Why it matters how you redeem your reward points

Americans waste thousands of dollars each year in unused credit card rewards. Following a few simple guidelines can help drastically improve the returns you see from point and cash rewards.

Jonathan Bainbridge/Reuters/File
MasterCard credit cards are seen in a wallet in London.

Shopping for and picking out a credit card may seem like the whole ballgame, but it’s better to think of it as the first inning. Once you’re earning points or miles you’ll be faced with one of the most challenging aspects of reward credit cards – using the rewards. You don’t have to be an MIT-educated mathematician to keep track of everything, but this still isn’t a task that should be approached lightly. Americans waste thousands of dollars each year by committing sub-optimal choices in this department. Following a few simple guidelines can help drastically improve the returns you see from using these products.

Commit to Using Your Points

One of the most common mistakes reward-seekers make is holding onto points for too long. Without a set redemption goal you’ll just end up hoarding more and more rewards, becoming the Scrooge McDuck of miles. The worst part about holding onto your points is that, most of the time, they will lose value. Miles and points are devalued pretty frequently. Therefore, you may not get as much out of them in a few years, as you would today.

Identify a redemption goal before you start accumulating points. Figure out exactly what you would like the points to pay for and work towards it. This will help prevent hoarding.

Consider the Options

Many reward programs today will shower users with options. Unfortunately, only one or two are usually worth your time. For example, consider the ways in which you can use Chase’s Ultimate Rewards points. You can exchange them for cash back, statement credit, gift cards, online shopping, and travel. However, all these options have not been created equally.

You can trade in 10,000 UR points to get $100 in cash back. You can also link your account to Amazon, where 10,000 points will buy you roughly $80 worth of merchandise. Therefore, if you’re not careful you can lose $20 by not paying attention to how you use your points. This isn't even factoring in opportunity cost. For example, those who use UR points to buy things on Amazon are not earning any UR points back. However, if you use your credit card for those purchases, you will earn points. Factor in that into the value equation, and you are losing more than just $20 by not opting for cash back.

Considerations like this take careful planning. The good news is that there are plenty of resources surrounding reward programs, and the first step is usually the hardest. Once you read a guide or two, you’ll have a good grasp on all the things you can do with your points. This should help you figure out which of them will give you the best value. Usually a quick Google search will suffice. Look for things like “how to use X points” or “best uses for Y miles.” There is no shortage of resources online.

The Benefits of Cash Back

Typically, cash back credit cards don’t deliver value that is on par with mile or point cards. This is especially true when it comes to bonuses. They make up for this deficit by being far simpler to use. If the two strategies we outlined above sound like more work than you’re willing to do, consider getting a cash back card instead. You won’t have to worry about redeeming points optimally, since you’ll. Once you have enough, you simply go online or call to redeem.

Choosing between points and cash back will come down to how much you value your time and how much patience you have. You can get more out of the points, though you will have to devote some of your time to figuring out how they operate. Because this is usually a one-time-cost, for a long-term payoff, we recommend choosing points and miles.

This story originally appeared on ValuePenguin.

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