How to Optimize Your Credit Card Points

Whether you are receiving cash back, airplane miles, or some other form of compensation for spending with your credit card, it is natural for one of your first concerns to be ‘How do I make the most of this?’. Rightfully so, in fact, as these rewards are not just useful for giving you the satisfaction of getting an airline ticket for free the next time that you come to the airport, but they can be crucial in plans for debt management and minimizing the costs of your lifestyle. Overall, the flexibility that comes with credit card rewards should not be thrown away on impulse, and depending on the consumer and the card that they possess, there are a few ways to use their points in making their own lives that much easier. 

First and Foremost: Eliminating Outstanding Balances

Avoiding interest payments and having a clear balance at some point in the future is certainly not as satisfying as spending points on tangible food and clothes, but using points as statement credits for a reduction in balance is by far the most cash-conscious and responsible use of points. Getting rid of debt that is on your account in the present can save you tremendous amounts of money in the long run when you consider the effects of compound interest. Unless you are a cardholder in a complementary period of 0% interest rates for balance transfers or purchases, interest will continue to build up on your unpaid balances, prolonging your time with inflexible spending of your earnings. Furthermore, if your card carries even $1 of outstanding debt, you disqualify yourself from your card’s grace period. This grace period allows you to spend on purchases and, if you pay it all back within a specific time frame, avoid the interest on them altogether. Thus, paying down your balance as soon as possible is not only useful in avoiding interest on the incumbent balance, but it allows you to dodge a build-up of interest on all future purchases. 

Furthermore, balance management is crucial in building a strong credit score. While any cardholder is hoping that, at base, they avoid going over their credit limit, staying just below their credit limit for long periods of time is also not a good look on their credit history. Future creditors are not just looking to make sure that you are aware of your boundaries, but that you are not stretching yourself nearly as far as you can, as even having a credit balance that is 30% of your credit limit can be seen as overdoing it. Thus, a reserve of points can help decrease balance in order to maintain strong credit for future needs.

With this in mind, I will also issue a word of caution: not all cards are built the same, and sometimes, translating points from miles to a credit statement, or even from cash back to a credit statement can be distorted. Sometimes, a cardholder could translate 100 miles, worth a total of $1, into a measly $0.75 statement credit. This does not allow you to necessarily maximize the value of each individual point, and cardholders should be informed as to how this conversion works.

Focus on Medium-Sized Purchases, If You Can Afford To

Spending rewards certainly appear to be a great way to save up lots of money for the next big family vacation or a much-needed home redecoration, as well as an affordable way to buy groceries the next time that you go to the store. But, what cardholders should remember is that, when they use points on a purchase, they are losing out on the points that they could have accumulated from that spending. For example, let’s suppose that you are using your Capital One Venture Rewards to buy 4 plane tickets from New York to Paris, each costing $750, for a total of $3,000. In this case, you could use 300,000 miles that you had accumulated, OR, you could cover it with cash and gain an extra 6,000 miles. I recognize that this is just a modest 2% increase in the miles that you have already accumulated, but nevertheless, 306,000 miles could be much more valuable when used on a bundle of medium-cost flights. 306,000 miles would cover 5 round-trip flights between New York and Los Angeles, and even if you would have no reason to make this trip 5 times, or even once, this can show you how much points can make medium-cost flights, and medium-cost purchases in general, more convenient for a longer period of time than one large purchase.

This perspective, of course, is coming from a place of relative assumption and privilege. I am assuming that you, as a parent of 2 young children, decided recently to take advantage of these miles that you have accumulated for years, as opposed to consciously saving these miles for the purpose of taking the family on a trip. I am also assuming that $3,000 could be considered a do-able sum of money, and that you could save enough, perhaps for the years leading up to the trip, to make this a reality. But, if you fall in either the camp of parents that saved all their miles for this exact purpose or someone for whom those sorts of savings are unattainable, then by all means, rewards for big purchases can be valuable. My main point is that, for people who could still find ways to pay in cash, then they could make the most of their rewards by covering a large number of medium-cost purchases, as opposed to splurging on one big extravagant purchase.

Find Deals and Opportunities

As someone with access to cash back, it is tempting to forget the part of you that is programmed to be frugal. The ‘free money’ at your disposal may make it seem like a fool’s game to continue looking for sales and ways to save money, but this is hardly the way to optimize the points that you have. When you find out about a big sale at your favorite store or on a needed item, these would be great times to use your points, as it will ultimately let you save more in the long run. Furthermore, outside of these individual sales, you could save up points until a day like Black Friday, or for events like the tax-free weekend in Massachusetts, to get all of your spending done in one foul swoop while saving and optimizing your points. 

Conclusion

‘Optimization’ is a very subjective word, but maximized savings is something that cardholders can say is objectively a good thing. So, depending on how you are looking to use your card and the type of points that you have, there are a couple of ways to go about maximizing your points. Either way, cardholders should understand the nuances and specifics of the credit card they have, and use this to their financial advantage.