many of the best travel credit cards have points you can redeem for values of $0.01 to $0.015 per point toward travel bookings. Some of them also let you transfer points to airlines and hotels, and you can potentially get $0.02 to $0.03 per point this way. But if you redeem them for cash back, you may get as little as $0.005 per point. With 100,000 points, that’s the difference between $500 in value and as much as $3,000 in value.
So, at a minimum, it makes sense to hang on to your points until you can use them to pay for travel costs. If you really want to maximize their value, consider holding on to them for big-ticket expenses, such as business-class airfare or luxury hotel stays. That’s where you can get a lot of value for your points.
Now, keep in mind that travel points don’t do you any good while they’re sitting around. It’s perfectly fine to reserve your points for a big redemption opportunity. But if you keep accumulating more and more points, eventually, you’ll need to find a way to use them.
Spend cash rewards points as soon as you get them
It’s usually travel cards that earn points, but not always. There are also rewards cards that earn points, but those points are worth $0.01 apiece no matter how you use them. For all intents and purposes, these are cash back cards. You can typically apply your points to your credit card bill as a statement credit or deposit them as cash into your bank account.
From a financial perspective, the best strategy with these cards is to use points right away. If you can redeem 2,000 points to save $20 today, there’s no reason to wait. That $20 isn’t gaining value — in fact, it becomes less valuable over time after accounting for inflation and the money you could have made if you were earning interest on it.
Some people prefer to wait until they have a large amount of points and use them for something special. They may save up 50,000 points so they can use them to add $500 to their emergency fund or to buy a new appliance. They feel like they get more out of their rewards that way than if they just cashed in $10 to $20 in earnings every month.
If you think you’ll benefit more with that method, there’s nothing wrong with it. But the optimum financial strategy is to use cash rewards as soon as you can.
Getting the most out of your credit card points
To figure out the right rewards strategy, start by checking the redemption options on your credit card. If your points are worth more for travel expenses, save them for your next vacation. And if you know you want to take a luxurious trip, definitely save your points for that. They can make high-end travel expenses much more affordable.
If you’re getting $0.01 per point whether you use them now or later, it’s better to cash them in regularly. You might even want to see if your card issuer offers automatic redemptions so you don’t need to do it yourself every month.
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