I’ll admit it faster than anyone: I’m a total sucker for credit card reward points. I bounce from website to website, soaking in all the images of beaches and exotic locations that each credit card company offers to me, and I tend not to ask questions about what I would have to do in order to earn these rewards. But what do credit card reward points actually mean, and are they even worth it?
I signed up for the Chase Sapphire Preferred card for all the wrong reasons. Namely, the card was pretty; it had an appealing weight to it that made me feel important; and my friend and I both got a bunch of credit card points if she referred me. I didn’t ask about the annual fee, or what the APR (Average Purchase Interest Rate) would be on my bills. All I knew was that my credit had been very good (not a hard feat in your early twenties) and that I wanted that pretty little blue card in my wallet. (Did I mention I already had a credit card and debit card? Well, I did – both standard Bank of America Visas with basic cash back offers. But again, I had no clue what those offers entailed.)
I got lucky. My impulse purchase didn’t derail my credit or put me in a financial hole, the way some credit card sign-ups can do. But after finding out that I would be billed an annual fee of $99 and that my APR was around 20 percent (yikes!), I decided that I needed to grow up a little bit and educate myself about how to best use this card. And so I dove into the big, wide, confusing world of credit card reward points.
How Credit Card Points Work
On the surface, its simple: you earn credit card points with the purchases you make, usually in some ratio of points-per-dollar. For example, a cash back credit card might offer one point per dollar spent on dining, two points per dollar spent on gas, and another one point per dollar spent on travel. Or a travel rewards card might offer three points per dollar spent on travel and one point per dollar spent on dining or gas. Cash back cards incentivize you to earn some money back for every dollar you spend on a certain activity, while travel rewards cards give you points towards travel-related purchases.
However, the caveat comes when you try to use these earned credit card reward points in the category that you’ve been earning them in. For example, most travel rewards cards only allow you to redeem these points with designated airlines, or through their own travel portals. Likewise, your credit card points may only be redeemable at certain hotels, restaurants, gas stations, etc. And if you choose to just redeem these points for cash (without a cash back card), the points' worth usually takes a hit.
As such, it’s important to do a little side research on a credit card before you sign up.
With my Chase Sapphire, I now know that the best way to take advantage of my points is through travel. I have to use Chase’s travel portal, too. But I also know that Chase has a great referral system, and for every friend I refer, I can get 10,000 points. Once you know the ins and outs of your card, you can start to take advantage of it without spending yourself into a total rut.
Do Your Research
There are plenty of websites that help you break down the relative worth of different rewards credit cards for your specific lifestyle. My personal favorite sites are the Points Guy and NerdWallet. Both of helped me to understand how best to use my card and to learn what cards I should stay away from. Right now – six months into having my card – I have over a thousand dollars in travel rewards points waiting for me. Credit cards ain’t so bad, after all!