Thursday, 29 November 2012

What are the most efficient ways of using your credit cards awards points?

Credit card awards schemes are one of those nice to have features of a credit card however it should not be central in your decision to choose one credit card over another.  The fact is that the points are worth so little that unless it is an 'added benefit' for the same cost you probably should not bother.

Most people realise this.  Indeed, when post people work out that it costs them ~$14,000 - $18,000 worth of expenditure to get $100 worth of value most people stop worrying about the points and then redeem them every time they realise that they have a decent balance.  However although the seem to have such little value, there are still ways you can optimise the value you get from them - also this post is to  remind everyone that uses these rewards systems that the points can and do depreciate in value so it is best to use them reasonably quickly.

Gift cards are almost always the best value option

I have done a post on this before which spells this out in more detail but I thought I would outline again why gift cards and vouchers are always the best option.

You should never use your points to buy products.  Go online and see how much the product actually costs and then work out how many points it is costing you and you will see that it can be double or triple the regular price using your points.

Using your points to get cash is also a terrible idea.  The difference in the number of points it takes to get $50 worth of cash versus a $50 gift card to buy groceries is astounding!  Getting cash or reduction in your credit card bills are almost as bad value as getting products.

A better way to get the items you want is to redeem your points for gift cards and use these to buy products

If there is a particular product you want then go and see what stores you can buy this item from and get a gift card from that store - it will work out much cheaper than using your points.  However if you really want to maximise your points and the value for money you get then you should do the following:

  1. Work out what the cheapest gift card is
    • Gift cards do not all cost the same amount of points.  Cards for supermarkets tend to cost less than cards from other retailers (this is not always the case so make sure you check with your rewards provider)
  2. Buy the cheapest card from a store you regularly go to (it does not have to be the one you want the item from)
    • If you shop at a particular supermarket often and this has the cheapest card then you should go for this
    • Alternatively fuel cards are often very cheap as well and if you have a car you are always going to use it
  3. Use the cash you save from this other store to buy the item you want
    • In this way you are getting the item you want for effectively the best points value that you can get
You tend to get better value when you redeem more points at once...BUT don't wait for too long

With most rewards systems the amount of value you get from gift cards tends to increase the more points you accumulate.  Typically speaking if it costs you 8,000 points to get $50 worth of value it should cost you less than 16,000 points to get $100 worth of value.

Credit card companies and rewards programmes do this deliberately for several reasons.  Firstly they make more money if they don't have to pay out the cash as often and and secondly every so often they increase the number of points it takes to redeem a certain amount of value so they win when they charge you more points to get the same amount of money.

The best thing for you to do is to strike a compromise.  Know how much money you typically spend on a credit card and if it is going to take you an extra year to get from a $250 gift card to a $500 gift card and you are only saving 500 points then it is probably better for you to get a $250 gift card each year.  You may lose a little bit in terms of the points it costs you but you have the benefit of getting the first amount earlier and the risk that your points reduce in value is diminished.

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