Travel and cashback are the most popular ways to get a refund Credit Card Rewardsbut over the past decade or so, another redemption option has emerged: the ability to pay with points at select merchants.
It is a very attractive feature. You plan to pay money for the purchase anyway, but you can use the points to knock a few dollars off the price with minimal effort. At the height of the pandemic, when travel points remained unused, it was a way to get some value from them in the short term.
When shopping on Amazon, for example, you can link your rewards program account to yours amazon accountFrom now on, you will have the option to cash out points during checkout. PayPal also allows you to redeem points from cards you’ve linked to your PayPal account, once you’ve registered those cards for Pay with Rewards.
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It’s part of an ongoing effort to create a frictionless payment experience, and it’s a great way to say “easier to spend money”. In an August 2021 survey by The Wise Marketer, a newsletter for marketing professionals, 47% of respondents said “consumer desire for increased convenience and reduced friction” was the single most significant trend affecting the credit card loyalty market.
But just because paying with points is easy doesn’t mean it’s a good idea. Credit cards really make it easy to spend more. A February 2021 MIT study “The Neural Mechanisms of Credit Card Spend” found that with “new payment methods” (currently credit cards, but other payment methods such as digital wallets in the future), you are less constrained in your spending compared to when using cash. Add in the ability to throw points toward your purchase to lower the cost, and you’ll get a dose of dopamine in shopping, but there’s one big reason to avoid doing this.
Paying with points makes your rewards less valuable
When you request a credit statement for your points from a cashback card or redeem travel card points for a vacation booking, you are using those rewards in the best way. Expect points worth About 1 to 1.5 cents each, depending on which card you carry.
But if you pay with points at the checkout, you are likely to lose, depending on which cards you use. this is the reason:
- Your points may be less valuable: It may be worth less than half its value when redeemed on purchases. However, there are some exceptions where points are worth one cent each.
- You’ll eat away at your travel rewards budget: If you’re hoping to make money on travel rewards to get a big discount on your next trip, carving out your rewards on purchases may leave you without the amount you need to book a travel reward.
Here’s a look at what a single pip is worth when you use it at checkout at two popular traders:
Credit Card Rewards Program
Point value on Amazon (in cents)
Point value on PayPal (in cents)
American Express Membership Rewards
PayPal Cashback Mastercard®
PayPal Extras Mastercard®
How to avoid wrongly paying with points
You’ll come across quite a few texts on the screen when you check out, some of which are in small font, so you might be paying with points without even intending to. If you share your credit card and online shopping accounts with other members of your household, they may use points for their purchases without your knowledge (until you try to book reward flights and know you don’t have enough points to do so, and that is).
Being able to save multiple cards to your online accounts is convenient, but if you want to avoid using points by accident, you’ll need to shop more carefully. When you add cards to your account, don’t link your rewards accounts to those cards so the points payment option doesn’t exist.
If you want to link your rewards accounts but don’t want to use the points too often, be sure to pay attention to the selected payment method at checkout. If there is a check box for points payment, make sure it is not checked. Although the checkout process will take a few moments longer, it’s time to make sure you know exactly how to pay for your purchase. Discuss this with other family members who use the same cards and accounts until everyone agrees.
Still want to pay with points? Do it carefully
Paying with points results in lower point values in many cases, but that doesn’t mean that using points in this way is wrong. If this is how you prefer to spend your rewards, then you are taking advantage of them in a way that is beneficial to you. Here are some better way to pay with points:
- Budget points as budget funds: Track your score in a spreadsheet, especially if you have multiple credit cards from different issuers. You can budget for points by allocating an amount that you need, for example, for an upcoming vacation. The remaining points will be free to use for other redemptions, such as paying with points.
- Use those last few points: when you Close the credit cardYou often lose out on any remaining rewards. Paying with points may be the best way to use a small number of points before canceling the card.
- Use the cards that offer a higher value per point: Some cards, such as Discover cards and Capital One cashback cards, allow you to redeem points at checkout at 1 cent each.