Using credit cards that earn rewards is a smart financial move. If you use credit cards to pay for everyday purchases, you should get rewarded when you swipe your cards. But it’s essential to ensure you’re not making costly mistakes with managing and using the rewards you earn.
Here are a few credit card rewards mistakes that could cost you money.
1. Hoarding credit card rewards
Do you have a growing collection of credit card points or miles you have yet to redeem? It’s wise to use your rewards sooner rather than later. Dear reader, I’m guilty of making this mistake myself. Let me explain why you shouldn’t hoard your points.
Rewards programs can change. Similar to how food prices rise over time, redemption requirements can go up. You may only need 30,000 points to book a one-way flight with your preferred airline today, but that could increase to 40,000 points in a few months.
Hoarding your rewards can be risky because they can lose value over time. It’s even more important to prioritize using your points if you pay an annual fee for your card. If you let them sit for months or years, you’ll be paying a yearly fee for rewards you’re not using.
2. Transferring your points to a travel partner without checking availability
Some travel credit cards allow cardholders to transfer their points to select travel partners. By transferring your rewards to airline and hotel partners, you can book award flights and hotel stays, which could save you money on vacation costs.
But make sure you’re researching availability first. Once you transfer your points to a partner, you can’t transfer them back to your credit card’s rewards program. That means it’s essential to research your options and plan how you will use your rewards before making a transfer.
This is especially important for award flights. You may see a flight available on the airline’s website. However, airlines offer limited award flight tickets, so the flight you want may be unavailable to book with points or miles and only available to those paying with cash.
The best strategy is to create an account with the airline’s rewards program and search for award flight availability before you transfer your rewards. This way, you can get the flight you want.
3. Redeeming your rewards for cash back
Many rewards credit card programs provide multiple ways for cardholders to redeem their rewards. Cash back or a statement credit is often the easiest way to use your rewards.
But you may want to explore whether this is the best strategy to maximize the value of your rewards. For example, some travel rewards credit cards allow travelers to transfer their rewards to travel partners. You may find you can get much more value from your rewards this way.
Here’s an example: I recently redeemed 100,000 credit card points for a round-trip business class flight, usually costing $3,448. Instead, I paid $168 in taxes and fees. If I had redeemed my 100,000 points for cash back, I’d have only received $1,000. By being selective about how I redeemed my credit card rewards, I got three times the value from them.
If cash back is the best option for you, go for it. But be aware of all the ways you can use the rewards you’ve earned to choose the redemption that works for you.
4. Forgetting to research award flight taxes and fees
Research all the costs before you redeem your credit card rewards for an award flight. You’ll likely be required to use a set number of points or miles to book your ticket. But you’re responsible for paying taxes and fees on the ticket.
For some carriers and routes, these costs are high. Researching the taxes and fees of a particular award flight before you book could save you frustration and money.
Maximize the value of your credit card rewards
Whether using one of the best cash back credit cards or a travel credit card, take advantage of opportunities to get more value from your rewards. You can do that by taking extra care when managing and redeeming your credit card rewards.
If you’re not yet earning credit card rewards, you’re missing out. When you use your credit cards to pay for everyday purchases, you can earn points, miles, or cash back that can save you money.
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