Why Credit Card Reward Points Aren’t Exactly What You Think

credit card reward points

I know you all have heard someone tell you about how they make extra money by using a credit card to rack up points or you have at least seen a commercial advertising these awesome “FREE” prizes and cash back offers. I also know that this sounds like a great idea, and you might even start to think you are getting one over on the credit card companies, right? Sorry to break it to you, but do you really think that these multi-billion dollar banks are dumb enough to let you beat them at their own game? No way. They wouldn’t be a multi-billion dollar bank if they did. But they know that as Americans, many of us are dumb enough to think that we are the ones coming out ahead in this deal, and they play on your emotions to keep you thinking that way.

Most credit card companies will give you one point for every dollar you spend, with “bonus” points in certain categories which may vary month to month. Think about that. You need to put $1,000 on your credit card to make a measly $10. Is it really worth it to put yourself in jeopardy of falling into debt for a minimal amount of “cash back”?

Not only do credit card companies charge the retailer a percentage of each sale to let you use their card, they also know that if you use that card and carry the balance for a few weeks, they are going to make money off of you as well. Pay your bill late and they make even more money. They can charge late fees and even increase your interest rate after just one late payment. Sadly, this is how a lot of people end up in a situation where they need to declare bankruptcy.

I know I will hear at least one of these so I will address them now:

  • “I pay it off every month and never carry a balance.” Be honest with yourself. Do you really? I dare you to go back and check your bank statements to see what your recent balance was over the last six months. I know it’s easy to think, “oh it’s only $50, i’ll pay it off the next time I get paid.” and then your phone breaks, or your car needs and oil change and it’s just easier to leave that $100 on the credit card so you can deal with your “emergency”. We’ve all been hit with at least one late payment fee, overdraft penalty or interest charge. It’s okay to admit it. There’s no need to lie to yourself about how responsible you are with your money, we all have our faults.
  • “But it builds my credit score.” I know that a lot of you are concerned with keeping your credit score up so the little credit score demons don’t come knocking on your door. Newsflash: they don’t exist. You are not going to be put in jail or be forced to get a tattoo on your head that says your credit score is less than 750. You know what kind of demons will come at you if you get in too much debt? The bankruptcy demons who will take your house, your car and your sense of security. The only people who care about your credit score are the ones trying to get you into more debt: the loan companies. In addition, carrying a balance does not benefit your credit score as you might think. Using the card once in a while to buy a stick of gum should do the trick.
  • “I use the points to go on vacation or buy Christmas gifts every year.” Do you know that someone with a $5,000 credit card balance with a 16% APR who pays $125 a month towards their debt will end up paying $2,000 in interest alone? That ends up being a 40% return on investment for the credit card companies. Not to mention, $2,000 would really be put to good use for a vacation, don’t you think? But, do you know who just earned a vacation fund out of this deal? The credit card companies. If you were to save $125 a month, you’d have the $2,000 in just sixteen months.


The 2014 U.S. Household Consumer Debt Profile shows the average credit card debt of an American household is $15,191. While this may not seem like a groundbreaking number, you have to realize that there had to have been a lot of people on the high end of the spectrum with well over $15k in credit card debt in order for this number to be an “average”. Thankfully, there are also people with no debt who bring that number down. Let’s try not to be the ones who send that statistic up higher next year.

While a small percentage of people actually do pay their debts off every month and cash out their points for real dollars and cents, the majority pay their bills late, carry balances for months or years, or end up in financial hell.

My Advice?
Use your debit card to make purchases and save yourself a lot of mental stress when the credit card bill arrives, because your’s will be $0. Any checking account will do, but if you’re reading this you’ve probably been trying to get the most out of your money. I do this by having a high-interest checking account from Capital One 360 (affiliate link) which pays you about .20% interest.  Now I know this isn’t a huge amount but it is better than no interest which is what you get from most other checking accounts. I have used them for a few years now and love their service as well as the user experience they provide online. There are some other companies who have high interest checking as well and I think this is something to look into.

Now, if you still think you’re going to beat the companies and squeeze them out of a few bucks, make sure you at least take the cash back and don’t settle for the crappy gift cards. All of the ones I’ve seen not only cost more points than you would spend in cash (e.g. 5000 points for a $25 credit card), but I can guarantee that the companies only pay a fraction of that $25 face value for the cards. The cash back option is usually going to get you the most bang for your buck.

Just remember what they say in Vegas, the house always wins. 



Photo by stevendepolo

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I am Chenell Tull and so far, I've had a pretty rough time with my student loan debt. Recently, I've figured out a more productive "get out of debt" plan and the goal is to pay off over $60k in just 36 months. If you want to learn more, subscribe to the mailing list and get FREE updates on my successes and failures on this journey out of debt.