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Travel and cash back are the most-touted ways to redeem your credit card rewards, but over the past decade or so, another redemption option emerged: the ability to pay with points at select merchants.
It’s a pretty appealing feature. You’re planning on forking the money over for the purchase anyway, but you can use points to knock a few bucks off the price with minimal effort. At the height of the pandemic, when travel points sat unused, it was a way to get some value out of them in the short term.
When shopping on Amazon, for example, you can link your rewards program account to your Amazon account, and going forward, you’ll have the option to cash in points during checkout. PayPal also lets you redeem points from cards you’ve linked to your PayPal account, once you enroll those cards in its pay with rewards feature.
It’s part of a continued effort to create a frictionless payment experience, which is a fancy 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 the "consumer desire to maximize convenience and reduce friction" was the most important trend affecting the credit card loyalty marketplace.
But just because paying with points is easy doesn’t mean it’s a good idea. Credit cards already make it easier to spend more. “Neural mechanisms of credit card spending,” a February 2021 MIT study, found that with “novel payment methods” (currently credit cards, but other payment methods like digital wallets in the future), you’re less restrained in your spending compared with using cash. Add in the ability to throw points toward your purchase to lower the cost, and you’ll get that shopping dopamine hit, but there’s one big reason to avoid doing this.
Paying with points makes your rewards worth less
When you request a statement credit in exchange for your points from a cash-back card or redeem travel card points toward a vacation booking, you’re using those rewards in an optimal way. Expect points to be worth around 1 to 1.5 cents each, depending on which card you carry.
But if you pay with points at checkout, you’re potentially losing out, depending on which cards you use. Here’s why:
Your points may be worth less: They may be worth as little as half as much when redeemed for purchases. However, there are some exceptions where points are worth 1 cent each.
You’ll eat into your travel rewards budget: If you were hoping to cash in travel rewards to get a sizable discount on your next trip, chipping away at your rewards for purchases might leave you without the sum you need to book award travel.
Here’s a look at what one point is worth when used at checkout at two popular merchants:
Credit card reward program
Point value on Amazon (in cents)
Point value on PayPal (in cents)
American Express Membership Rewards
Capital One cash back
Capital One miles
Chase Ultimate Rewards®
Citi ThankYou Rewards
PayPal Cashback Mastercard®
PayPal Extras Mastercard®
How to avoid accidentally paying with points
You’ll encounter a whole lot of text on the screen at checkout, some of it in smaller print, so you might pay with points without 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 you knowing it (until you try to book rewards flights and learn you don’t have enough points to do so, that is).
The ability 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 a bit more carefully. When you add cards to your account, don’t link those cards’ rewards accounts so the option to pay with points won’t exist.
If you do want your reward accounts linked but don’t want to use points too often, pay close attention to the selected payment method at checkout. If there’s a box to check to pay with points, make sure it’s unchecked. Even though checkout will take a few moments longer, it's time well spent to make sure you know exactly how you’re paying for a purchase. Discuss this with other family members who use the same cards and accounts so everyone’s in agreement.
Still want to pay with points? Do it thoughtfully
Paying with points yields lower point values in many cases, but that doesn’t mean using points this way is wrong. If this is how you prefer to cash in your rewards, then you’re getting value out of them in a way that’s meaningful to you. Here are some ways to pay with points in a more optimal way:
Budget points like you budget money: Keep track of your points on a spreadsheet, especially if you have multiple credit cards from different issuers. You can budget points by mentally setting aside an amount you need for, say, an upcoming vacation. The remaining points would be free to use for other redemptions, like paying with points.
Use those last few points: When you close a credit card, you often forfeit any leftover rewards. Paying with points could be the best way to use up a small number of points before canceling a card.