Getting The Most Out Of Your Credit Card Rewards

Most credit cards today offer a rewards program. If you use your credit cards routinely, you should check to find out if you have some rewards available. Log in to your credit card account or check your statement to see if you have rewards points.

In general, the rewards don't pile up fast enough to make it worth using your credit card to get them. But, if you are using your credit card anyway, it's a waste to let the rewards go unredeemed.

Choosing a Reward

The rewards generally fall into four categories: cash back, Visa gift cards, store gift cards, and merchandise. I'll discuss the benefits of each.

Cash Back - Some cards provide an actual check, but most credit the "cash" back to the balance due on your card. This is often the best reward simply because you lower the amount you owe on the card. Check to see what the redemption rate is. If the offer is 2,500 points for $16.75 then it's about 149 points/dollar.

Tip - If you don't have a calculator handy, just enter 2500/16.75 in your search bar and the result will be shown.

Visa Gift Cards - These cards could have Visa, Mastercard, American Express or other logos and can be used for purchases most anywhere these cards are accepted. The advantage is that you're not tied to a specific store like with most gift cards. The disadvantage is you can't get the actual cash out of them. However, you could use your reward for groceries, clothes, or all sorts of useful things.

Often the redemption rate gets better the more points you have: 7,000 points for a $50 card, but only 30,000 points for a $250 card. If you check the redemption rate you'll see the $50 card is 140 points/dollar (7000/50) and the $250 card is 120 points/dollar (30000/250). In general I've found that the higher value Visa gift cards represent the best deal in rewards programs.

Store Gift Cards - These are cards for specific stores like Starbucks, Macy's, Olive Garden, etc. The redemption rate seems similar on these cards to the Visa gift cards, but they are tied to a specific store so are less useful. Also, the amounts available are sometimes not as high so the redemption rates don't get better like they do for Visa gift cards. For example, it might take 7,000 points for a $50 Starbucks gift card at a redemption rate of 140 points/dollar as above.

Merchandise - Rewards centers offer all kinds of merchandise: video games, DVD players, books, travel, etc. These offers can seem tempting, but be sure to figure out the redemption rate. For example, I've seen an offer for a Garmin Nuvi 1390T GPS unit for 21,100 points. I searched online and found the same unit from Buy.com for about $160. The redemption rate is about 132 points/dollar (21100/160). Not bad actually, but not as good as the $250 Visa gift card.

Buying Points

A note on buying points. If you are just a few points from a bigger reward, you might be tempted to buy some points. For example, the rewards site might offer 500 points for just $15. However, that's only 33 points/dollar (500/15). It's silly to buy points at that low rate in order to cash them in at a much higher rate.

Let's say you have 29,000 points. You buy 1,000 points for $30 and cash in the lot for a $250 gift card. Rather than a redemption rate of 120 points/dollar, your effective rate is only 132 points/dollar (29000/220) since when you consider the whole transaction, you only got $220 for your 29,000 points.

Long story short, don't buy points. If your points aren't expiring, it makes sense to wait a month or two to pass a threshold, so you can get a $250 gift card rather than two $100 gift cards. It's better in the long run to just take the lower reward than to buy points.

Final Thoughts

The key is to take a moment and jot down the points and dollar totals of the rewards you are considering. Always make sure to include the cash option and the generic gift card option since those can pencil out to better redemption values then merchandise of store gift cards. Then pick the option that has the best redemption rate and that will be easiest for you to use.

• If you are in debt, use the cash back option to reduce the amount you owe.
• Generally the highest value Visa gift card you can get will offer the best redemption rate.
• Carefully check the price of merchandise and figure out the redemption rate. There may be some good deals, but usually you're better off getting a Visa gift card and buying the product from a store.
• Don't forget to check your credit card account and statement periodically to make sure you aren't missing any rewards. Once you've earned a reward it's silly to let it go to waste, especially when you can just redeem it to lower your account balance.
• Never buy points to get a higher reward and never use your card just to get points. Rewards programs can be fun, but the cost of credit dwarfs the value you usually get for the rewards.

About The Author: Fletcher is one of the founders of ThriftyFun. You can usually find him feverishly typing code to make the site more responsive and stable. He is crazy for Legos, has a degree in mathematics, and is always trying to be more frugal.

Do you have any stories or tips about credit card rewards? Let us know in the discussion.