Why I Hate Credit Card Points

By Philip Brewer. Last updated 16 May 2012. 26 comments
Photo: orphanjones

With few exceptions, I have no interest in rewards in the form of "points," "miles," or anything similar. (See also: Swipe Envy)

I've always felt this way, but I've been prompted to write this by a particularly annoying commercial. What sets me off is when the actor playing the customer talks about how his points are "like money in the bank."

Of course, my response is, "You know what's more like money in the bank? Money in the bank!"

Then he goes on to talk about how he can "spend" his points to get stuff he wants.

To which I say, "You know what else you can spend to get stuff you want? Money in the bank!"

(I actually do say these things — out loud, at the TV. So far, fortunately, my wife is managing to find my reaction amusing rather than annoying.)

When Points Are Worth It

There are two circumstances when taking points, miles, or any similar construct is a win: When someone else is paying (but you get the rewards), and when the company screws up.

When Someone Else Is Paying

The modern origin of these schemes is frequent flier miles. They were invented as a way to incentivize business travelers to chose a particular airline for their company-paid travel.

The issue was that business travelers had a lot of control over their business travel. Even within rules that required choosing the cheapest fare, the traveler had considerable influence, because they could control the details of when they could leave and when they had to return. If they wanted to travel on Airline X, it was easy to schedule meetings such that traveling on Airline Y would require an extra overnight stay or any extra day away from the office.

The reason there are so many complex rules about using and transferring frequent filer miles was to make it difficult for companies to insist that their business travelers use them for business trips or turn them over to the company.

But this is only an advantage when the person who's getting the miles isn't the one paying the fare. When you're paying for your own ticket, frequent flier miles are just a way to prepay for future trips that you may not even take.

A special case of this is when you can get your money back, but still keep the points. For a while there was a deal to let coin collectors buy directly from U.S. Mint at face value. People were buying coins with a credit card that offered miles, and then just depositing the money at their bank at face value.

When the Company Screws Up

It doesn't happen often, but sometimes a company will screw up. There was a famous case a few years ago where a company offered free travel for people who bought appliances. Unfortunately for the company, the people who designed the scheme got careless. They were thinking about large appliances like refrigerators, but wrote rules that let small appliances like vacuum cleaners and bread makers count. People quickly figured out the cheapest set of small appliances that would entitle them for the trip they wanted to take and bought those appliances in great numbers. The company ended the program as quickly as it could, but still ended up losing a lot of money.

Prefer Cash

Except for those special cases, you're almost always better off taking the cash — using a cash-back rewards card, or buying from a business that doesn't load you up with a stupid points-based rewards program.

I know some people parse these schemes very closely and find that there are circumstances where they can come out ahead. (See, for example: Credit Card Rewards Programs and Maximizing Rewards Programs with Points.com.) To a first approximation, I'm automatically doubtful.

I have a credit card that provides cash back. I could get one that provides miles instead. But I know that a credit card company that provides miles is buying the miles from an airline — and it wouldn't be doing so unless it's getting the miles for less.

The airline is glad to sell miles to the credit card company cheap, because it knows that it comes out ahead in a dozen different ways. It sets the rules for how much the miles are worth and when they can be used. Plus, it knows that most of the miles will go unused for months or years — and that some miles will never be used.

Even the people who do the careful parsing, and think they're getting their miles cheap, sometimes end up being unable to take the trip that they think they're getting such a good deal on — a work emergency or a family emergency or just a change in circumstance will force a change in plans, and there they'll be with a bunch of frequent flier miles.

Prefer cash. You can spend it on whatever you want, not just on whatever the firm that offers points or miles wants to sell you.

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Guest's picture
Jim

Why not address the point that these rewards are paid for by the merchants where we swipe our cards. We really end up paying for the rewards in the result of higher prices at their stores to offset the higher processing fees for rewards cards.

On the other hand you could also have brought up the kind of people who pay the balance on their card every month, so why not use a reward card and get a little bonus?

Finally, there are cards out there that let you do what you want with the points: travel, cash, or overpriced stuff'n'junk from their catalog.

Philip Brewer's picture

These are two good points.

If a merchant will give you a discount for cash, that's probably your best choice—you're not splitting any of the swipe fee with the bank or the credit card company. If not, you might as well use a credit card and get whatever kind of reward your card offers—cash or points. (But, as I say, I hate points.)

Guest's picture
Matt

I understand the thrust of your post and if frequent flyer tie-ins with credit cards weren't a good deal for the card issuers, you can bet they'd be pulled as fast as free drinks and meals on domestic flights.

If it's good for the card issuer, then it's bad for the consumer right? In the aggregate, that may be the case but for a specific individual who can make it work for them, it can be a good deal.

My wife has family in the Los Angeles area and we live in a mid-sized city on the east coast. To get my family of five there and back would cost about $2000 in airfare. Utilizing the signing bonus for a particular credit card coupled with spending that I already do every month gets me those five tickets for about $100 all in. I don't use cash back cards, but to get $2000 cash back to pay for airfare in this scenario requires some pretty serious spending.

If an individual runs a balance on their card, incurs late fees, or overspends on things they otherwise wouldn't buy, these airfare savings rapidly erode but if planned correctly miles programs can save an individual consumer money. Just my 2 cents.

Philip Brewer's picture

Yes, with careful attention, it's possible to come out ahead. Essentially, the credit card company is riding on the backs of the people who end up not using their miles or points or whatever, and then giving you a taste.

But my experience is that these things don't work out well for me. My attention wanders. My plans change. My circumstances change. In the end, things don't work out such that my points or miles provide full value.

This is why I prefer cash. Cash always gives me full value.

Guest's picture
Chris

While I know I can get a higher percentage reward with cash back cards, I prefer the points cards I have. The thing I never liked about the cash back cards is they all seemed to offer the cash back in the form of a payment on the card. The rewards I get are in the from of gift cards to store I like. This allows me to buy something that I can't fit in my budget.

Can I get more from a cash back card, yes. But I like the gift cards more.

Philip Brewer's picture

I've written before about the idea that some of your money is different from other of your money. (In this case, that your money in the form of credit card rewards is different from your money in the form of your regular income.) I think that's the wrong way to think about it.

My take is that it's all your money. Of course, points are a pretty crappy form of money, but to the extent that they're money at all, they're your money. You should treat them just like the rest of your money. In particular, they should be part of your budget.

Here's the post I'm talking about:

http://www.wisebread.com/its-all-your-money

Guest's picture

I'm suspicious of the cash back rewards cards. Since they're promising actual money, I figure they're more inclined to find ways of weaseling out of the deal with misleading assertions and fine print. I've been pretty happy with my American Express Hilton Honors card. I've never had a problem using the points when I need them. My Amazon Visa Card ain't bad either.

Guest's picture
Raina

Shawanda, I've been using a cash-back credit card for a few years now and have never had an issue with it. I've never paid a penny but have received hundreds of dollars in cash; they send me a check every time I reach $50.

Philip Brewer's picture

There's plenty of fine print in any credit card agreement. But this is actually one of the wins of a cash back card: However much cash you end up getting back, you know exactly what it came to. With a points-based rewards program, you never really know what your reward was worth.

Guest's picture
Guest

Actually, Dave Ramsey quotes a statistic that 70% of airline miles don't get used. So that makes it even worse.

Philip Brewer's picture

Yikes!

Guest's picture
David M

Points are better than cash!

I can use my Frequent Flier miles for a first class trip to Asia and the value per point is about $.10 a point. Some points received thru spending MANY points received thru VERY GENEROUS sign up bonuses - 30,000 to 50,000 a card.

I received the United credit card bonus on 5 occassions over the years - 150,000 points in total good for a First Class flight woth over $14,000.

It real easy to get the trip you want - pay some else to do it - $150 for 1 and $250 for 2 - for a long distance trip to Asia - money well spent!

Philip Brewer's picture

Yes, as long as your plans don't change, this can be a good deal. But cash is a good deal even when your plans do change.

Guest's picture

I honestly only have one credit card and it is a "cash back" card. It is strictly a business card and is only used on business purchases. I like using a credit card for business purchases as the accounting is done for me and I get the cash rewards.

I also never thought too much about this. I found the best cash back offer and went with it.

Like you, I would never opt for airline miles or partner gift cards. Give me the cash and give it to me as soon as I have accumulated enough points.

Guest's picture
Guest

I agree with your article. I have a cash back card that I use for nearly every expense. The credit card company is also a bank with a high yield savings account where I can transfer the rewards directly into my savings account. I have never deposited anything other than my rewards. As of this writing, I have over $4,500 in that account.

Guest's picture
Guest

How much did you have to spend on the card in order to get that amount of money in cash back?

Guest's picture
Guest

That amount is after 8 or 9 years. My average monthly bill is $2,500 - $3,000. That covers groceries, eating out, shopping, cable bill, cell phone bill, insurance, etc. Plus, a few vacations, home improvements, etc. over the past few years. If I can, I run business travel expenses through that account as well. Every couple of months, Discover has a bonus category so I can get up to 5% on a certain category - - gas, groceries, clothes, entertainment, etc. I don't go spend more that month, it's just a nice bonus.

Guest's picture
Howie

Cash is easier than points, however in most all cases points will get you further than cash.

Disagree?

P.S. Your captcha / spam prevention is overly aggressive. Took me 3 tries to post.

Philip Brewer's picture

If you want something you can buy with points, and you seek out and find a card that offers that thing (and that has a generous points scheme), and nothing changes between when you make your plan and when you have the points to execute it—then points can be a better deal.

But things do change. Your plan may change. Your credit card's rewards scheme may change. And if that happens, maybe your points will still be useful and maybe they won't. But cash will still be cash.

Philip Brewer's picture

Oh, and sorry about the captcha. I'll mention it to the admins.

Guest's picture

We're in our 15th year of a in perpetuity, 2 week, time-share in the Caribbean. We've used miles for all those years, sometimes using a new card for the minimum to get the 75000 bonus miles. It's a win-win for us. Bob M

Guest's picture

Cards points can be beneficial only if we sit back to observe and study the card company offering it.There're always areas we can leverage on if we pay close attention to the credit card company policies and operations

Guest's picture
Martin

True, one other point that i think the writer left out, is the credit card mileage programs, where you get x amount of miles if you sign up for a credit card, but in small print they write "$99 annual fee", many get tricked, but i got the sapphire and then canceled the card after 2 months.

Guest's picture

Have to agree with you about the points - recently there's been a rise of premium cards with points rewards that are only redeemable if you keep the premium card status - instead of the points being converted to an outside organization like air miles, you have to stick with the program to get the points...

Philip Brewer's picture

Yeah, this is the sort of thing that bugs me about these programs—they can change the out from under you.

Guest's picture
Craig

It may well be that rewards programs a bad deal on the whole, for most people. But I think it's more important to do the math for your particular situation. I have kept an American Express card for years that is co-branded with Delta Airlines. The membership fee is 55 dollars a year, and it gets me a plane ticket to Europe every 18-24 months (and you bet I pay off the balance every month). So I call that a pretty solid win.