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Is it worth using reward points to pay off credit card debt?
Use statement credits and cash back to get back on track in the new year.
Updated
If you blew your budget during the holidays and have vowed to get back on track in the new year, you may be able to use those rewards to trim down your debt. Credit card rewards can be turned into statement credit if you’re paying interest on your balance.
How can I use reward points to pay off credit card debt?
Most reward credit cards allow you to redeem points for cash back to your account. How this is done depends on your card, but generally involves the following steps:
- Log on to your credit card account, or your reward account if they’re separate.
- Search for Cash back or browse the rewards categories. The account credit option is usually included in categories for Gift cards and cash, Use points for charges or Other rewards.
- Select the amount of cash you’d like to redeem with your rewards.
- Follow the prompts to complete your redemption.
Once your redemption is processed, allow several business days for the cashback reward to be credited to your account.
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How much cash back will I get for my reward points?
The amount of points required for a cashback reward varies by reward program. Below, we’ve outlined what’s required to redeem $100 worth of cash back through all the major credit card reward programs.
| Rewards program | Points for $100 cash back | Redemption requirements |
|---|---|---|
| American Express Membership Rewards | 16,700 |
|
| American Express cash back | 10,000 |
|
| Chase Ultimate Rewards | 10,000 |
|
| Wells Fargo Rewards | 10,000 |
|
| Citi ThankYou Program | 20,000 |
|
| Capital One cash back | 10,000 |
|
| Capital One miles | 20,000 |
|
| Barclaycard cash back | 10,000 |
|
| Barclaycard miles | 20,000 |
|
| Bank of America rewards | 10,000 |
|
Table information is valid as of December 2018 based on provider websites.
Back to topWhat other factors should I consider?
Before using reward points to pay off your credit card balance, make sure you consider the following details:
- Point value. Depending on your reward program, cash back may not give you the best bang for your buck. Compare the value of cash back against other reward options.
- Airline credit cards. If you have a credit card that earns airline miles, you may not be able to redeem them directly for cash back or statement credit.
- Minimum payments. Cash back is usually applied to your minimum monthly payment. This means you’ll still need to pay at least the minimum amount listed on your statement to avoid penalties.
- Reward processing. Allow anywhere from two to 30 days for your reward to show up on your account. Continue making payments to avoid interest and potential late penalties.
- Other redemption options. Compare the value of a cashback redemption with other options like gift cards. In some cases you could get a $100 gift card for fewer points than a $100 statement credit would cost you.
- Consider your long-term expenses. Use your points for travel if you have an upcoming trip to save money on your airfare.
Should Milla redeem her reward points for cash back or gift cards?
At the start of December, Milla was approved for a new American Express credit card that offered 1x point per $1 spent and 20,000 bonus points if she spent $2,000 in the first three months she had the card.
Milla ended up spending $4,000 in December and started the new year with 24,000 points and $4,000 debt.
While Milla wants to pay off her credit card, she also wants to get good value out of her rewards. So she considers her options:
- Cash on her account: If Milla used these points for cash, she could get $144.
- Gift cards: Or Milla could use her points to get a $240 worth of gift cards.
Based on this comparison, Milla decides to redeem her points for a $240 gift card. She uses this to pay for dining and retail and puts the money she’d normally spend on these categories towards paying off her credit card balance.
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Bottom line
Redeeming your reward points for cash back to repay your credit card balance isn’t always the most valuable way to use your points. However, it could help make a dent in repaying smaller debts.
If you want to clear your debt without gaining interest and want to save your points for a different reward, consider a 0% balance transfer credit card could be a good idea.
Back to topImages: Shutterstock.
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