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Top 5 Ways to Use Credit Card Loyalty Rewards (and What to Avoid)

Getting the best value out of your credit card loyalty rewards can be confusing. Most people don’t spend much time scrutinizing over redemption rates, or comparing airline transfer partner programs. In fact, many people don’t even think about their loyalty rewards- or worse, they don’t use credit cards at all.

However, with just a few tips and a bit of preparation you can leverage your loyalty rewards for more meaningful experiences like, using frequent flier miles to travel to Nepal, dining and to offset monthly expenses and put money back in your pocket.

In this post I compare a few popular loyalty reward programs and explore the best and worst redemption values. For the sake of my sanity I won’t cover every program and how each card differs. There are other, better resources online for that information. Rather, my focus is to provide a few solid strategies to maximize value and avoid the most heinous redemption rates for your loyalty rewards points.

American Express Membership Rewards

It can be difficult to earn American Express Membership Rewards quickly. They haven’t historically provided rotating bonus categories, like discover does. Each card is tailored for a specific purpose and earning rates can vary significantly. Compare each card carefully to avoid the mistake I made of getting a credit card with no points-to-airline transfer capability. Fortunately, I was able to exchange that card for one that does allow for transfers, but that’s not always possible.

However, like many other programs you can get a jump start on your reward hoarding (rehoarding?) through sign-up bonuses. A bonus is typically awarded when one signs with a new credit card company and spends between $500-$5000, within 1-3 months. Keep an eye out for these offers as they expire quickly and sometimes never return at the same level!

Best Ways to Use Your Rewards: 

  • Transfer to Frequent Flier Programs
    Redemption: 1 MR Point = 1 Frequent Flier Mile/Point
    Airline partners often offer the most flexible and valuable benefits for your transferred credit card loyalty rewards. Currently, there is no other way to transfer your points at a greater value without violating a program’s terms of use (selling your points for cash). In order to reap the most rewards, however, you’ll need to choose the airline partner program you transfer to wisely and at the time you are planning to travel.
  • Gift Cards (to Offset Normal Spending)
    Redemption: 1 MR Point = $0.01
    If you are offsetting your normal expenses with gift cards, even the paltry redemption rate of 1 cent per point can be valuable. My wife and I love to try new restaurants each month so a gift card to replace this normal expense saves money.. sometimes.
  • Use the American Express Travel Portal
    Redemption: 1 MR Point = $0.01 + 2x rewards received
    The Travel Portal gives you 2x points in return for booking through American Express. This is not the best value, other cards offer slightly better redemption rates (see Chase below), but it’s not exactly an oppressive way to redeem points.

Worst Ways to Use Your Rewards:

  • Shopping with Points
    Redemption: 1 MR Point = $0.007
    If you’re not getting at least 1 cent per point, shopping with points is a bad strategy, even when offsetting normal expenses.
  • Transferring Points to Certain Programs (I.E. Hilton Honors)
    Redemption: 1.5 MR Points =1 HH Point
    Choose the transfer partner wisely because some programs are far less valuable than others. For instance, not only is the redemption rate for Hilton Honors Points bad, the redemption rate through the Hilton Honors Program is also bad. Thus you’re doubely devaluing your points when opting to transfer points to Hilton.
  • Airbnb Direct Booking
    Redemption rate: 1 MR Point = $0.007
    Need I say more? Airbnb gift cards, however, offer a better deal at 1 MR Point = $0.01

Chase Ultimate Rewards

Chase UR Points are some of the most valuable points out there. And like American Express, transferring points to airline travel partners can’t be beat. Chase also provides a travel portal and encourages bookings by providing a slightly higher than average redemption rate, through their website. If you’re not big on travel or don’t have the time, focus on cards that provide the highest cashback rates in categories that match your annual spending.

Best Ways to Use Your Rewards:

  • Transfer to Frequent Flier Programs
    Redemption: 1 UR Point = 1 Mile/Point
  • Book Travel with Chase
    Redemption: 1 UR Point = $0.0125
  • Get Cash Back
    Redemption: 1 UR Point = $0.01

Worst Ways to Use Your Rewards: 

  • Shopping at Amazon
    Redemption: 1 UR Point = $0.008

Discover Rewards Points

Discover’s rewards program can also be valuable, depending on how you use it. Their rotating bonus categories for spending can put 5% cash back into your pocket.

Best Ways to Use Your Rewards:

  • 5% Cashback Bonus (On up to $1,500)
  • Gift Card Redemption
    Redemption: Varies depending on company however as of the date of this article, the typical rates are impressive:

    • At Alamo Rent A Car, $20 (Discover Cash Back) gets you $40 in credit;
    • At American Eagle and Banana Republic, $40 gets you $50 in credit;
    • At AMC Theaters, iTunes, Ace Hardware, Barnes & Noble and Autozone, $45 gets you $50 Credit.

Worst Ways to Use Your Rewards:

  • 5% Cashback Bonus (on up to $1,500 on stuff you don’t need)
    I listed this reward twice because the value depends on your spending habits. Getting 5% cashback on gas is a great value. However, if the spending category is “Home Improvement” and you weren’t planning on renovating, don’t force yourself to spend. And though you could try to arrange the rotating bonus categories to suit your annual spending, these categories are usually only provided every 3 months, making planning difficult.It may be best to keep a Discover card as a secondary and maximize the 5% categories when they match your normal spending habits.

Regardless of the credit card loyalty rewards program you have, getting the best value typically requires research. Transferring your points to an airline partner can be lucrative but you must evaluate each program closely to determine the best deals today. Therefore, It’s probably smart to save your points until you’re about to travel. Then, transfer your points within a few days of booking to lock in expiring or revolving deals.

Further, by offsetting your ordinary expenses with gift cards you’re putting cash back in your pocket, albeit at a lower rate. The value of this will almost always outweigh using your points for online shopping or money back on your credit statements.

Top 5 Ways to Use Credit Card Loyalty Rewards (Infographic)

Credit Card Loyalty Rewards Infographic
Top 5 Ways to Use Credit Card Loyalty Rewards

2 thoughts on “Top 5 Ways to Use Credit Card Loyalty Rewards (and What to Avoid)

  1. This is a great, simple article. I’m actually going to send it to my girlfriend as she just picked up a new CC. We spent the last few weeks comparing rewards, benefits, etc. and it can be a daunting task.

    I have the Discover it CC. I definitely noticed he drawback on the rotation when it falls under “Home Improvement.” However, like you said, I just use another CC and I feel the other quarterly rotations are worth it.

    1. Thanks for the comment and for sharing the post! I also have a (neglected) Discover Card. While I was writing this article I realized that they’re running a 5% cashback on gas so I think I will take it out of hiding.

      The nice thing about writing on personal finance topics is that it helps me refocus my own efforts.

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