Most credit cards come with some form of a rewards system. Just like Starbucks, Wawa, Qdoba, etc… the point of the rewards system is simple, they’re providing you with an incentive to shop with them more frequently, in turn, bringing them more business. In the case of credit cards, the issuing bank is rewarding you for making purchases with their cards because that’s how they make money.
So that brings us to my favorite saying –
“If you’re using cash, you’re losing cash”
You literally get rewarded for making purchases with your credit card, so why would you ever, without specific reason, not pay with credit card?
There are 3 main categories of reward point redemptions :
- Cash Back
- Gift Cards, Merchandise, & Other
So which one do we choose? Immediately, conventional wisdom says cash back, because…well…you can do anything with cash. But here’s what you have to remember:
“NOT ALL REDEMPTIONS ARE CREATED EQUAL”
Redeeming points for Cash back
Almost all cash back cards have a standard redemption rate of 1 point = 1 cent and for the most part that never changes and that’s the major downside. Yes, at the end of the day cash back is convenient, but you will never be able to get a redemption value more than 1 cent per point and in this game it’s all about maximizing your redemption value.
Redeeming points for Gift Cards, Merchandise, & Other
While there is a little more variation to the redemption value of redeeming points for gift cards, merchandise, or other random stuff the redemption value is rarely above 1 cent per point and often times much lower. So other than an occasional gem here and there, you’re going to want to avoid this category.
Redeeming points for Travel
We’ve reached it, the Mecca of maximizing your redemption value. The reason why redeeming your points for travel is so popular is because you can get so much more value per point than any other redemption option. Credit card points, hotel points, and airline miles are always in flux. There isn’t a steadfast redemption rate like with cash back. I want you to think about your credit card points as if it were currency. At different times some currency is more valuable than others. When the dollar is at an all time low against the pound it would be a bad time to visit London. But if the Peruvian sole has taken a recent drop you can get more for your money by visiting Peru. By transferring your points and redeeming them through certain avenues you can get more for your money.
I recently redeemed 80,000 points for a 1st class flight on Emirates airline. The cash value of the ticket was roughly $8,000. Do a little math (8,000/80,000 = 0.10) aka a whopping 10 cent per point in redemption value! So there you have it. Yes, I could have taken 80,000 points and redeemed it for $800 cash back but I would rather book an $8,000 1st class ticket on arguably the nicest airline in the world.
This game is all about earning money for spending money we would already be spending anyways. So whenever you can, use your credit card! When you go to redeem your points, if you’re trying to get the best redemption value, travel is the way!