What you should never use your points to buy

Some of the best cash back credit cards offer enticing rewards just for purchasing everyday goods.Every time you swipe, a few points get added to your rewards total. And when you’re ready to redeem them, you can easily feel like a kid on Christmas Day.

But not all credit card rewards, miles and points are created — and redeemed — equally. There’s a science to redeeming credit card points, and the experts agree — there are some things you should never use your points to buy.

Gift Cards

Most credit cards allow you to redeem your credit card points for gift cards to popular retailers — both online and brick-and-mortar stores. Gift cards might seem like a good way to spend your rewards points, especially if you’re buying them for the grocery store or to use as gifts.

If you have Chase Ultimate Rewards®, for example, you can buy a $25 Home Depot gift card for 2,500 points, with each point equaling one cent. Sometimes, you can even find a special discount offered. For example, Chase Ultimate Rewards® also offers a $15 gift card to Chili’s restaurant for only 1,350 points, which is equal to 1.1 cents per point. This is a 10% bonus compared to their normal gift card redemption.

Unfortunately, more often than not, gift card redemption values are often a bad deal for consumers.

“This was something my wife and I did years ago when we first started churning credit cards,” said John Schmoll Jr. of Frugal Rules. “We would redeem points for gift cards to stores we used, but felt like we were missing out on a greater value for our spending. The gift cards were nice, but they were pennies on the dollar relative to the points.”

Statement Credit

Many credit card providers, such as Capital One, Chase and Discover®, let you use points to redeem for statement credit on your account. That means you can make purchases on your credit card account and pay for them with rewards, thus lowering your credit card bill. With Chase Ultimate Rewards®, you can redeem points as cash back on your credit card bill, with each point representing one cent in value.

However, using points for statement credit may be less valuable than using them for travel, which usually offers a higher redemption value for your accumulated points. If you don’t travel, though, then using your points for statement credit might be an option to consider.

Merchandise 

Many credit card rewards programs offer you the opportunity to purchase merchandise. You can use your points to buy almost anything — from TVs, to blenders to watches.

But, merchandise rewards usually only value at one cent per point, and you’re limited to purchasing the items at full price, whereas when shopping on your own, you can usually take advantage of discounts.

The return policies for these types of purchases aren’t clear either, which is another reason why buying physical goods with credit card points isn’t the best idea. If you end up having a problem with the item and can’t return it, you’ve lost out on all of those points. Alternatively, if you buy a physical item directly with your credit card instead, you can either return your unwanted purchase to the store, or initiate a dispute with your credit card if the merchant won’t refund you.

Experiences

Some credit cards rewards programs now offer another interesting way to redeem rewards points: experiences. These can include concerts, sporting events, restaurant tastings and more.

Through Chase Ultimate Rewards®, two tickets to a Tampa Bay Lightning game, with a post-game meet and greet, costs 50,000 points, or $500, with each point equalling one cent in value.

The redemption point schedule may vary for these types of experiences depending on your card provider, so be sure to compare the various redemption values before booking an experience with rewards points.

Amazon Purchases 

The Amazon checkout process now allows shoppers to pay with a credit or debit card, as well as with credit card points. If you don’t have enough points to cover the total, you can also use your connected credit card for the remaining balance.

Amazon accepts point payments from the following credit card points programs:

  • Chase Ultimate Rewards®
  • American Express Membership Rewards®
  • Hilton® Honors™
  • Citi ThankYou®  Rewards  
  • Discover® points

You can even set points to be your default payment type.

“I have a credit card that made it easy to use my points for Amazon purchases, at a redemption rate of one point being equal to one penny,” said Ryan Guina of The Military Wallet. “But I could redeem those same points for cash at a rate of 1.5 cents per point. So redeeming my points for cash was worth 50% more than redeeming my points for purchases on Amazon.”

Other Online Purchases

Lots of credit cards offer a special online shopping portal, where you can shop through the credit card provider’s website, and use your points to pay for purchases. Lee Huffman, credit card and travel reward expert at Bald Thoughts, said online shopping is a terrible way to use your points.

“This is usually one of the worst ways to redeem your points,” he said. “For example, redeeming American Express Membership Rewards® points at Amazon is only 0.7 cents per point. You are better off using your credit card to earn rewards on the purchase, then redeeming your points for cash at 1 cent each to pay off the card.”

As an example, the Chase Ultimate Rewards® portal lets you buy Apple products with your points. Through the portal, you can buy a set of Apple AirPods, with wireless charging case, for 19,900 points. The same product retails for $199 at Apple, which means Chase is offering a decent price. But still, it’s good to remember that travel rewards through Chase Ultimate Rewards® can be equal to 1.25 cents a point, so there are ways to stretch your points further.

Through the same portal, you can also buy a 13-inch MacBook Air in silver, with 128GB worth of storage, for 109,900 points, which equals $1,099. Again, that’s the same amount it costs at the Apple store. But, if you shop around, you can find the same laptop for $100 less through Best Buy, at $999. This is a sizable difference. Many retailers also offer coupons, and run various promos and deals, so smart shoppers usually don’t have to pay full price for these types of purchases, if they’re not using points.

Last-Minute and International vs. Domestic Flights

Even though travel purchases are generally one of the best ways to spend your points, not every flight is the same. For example, booking a last-minute flight with points may cost far more in points than it would if you had purchased the same ticket in advance.

Also, some credit card travel programs are better with domestic flights than with international ones, and vice versa. For example, you may redeem your points for an international flight without realizing your points would’ve gone farther if you had used them for a domestic flight.

Consumers are encouraged to research and compare flight redemption values before booking, paying close attention to how the rates change depending on the type of flight and/or the dates selected.

Business Expenses 

Depending on which credit card rewards program you have, you may be able to use your points for business expenses. But, once again, this isn’t the smartest way for card holders to redeem their points.

If you’re a business owner or are self-employed, you’re always better off using cash or credit cards to pay for business expenses than using credit card points. This is due to business expenses being tax deductable.

When you pay for a work flight out of pocket, you can then deduct that flight on your taxes as a business expense. These deductions help you pay fewer taxes overall, and reward you for investing in your business.

But if you pay for that same flight in credit card points, you can’t deduct those points on your taxes.

How to make smart decisions with your points

First, you have to understand how your credit card rewards program treats its points. Every provider has its own redemption schedule, so you can’t assume, for example, that Chase and Capital One points have the same redemption value.

Unfortunately, credit card companies don’t make it easy to find this information.

“Finding your credit card’s point redemption value can take a little legwork,” The Military Wallet’s Ryan Guina said. “You will need to log into your account and look at your redemption options, then compare the values to find which one is the highest, or best for your needs.”

It may seem complicated to go through your credit card points program and work out all the redemption values. But, really, the process is very similar to comparing product prices on different online stores prior to purchase, or to clipping coupons and seeking out deals. It’s just applying that same frugal, cost-conscious shopping approach to credit card rewards points.

Best way to redeem your credit card points

Often, the best way to redeem credit card points is for travel benefits. For example, if you have a Chase Sapphire Preferred® card, your points earn 25 percent more when you redeem for flights, hotel stays and other travel-related expenses. If you have a Chase Sapphire Reserve® or Ink Business Preferred℠ card, you’ll earn 50 percent more when redeeming those points for travel.

“When redeeming your reward points, always calculate the value you get for each point before you redeem them,” said Lance Cothern, credit card expert and founder of MoneyManifesto.com. “For example, if you redeem 1,000 points for $10 cash back, the value is one cent per point. In many rewards programs, each redemption option offers a different value.”

If you have a lot of credit card points, it can be tempting to spend them a lot of different ways. After all, they don’t cost anything to redeem. But if you want to get the most value from your points, it’s beneficial to do some research and plan out your best redemption options first. Otherwise, you may end up wasting them.