I’m a big fan of getting things for free! Especially if it comes by way of a reward for spending money, it’s like an extra perk. Last year I was able to get $3,500 in Pottery Barn gift cards from my American Express rewards card! I saved those points up and was able to get a new sofa and TV cabinet for free.
However, it can feel overwhelming to find the card that works best for you. There are so many rewards cards to choose from, each with a different set of rules for earning and redeeming rewards. When you sign up for a card it’s important to not only think about how you’ll earn rewards but also how you plan to redeem them. If you currently have rewards to cash in, you’ll want to maximize your redemption potential. Read on for the best ways to use credit card rewards points.
Using credit cards wisely can also give your credit score a boost. If you’re not sure what your score is, find out how you can get a free credit report up to three times a year!
1. Maximize with gift cards
Typically you’ll get the most value per points when you trade in for a gift card. One cent per point is a common exchange. If your value is less than one cent per point, you may want to keep looking for another trade-in option.
Determine the value by dividing the dollar value by the number of points. For example, $25 / 2,500 points = $0.01. Don’t forget to keep an eye out for gift card sales to increase your value, too.
2. Say “Bon voyage!” with miles
Miles are more complicated to value than a gift card, cash, or product because airline pricing is dynamic and the miles needed for a particular trip constantly change. However, if you have a flexible travel schedule and the patience to research, miles can be one of the most lucrative reward exchanges. Say hello to that dream getaway or family vacation!
3. Cash is king, though
Cash keeps things simple, and if you have a cash back card, you can get one to six percent back on purchases.
You won’t find higher than two percent for flat-rate spending, but here’s a little secret: Specific spending categories like groceries see as much as 6 percent back on some cards! If you buy a card that rewards you generously where you spend the most, then you stand to get a lot of value from cash.
4. Choose products wisely
Trading your points for a product may not be wise. Before you bring home a new addition to your home, calculate the value per point. Be sure to use a third party source to determine the true value of the item, since the rewards catalog’s MSRP listing may be inflated if you can always find the item on sale.
If you still want that TV, you may be better off trading in your points for a gift card to a store like Best Buy and then using that card to buy a sale-priced TV.
5. There are exceptions
Sometimes rewards programs will offer promotions that incentivize you to trade in points for a product. Look for products available for a reduced number of points, or a bonus with trade-in like a free gift card.
6. Bonus cash out
Some banks offer bonus cash out to loyal customers. Bank of America’s Preferred Rewards programs offers a 25 percent rewards bonus on eligible cards for customers with a three-month average of $20,000 across their checking, savings, and other accounts. There’s even a potential for a 75 percent rewards bonus depending on your three-month average.
7. Get a statement credit
If you’re not able to pay off your credit card balance you may want to use points toward a statement credit. It’s not the most fun way to use your rewards and it may not have the highest value, but any rewards potential will likely be negated by interest charges.
8. Donate points
Some cards let you donate rewards or miles. Keep in mind, when you send your rewards straight to charity, it’s usually not tax deductible. If you want the tax write-off, trade in your rewards for cash and then donate independently.
9. Don’t let points expire!
Letting points expire can be a costly mistake! Make sure you know when your points expire and if there’s a minimum reward amount needed to cash out. Be sure to cash out rewards before canceling a credit card because they’ll likely disappear as soon as the card is cancelled.
Jeanette is a household savings expert whose work has been featured in everything from The Today Show to CBS 5 News. Jeanette was even listed as one of the best personal finance experts in 2014, according to GOBankingRates.