I'm a big fan of getting rewarded, so I use rewards credit cards to pay for everyday purchases. Many people redeem their credit card rewards for cash back or as a statement credit to their credit card account. But for many credit cards, this isn't the only redemption choice.
Travelers may be able to get more value from their rewards by avoiding cash back redemptions. Find out why I prefer to redeem my credit card rewards for travel instead of cash.
I prioritize travel in my budget
Like many people, I budget some of my earnings for so-called "fun money." While some like spending this cash on things like shopping, entertainment, or dining out, I prefer to spend it on travel. Travel is a passion of mine, and it makes me happy.
But travel costs can add up quickly, so I look for ways to save money when booking flights and hotel stays. One way I keep my spending in check is by redeeming my credit card rewards for travel. This allows me to afford to travel more often because I have more fun money left over for other travel expenses like tours and excursions.
Cash back redemptions may not provide the most value
I've been using rewards credit cards for nearly a decade. As a newbie, I redeemed my credit card rewards for a statement credit. It was easy and straightforward. But I've since learned that I can get much more value from my rewards by redeeming my points and miles differently.
Instead of cashing out my earnings, I transfer my rewards to eligible travel partners. Some travel credit cards partner with select airline and hotel loyalty programs, letting travelers transfer their credit card rewards to these programs to book flights and hotel stays.
As I've continued learning more about credit cards, maximizing the value of my credit card rewards is vital to me. I don't plan to redeem them for cash again.
How I received 3x more value from my rewards
To further illustrate my point, here's one recent redemption I made with one of the best Chase credit cards. I found myself with a stash of points that I needed to use and a vacation to plan. When searching available award flights through one of Chase's airline partners, I found one-way business-class flights requiring only 50,000 points.
I booked two one-way business-class tickets for 100,000 points. In addition, I paid $168.20 in taxes and fees. You're responsible for paying these additional fees when booking award tickets, so review these fees before booking an award ticket to avoid a costly surprise.
How much would I have paid without points? The total cash price for these tickets was $3,448.20. Spending less than $200 to book premium tickets was a significant win.
My credit card issuer also allows me to redeem my points for cash, but this option yields less value. If I had redeemed 100,000 points this way, I'd have received $1,000. While that's a lot of money, it made more sense for me to redeem my points for round-trip airfare that was worth three times as much.
Explore all redemption choices before cashing out your rewards
If you prefer to pay yourself back by redeeming your credit card rewards for cash, that's OK! But don't assume it's the only choice available. You may be ignoring high-value redemptions without realizing it. It's a good idea to review all the reward redemptions your credit card issuer provides to make a more informed decision when using your rewards.
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Here's Why I Never Redeem My Credit Card Rewards for Cash Back was originally published by The Motley Fool