Redeeming your credit card rewards — what do you do with them?

I recently came across an interesting statistic. According to a poll from Harris Interactive, 41 percent of people rarely or never redeem their credit card rewards. It almost hurts to know all of those rewards are going to waste. A more recent study found that 73 percent of Americans are enrolled in rewards programs but have no idea how many points they have.

That used to be me. I discovered the magic of rewards points sometime right after college, when I finally started to take an interest in my financial situation. I wondered what the large number looming above my account number was, and, next thing I knew, years of unknowingly accumulating rewards points turned into a $100 statement credit.

Since then, I've been taking full advantage. I use my credit card like a debit card, budgeting and paying off everything I spend. My card doesn't carry a fee, and I don't rack up consumer debt — I just earn points. And as modest an amount as it may be, I always get a little excited when I periodically redeem my rewards.

How do you use your rewards?

Mad money

Here's something about me a lot of people don't know: I like buying clothes. This may seem uncharacteristic for a couple of reasons, one being that I call myself frugal, and, second, I dress like crap. Still, I love buying clothes. Mostly cardigans.

But I also don't like spending money right now, because I'm trying to save up for something that I deem more important than fashion. There's certainly nothing wrong with spending your money on cardigans. But for someone who's trying to save, cardigans have become a weakness.

To make myself feel a little better, I automatically categorize my cash rewards as “shopping money.” This gives me a small budget to occasionally indulge a temptation.

Obviously, I could just as easily budget for this using my income, and the numbers would be the same. Maybe this is a silly psychological mind game I play with myself, but hey, it works, as it satisfies my nagging inner consumer.

Goals

After college, my goal was paying off my student loan debt. I used any and all extra cash I'd earn from anything, including rewards points, to accomplish that goal.

But again, that was student loan debt. If you've got consumer debt, you probably don't want to put out a fire by playing with one. In fact, I'd be careful about using a credit card altogether.

Travel

I have a cash back card now, but even when I had a points-based rewards card, I never redeemed my points for travel.

With my old card, the travel deals were really terrible — I could always find cheaper flights without them — so I'd just redeem my points for cash, because they were worth more that way. If I can get more in cash than the trip is worth, I'm going with cash.

But this doesn't take into consideration luxury travel — fancy hotels and first-class flights. Instead of comparing value using the cheapest travel option, some people might prefer to use their rewards points to pay for things they couldn't otherwise afford. Guest writer Hilary Stockton wrote about her own experiences with luxury travel using a travel rewards card. She makes a compelling argument, and the photos don't hurt, either.

I'm not experienced in this area, so feel free to elaborate on how you determine the value of your rewards travel.

Stuff

There's also the option of trading your rewards points in for Stuff, but according to this report, that's a terrible idea:

“Merchandise awards typically return only one cent in value for each point or mile spent, and that is only if you consider the product's full retail price. In fact, cardholders are getting less than one cent in value for their points…when they likely could have purchased the items at a discount and received additional rewards from using their credit card for the transaction.”

Donate

Some people feel a little guilty about getting free money, even if it is, ultimately, part of a sales promotion from a large credit card company. Redeeming your rewards for a cash donation to a charity might be a good option for those feeling a little guilt-stricken or those who just want to do a good thing. Just make sure the amount they donate is the equal of or greater than the value in cash; otherwise, you might as well just give cash.

(I understand there are other ethical concerns about using credit cards, namely dealing with small businesses and transaction fees. That's perhaps a topic for another post, but yeah, I understand that donating to a charity doesn't assuage those larger concerns.)

Set and forget

There's also the option of simply redeeming your points for statement credit and not putting too much thought into it, which is just fine, too. I also used to do that. It's not as fun, but your budget is the same either way. I have Capital One's Cash Rewards card now, and they even offer an option for auto-redemption.

Other Fun Hacks:

Combining With Other Programs

A few times now, I've booked travel on Priceline or Expedia using Mypoints.com. I log onto the site, go to Priceline, then use my credit card to pay for the ticket and also use my frequent flier number. Thus, I rack up airline miles, rewards points and Mypoints (which I later redeem for gift cards).

Churning

Holly wrote about this a while back, and while I lack the stamina for churning, she was able to take advantage of several credit card offers. She did warn about the possibility of this affecting one's credit score, but churning has really worked for her.

My Rewards Work for Me, Not the Other Way Around

I earn points on things I already buy; I don't buy things just to earn rewards.

Here's an example. When I wrote about revisiting the envelope system, a couple of readers were concerned about losing rewards by paying with cash. But the thing is, earning rewards doesn't dictate my spending or my budget. Sure, I use my rewards for mad money, but I'm not going to make significant decisions about my budget based on earning more rewards. So if the envelope system helps me to save hundreds of dollars a month, well, then, I'm just going to have to stand to lose the $3.56 I'd earn in rewards by using my card for groceries.

Rewards are awesome, but they're an ancillary bonus, not something I consider a steady profit.

My rewards card also offers higher percentages of cash back at certain stores. I'm careful not to get so caught up in the coolness of rewards points that I spend money at places I wouldn't otherwise spend money.

However, I love Trader Joe's. Unfortunately, the store by my house is almost always packed, and I hate looking for parking, so I usually shop a little farther up the road at Ralph's. But when I discovered I could earn a significantly higher cash back percentage at Trader Joe's, I dealt with the parking headache.

As I mentioned, I use my rewards card like a debit card. I used to actually be able to put money on my card so that it would carry a credit. From there, I'd simply use up that credit until my balance reached $0.00. I'd still rack up points, but I was never carrying a balance on the card. But when I switched to the Capital One card, this was no longer possible; they don't allow me to pay anything more than my balance. So I have to be a bit more careful, but hey, that's what a budget is for.

At any rate, these are my experiences in dealing with rewards programs. Like couponing or any other frugal tactic, I don't spend a whole lot of time analyzing the many ways I could save, because, at some point, my time is more valuable. But I still enjoy taking advantage of the rewards. So what are your experiences? How do you redeem your rewards, and what frugal tricks have you learned along the way?

More about...Credit, Budgeting

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
51 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
shortarmslongpockets
shortarmslongpockets
7 years ago

I’m one of those people who forget to take advantage of credit card rewards so I was happy to take advantage of the credit card offer from Fidelity – where I have my kid’s 509 College Savings account. The rewards are automatically credited to the college savings account. At least I know I’m taking advantage of the rewards for the next few years 🙂

Matt @ Your Living Body
Matt @ Your Living Body
7 years ago

I only have one rewards credit card and it’s the Capital One Travel card. As you can guess, I use it for just travel. The rewards don’t build up that fast but it’s nice to be able to have a big trip entirely paid off for my wife and I.

nicoleandmaggie
nicoleandmaggie
7 years ago

I just put them in savings. No mental accounting with them.

I used to wait to redeem them until our savings account was getting lower than I wanted it to be, as sort of a last minute thing, but now I redeem them as soon as they hit $50 and can be redeemed. $50 isn’t as much as it used to be.

Cat Alford (@BudgetBlonde)
Cat Alford (@BudgetBlonde)
7 years ago

That’s great advice about not just buying things to get rewards. It’s hard when I get an e-mail saying drugstore.com is worth 9 miles to the dollar or something like that and I convince myself I need to buy my shampoo online haha.

Michelle at Making Sense of Cents
Michelle at Making Sense of Cents
7 years ago

Usually I try to convert it to cash if I can. If not, then I will “try” to save it for travel, however, usually I redeem for gift cards.

Anna
Anna
7 years ago

We use two cards almost exclusively, Discover cash rewards card and a Chase Amazon card. They’re both cash back and we put all our rewards towards our mortgage. It feels like we’re taking free money and making more free money due to interest savings.

However, I have friends with travel cards and I think on a percent on the dollar basis the travel cards provide more value.

Terry
Terry
7 years ago

I use a rewards card for my side business. When the majority of the sales are retail the fact that I can buy inventory with it means I make an extra 2% on everything I sell through rewards. I’ve already made over $1000 in rewards this year.

John S @ Frugal Rules
John S @ Frugal Rules
7 years ago

I can’t believe that many either don’t use the rewards or don’t know how many points they have. We used to use our to get gift cards for places like Target so we could get diapers and such for the kids. Now we’ve started churning and will be taking our first trip off the points in a few months.

Debi
Debi
7 years ago

I have a Discover cash back card. I usually use it for participating partner gift cards that you can buy at a discount of usually 5% but sometimes as much as 10%. I buy them for stores where we shop all the time and use them for everyday spending.

lmoot
lmoot
7 years ago

I like the idea of using reward points to gain reward points from other vendors. I have two rewards cards I use regularly. I use my USAA card for my auto-bills, I think it’s 1% cash back…and they automatically credit it towards my Jan statement, unless you request a check to be cut instead. For everyday purchases I use Cap 1 Venture One, 1.25 mi/ dollar spent. There’s no cap, it’s redeemable whenever you want. I’ve been racking mine up for a trip I’ll be taking in a year. I already have nearly 25% of a $1500 plane ticket saved… Read more »

Mr. Utopia @ Personal Finance Utopia
Mr. Utopia @ Personal Finance Utopia
7 years ago

I only use cash back cards nowadays simply because I find it more valuable to me (either getting a rebate check or by having a statement credit). I do have one points card and I actually recently cashed out for a hotel room in Tahoe (because the points would expire if I didn’t). I’d rather have the cash than be forced to choose from travel, merchandise, etc. that I don’t really want or need.

EMH
EMH
7 years ago

My Bank of America credit card offers cash back and I use any money that I accrue towards our mortgage pre-payments. I am similar to Nicole and Maggie and I cash out in $50 increments.

I also have the Amex Blue Sky and I use that for travel rewards. I like it because I can buy tickets, hotel rooms, rental cars, etc. on any site and Amex gives me a statement credit to use towards the cost of the purchase. I don’t have to deal directly with the Amex travel site.

Mrs PoP @ Planting Our Pennies
Mrs PoP @ Planting Our Pennies
7 years ago

We use our cash back rewards funds to cover holiday spending every year. October – December every years is chock full of tons of family birthdays, as well as Halloween, Thanksgiving, and Christmas. Our rewards from the previous year cover all of that extra spending and last year even covered some charitable donations that we made as well.

Aaron B
Aaron B
7 years ago

When I had an Amex with reward points, I tried to wait until they had a “sale” (fewer points per dollar) on gift cards at a store where it would be just as useful as cash to me. It was usually Home Depot. Now that I have a cash rewards point, I think statement credit is the only option, and that’s fine by me. Frees up cash elsewhere if I need / want something.

El Nerdo
El Nerdo
7 years ago

What frugal tricks I’ve learned along the way?

I’ve learned that for credit card companies, interest profits and increased merchant fees are much greater than the expense of dishing out rewards. Which is why they provide them.

So I stay away from them. 🙂

Jane
Jane
7 years ago
Reply to  El Nerdo

One nitpick about your statement here. You highlight the credit card companies but forget to mention the main component in all this – the banks. Visa doesn’t care a lick if you carry a balance and pay interest. They just want you to use your card over and over again so they can get money from the banks, who pay for their system and software. The banks are the ones who create and primarily benefit from the rewards programs. In fact, you as a consumer have very little to do with the actual credit card companies. They provide the infrastructure… Read more »

El Nerdo
El Nerdo
7 years ago
Reply to  Jane

True, true, very true. I wasn’t ragging on Visa or Mastercard though– even though yes they get the swipe fees. So that wasn’t accurate. When I say “credit card companies” I think of the issuers of credit lines and rewards– while Chase or Capital One are banks proper, I don’t think of them as “banks” the way I think about my credit union– I think about them as card peddlers. But yes, technically, they are banks, not “credit card companies”. After a while, in my imagination they all become one murky predatory amoeba with the face of Alec Baldwin. I… Read more »

Elizabeth
Elizabeth
7 years ago
Reply to  El Nerdo

I’m glad someone mentioned merchant fees. I used to work in retail and it’s awful what some credit card companies/banks will charge small businesses. Many places won’t accept American Express because the merchant fees are even higher than Visa and Mastercard.

mike
mike
7 years ago
Reply to  El Nerdo

El Nerdo- In 20 years since having my first card. I never have paid a fee, interest, carried a balance, etc.. to any company. In the meantime I have earned over 5k in rewards, conservatively estimated. I don’t play any switching games with cards for the most part. I have a couple different cards. Of course you are right, the implication being that many people don’t have the willpower to handle a credit card properly. Also we live in a world awash in credit, so there will be merchant charges anyway and it reflects it the vast majority of purchases… Read more »

B
B
7 years ago

I redeem my Discover card points for Shell gasoline gift cards. My kids seem to enjoy finding them in their Christmas stockings.

MonicaOnMoney
MonicaOnMoney
7 years ago

I used to redeem credit card rewards for gas cards, it was really great since it was like getting cash back.

Free Gas
Free Gas
6 years ago
Reply to  MonicaOnMoney

I also use my rewards points for gas cards. I charge almost everything possible on my credit card & pay off the balance in full before the due date. It’s now free gas for me as I don’t have to pay for gas for the entire year 2013. It helps cut down the household expenses given today’s high gas prices.

mike
mike
7 years ago

3 cards: Amazon Chase: 3% back on amazon purchases in points to be credited towards future amazon purchase. I only use it on Amazon. Upromise Card: Most used card. Money goes into 529 account. 1% on all purchase but bonus points for shopping at partners on internet and sometimes off. Plus there are about 10 different ways to earn additional monies. Other than the electronic grocery coupons I don’t go out of the way but I am sighed up for the dining program. Also I signed up for a Sallie Mae HSA paying .90% which gives you 10% in your… Read more »

Panda
Panda
7 years ago

I love to read, but several years ago I quit buying books. Now my books come from the library, from gifts, or from “found” money.

I treat those cash back rewards as found money and use it to buy books without guilt. 🙂

tas
tas
7 years ago
Reply to  Panda

have you tried paperbackswap? I love it — i get a new book for about $2.50 (roughly what it costs to mail a mass market pb). it’s nice bc their selection is sometimes better than my library’s — especially for genre books my library doesn’t put the money into.

HKR
HKR
7 years ago

I have three chashback cards: a Bank of America card that I use almost exclusively for the 3% back on gas, a Capital One that I use for the 2% on groceries, and a Chase that has 5% in rotating categories (I use it instead of the other two when the caategories are gas or groceries, and for everything else the rest of the time, which earns 1%). When my husband and I were saving for our wedding, we were able to pay for half of our honeymoon cruise with the rewards points. Now we put all our rewards towards… Read more »

Dana
Dana
7 years ago

We have redeemed rewards three times since 2010, and all three times it was for the same thing: Amazon Gift Cards. Two times we used those cards to buy car seats for our new babies (the top of the line ones that last from birth until 120 lbs). One time we used the card as a Christmas present for my sister and her husband.

SavvyFinancialLatina
SavvyFinancialLatina
7 years ago

We just started using credit cards a year ago and I love the rewards. I keep accumulating the money, and think will use it as a statement credit.

TeachingDownDebt
TeachingDownDebt
7 years ago

I cashed mine out this summer for the first time. Almost $300 worth, thanks to a $100 bonus for a new card! Spent them on my food and drinks on vacation.

Ely
Ely
7 years ago

I get points on my formerly-primary card which I could use for just about anything – donations, cash, gift cards, stuff. I redeemed them regularly for crap I didn’t need, or gift cards for crap I didn’t need. Then my bank offered a credit card with points that paid extra on mortgage principal. As paying extra on our mortgage was something we had talked about but never actually done, I got the card. It’s now my primary card; I haven’t changed spending habits at all, but am paying an extra $100 or so per year on our mortgage principal. It’s… Read more »

The Warrior
The Warrior
7 years ago

I’ve taken advantage of credit card rewards without getting screwed by only using credit cards for major purchases that I already have the cash for. Then, I go right over to the credit card online access and pay the credit card amount off. Sometimes, it can take a day to show so I may have to pay it the next day, but thats rare. Doing this 1) gets the points for larger purchases and 2) gets the card paid off immediately. I used to, but no longer, use credit cards for smaller purchases as they add up without me knowing… Read more »

Emily
Emily
7 years ago

I’m one of the people that doesn’t know how many points I have on my rewards card, and I like it that way. Since I never carry a balance on my card it’s worth it to me to have a rewards card instead of a low interest card. Because I’ve recently done some international travel, at the moment I’m using Chase Sapphire, but will probably dump them before the annual fee kicks in. I don’t consider the rewards as part of my budget, and I don’t think about them at all when I’m making purchase decisions, other than to typically… Read more »

Angie
Angie
7 years ago

I don’t regularly redeem my credit card rewards, but my primary credit card is a Discover card and I had accumulated over $600 in rewards over the course of a few years. Last year we turned that $600 into nearly $750 in Sears gift cards and used them to pay for the majority of a new washer and dryer during Black Friday sales!

I also have a Citibank card and I recently discovered that those rewards expire so it may be time to get rid of that card and find one that would be more productive.

Julie
Julie
7 years ago

I have an American Express card with Thank You points. I charge as much as possible each month, including some bills like our cell phones,and pay it in full every billing cycle.

I have strictly used my points to pay down the principal on our mortgage. I’ve earned approximately $1000 over the past 5 years!

Tara @ Streets Ahead Living
Tara @ Streets Ahead Living
7 years ago

my biggest problem in using my accrued airline miles from my Delta card is that Delta has started mileage inflation so a lot of the relatively cheap flights can’t be purchased with 25k miles. The next vacation I need to take probably needs to be a Tuesday-Tuesday so I can take advantage of my miles.

Tara Dawes
Tara Dawes
7 years ago

We use our discover for a lot of purchases (always being sure to pay it off immediately/within the month) – when they do the 5% cashback for gas, all the gas goes on the card so on and so forth. So we tend to accrue a decent amount of cashback, we then use it for christmas presents via amazon (you can pay with the cash back).

Windy
Windy
7 years ago

We have a Chase card. It gets 1% on all purchases, and there are 5% “bonus categories” every quarter – sometimes it’s general categories like gas stations or restaurants, sometimes it’s specific stores like Lowe’s or Kohl’s. We use it for gas and groceries, as well as some large purchases. For example, we replaced our windows in March, which was a big-ticket item. We had saved up the cash, but we put it on the card to get the points, and paid the balance the next day. We turn in the rewards for discounted gift cards or cash, and use… Read more »

LMaS
LMaS
7 years ago

I almost always use my rewards as cash back against the balance. As noted, most things you can buy with your points are overpriced, so you get better value buying them somewhere else with your card. The only time I don’t get the statement credit is if they have a gift card on sale for somewhere I am very likely to go shopping soon. The sale gift cards are 5-10% off, which is hard to beat as long as you actually use the money to buy something you would have bought anyhow.

Meghan
Meghan
7 years ago

I was using the Costco AMEX and got the cash back. I really don’t need a Costco membership and it’s annoying to hear “sorry, we don’t take American Express” so I recently switched. I need to find out how to redeem the cash reward the year you cancel your Costco membership so if anyone has tips, they’re appreciated! I just moved to the East Coast and my family is mostly in Denver, so I signed up for a Frontier Airlines Mastercard. It’s 1 mile per dollar, and I got a 40,000 bonus. I would have gotten an additional 10k had… Read more »

PawPrint
PawPrint
7 years ago

We’ve redeemed them for cash and bought Christmas presents for our 5 children, and we took a trip to England with a stop in Boston one year. We got a Southwest Air card that we will use for a trip back east in a year and a trip to LA to visit a daughter this fall.

Deborah
Deborah
7 years ago

2 years ago I got card with Air Canada.
I got fairly big number of points (more than 20K miles from flights alone). I was trying to save up to have 50K miles and get some nice rewards.
The problem was that I cancelled another flight few months later and totally forgot about the card.
I checked it few weeks ago – all points expired!
I was so sad because of this…
Unfortunately in Europe cash back offers are not popular.

Derek - MoneyAhoy.com
Derek - MoneyAhoy.com
7 years ago

I just get cash back to apply to the next month’s bill. I have just a simple rewards card vs. a travel one.

Tiffany
Tiffany
7 years ago

I only have one credit card thru my credit union and its a visa rewards card (points)that I basically use as a Christmas Club because I can use my points to purchase Visa gift cards which can be used anywhere visa is accepted. Since like many here GRS I use the card like a debit card (every day purchasing -paid off weekly) I accrue points all year and around the end of October I use my points to purchase a the visa gift card so I have it in time for Black Friday/SB Saturday/CyberMonday. I basically do all my Christmas… Read more »

Donna Freedman
Donna Freedman
7 years ago

I save them all year and use as them to buy birthday and Christmas gifts. Sometimes I use the cards to shop, but mostly I just give the cards outright. Just earned enough miles to pay for a ticket anywhere in the U.S. — and now that I live in Alaska once more that’s a big savings. It’s likely that I’ll go visit family on the East Coast, or maybe in midwinter go see my dad and stepmom in Florida. My only frugal hack is to switch cards back and forth as they offer extra points in certain categories (supermarkets,… Read more »

Lynn
Lynn
7 years ago

I will be traveling to Germany and the Czech Republic for two weeks in February (yes the weather is the downside) on miles and 9 of my 13 nights in a hotel will be paid for by points. Could not go for two weeks without the credit card rewards. I will also be buying round trip ticket for my parents on Delta miles to Alaska for their 50th anniversary trip next year thanks to Delta Amex and the Suntrust miles earning debit card. Yes that has an annual fee but $900 worth of airline ticket for two annual fees is… Read more »

Ann
Ann
7 years ago

We have a mortgage AND a credit card from the same company. The credit card rewards is money towards the principle of my mortgage….. this is a reward that I can USE!

Eugenia
Eugenia
7 years ago

I haven’t seen anybody mention another great credit card – barclaycard. We get 5% cashback on groceries and gas purchases up to $250 every month. It’s a pretty nice deal.

ken lavoie
ken lavoie
7 years ago
Reply to  Eugenia

I actually have their US AIR mastercard which gave us 35K signup bonus but no extra for gas and groceries.

ken lavoie
ken lavoie
7 years ago

We own several small businesses and put all the expenses we can on our cards. About 15K per month. We use CHASE ultimate rewards + sapphire preferred. We use the UR when we get 5% categories, then transfer all points to the sapphire, which gives us 20% bonus when we use the points for travel. So 100,000 point gives us 1,200 in travel. We can also transfer those points to United, Southwest, Virgin, Amtrack and a few others and they are converted to true FF miles for even more value (possibly). We also pick cards with good signup bonuses, reap… Read more »

Keith Sales
Keith Sales
6 years ago

MBNA have just announced their severance from Amazon (20th August 2014). I’ve terminated my agreement with MBNA as its no longer worth it, particularly when they demand payment on days when they do not post payments to your account, such as weekends and bank holidays, even though they have your money – and then charge interest and fees for YOUR ‘late payment!

Alex @ CreditCardXpo
Alex @ CreditCardXpo
5 years ago

I always like to redeem my points for gift cards simply because I get the maximum value for my points. Target and Amazon gift cards are my favorites!

shares