This is the eternal question when it comes to credit card rewards – do you hoard them, or redeem them as soon as possible?
There are compelling arguments going in either direction. Some prefer to save them up for major expenses or trips. Others would rather spend them as soon as possible.
But maybe it has less to do with personal preference and more to do with specific circumstances.
For example, while you might prefer to hoard your rewards as a general strategy, there may be times and circumstances where redeeming them as soon as possible is the right course of action.
Let’s take a look at both sides of the debate, and try to come up with some triggers to help you decide when it’s time to spend them and when it’s time to hoard them.
Pros in Favor of Hoarding Rewards
Big lump sum redemptions create more options
Sometimes it just feels good to have a large amount of stored rewards.
But on a more practical level, having those rewards sitting in reserve can be a real advantage if you have major spending events on the horizon.
You won’t be hoarding your rewards for too long since there’s a definite time frame involved.
Save up travel rewards for a big trip
Let’s say you’re planning a major trip, to an exotic destination, like Tahiti.
It’s the kind of trip that will require an expensive flight, as well as an expensive hotel and other expenses. It is, after all, a remote island destination.
You’ll necessarily want to save up your points specifically for this type of trip. The more rewards you can save up, the easier the trip will be on your finances.
Save cash rewards for a vacation or the holidays
Putting airline miles aside, you might want to save up cash rewards for a time of major expenses.
For example, if you accumulate cash rewards, you can use them toward purchases while you’re on vacation or during the holiday season.
It will enable you to use your credit card without running up the balance.
Hold rewards if airfares are on sale
Do you do a lot of traveling during the year? If so, you might want to allocate travel rewards.
For example, when airfares are on sale, you can hoard your rewards for when they’re not.
Instead, you can use your rewards to lower the cost of airfare during times when fares are higher. It will enable you to balance out your spending and the use of your rewards.
Hoard for the short-term for a major trip or expense
Some people simply generate rewards more quickly than others. If you’re one who does, you’d only be hoarding them for a very short time.
You can then redeem them whenever a major purchase or travel situation comes up.
Pros in Favor of Redeeming as Soon as Possible
Rewards could expire
Credit card rewards programs can be complicated.
There’s a lot of fine print, and you need to read it all. Some programs put a time limit on your rewards. If you don’t use them within a certain timeframe, they can expire.
You may not notice it either – expired rewards may be hidden by the accumulation of new rewards.
Devaluation of the rewards can occur
This is a common situation with airline miles and hotel points. It happens when the card issuer increases the number of miles or points needed for rewards.
When that happens, the rewards already earned redeem fewer miles or points than you were originally promised.
Opportunity cost: rewards could be better used elsewhere
There may be better uses for your rewards.
For example, true cash back rewards could be invested in a high yield savings account, or even moved into an actual investment account.
Rewards don't earn interest
Any rewards simply accumulating produces no additional value. They aren’t being spent or earning interest.
It’s the equivalent of having money in the bank at 0% interest.
Unexpected termination of the rewards program
Credit card agreements routinely preserve the right of the card issuer to change or terminate a particular program or even your credit card. One example is inactivity.
If you don’t use your card for a specified period of time, your rewards may expire. And while it may not be well remembered now, during the recession, credit card companies froze or canceled credit lines.
Should that happen, your rewards will be lost forever.
This is more of a problem for people who make only limited use of their credit cards.
Since the buildup of rewards is slow, it’s possible you’ll forget you have them. That’s the equivalent of not having them at all.
Strategies for Using Your Credit Card Rewards
1. Redeem cash back as early as possible and put it in savings or investments
Depending on how quickly you accumulate rewards, you can do this on a short-term or long-term basis.
For example, if you generate $100 in cash rewards monthly, you can move that amount into an investment account. If you only do $25 per month, you can transfer the money every few months.
This is even possible with statement credits.
You can apply the statement credit toward your monthly credit card payment. The money that would be used to make the payment can then be put into a savings account or investment account.
2. Redeem travel rewards as it makes sense for your travel plans
Plan to match your rewards accumulation with your actual travel plans.
It might make more sense avoid using rewards for short travel, say airfare from Chicago to Nashville, and instead to save up points for miles for major trip, like a vacation to the Caribbean.
3. Use them to pay down your card balance if you have no immediate spending needs
There’s no point in hoarding rewards for someday. If you have no immediate plans to redeem them, use them instead to pay down your credit card balance.
That will at least save interest on your account. It may not be as much fun as redeeming them for travel, but it will improve your financial situation.
You can do this with either cash back rewards or statement credits.
A secondary benefit may be to use your rewards to consistently lower your credit card balance.
That will increase your available credit during those times when you do have major travel plans or a large expense coming up.
Tips for Getting the Most Out of your Credit Card Rewards
Whether you choose to hoard credit card rewards or redeem them as soon as possible, you owe it to yourself to get as much out of them as you can.
Here are three strategies to help you do that:
Use an app to track credit card points and miles
There are apps available to help you keep track of your credit card rewards.
This can be especially important if you have multiple rewards generating cards.
We have a list of 6 tools to help you keep track of your points and miles.
That can include everything from creating an Excel spreadsheet to using specific apps designed for that purpose.
Transfer miles/points to other loyalty programs
For example, Delta Airlines allows you to transfer miles to and from their frequent flyer program, and they’re not alone among the airlines.
Also, several credit card companies allow you to transfer rewards to and from other members of your family participating in the same programs.
You may be able to combine enough rewards from different cards to pay for a major trip or expense.
Consider buying miles/points to take out a rewards flight or hotel stay
Let’s say you’ve accumulated a healthy number of miles or points toward an upcoming trip – but just not quite as many as you need.
Do you simply hold your points and miles for the next big trip, and take this one without rewards?
In some situations, it can make sense to buy additional miles or points. This is generally true if it’s an expensive flight that requires a large amount of miles to redeem.
If it cost fewer miles, it might not make sense. You may need to purchase more miles or points than you need for the trip.
This is another of those debates that has no easy answer.
Whether you will hoard your credit card rewards or redeem them as soon as possible really depends on a combination of your ability to accumulate rewards quickly (or not), or the particular situation at hand.
You can adopt a general strategy, to either hoard or redeem quickly.
But there may be circumstances where you’ll need to break from that strategy and go in the opposite direction.