In this post, you’ll learn what credit card points are, and I’ll show you exactly what advantages they can give you and why you should care.

You’ll also learn whether or not you should just redeem your points for a conventional cash back, or if you should redeem those points for something else.

What are credit card points?

Credit card points are rewards that credit card companies give you whenever you use their credit cards for a purchase.

But why would your credit card reward you for spending money?

A credit card company makes points in 2 ways:

1. They charge outrageous interest rates when people don’t pay off their monthly bill in full. The more you spend, the higher the interest rate they can charge you if you should slip up. No worries though, if you follow this post to boost your credit score, you’ll never run into this issue.
2. Every time you make a purchase with their credit cards, they charge a processing fee to the business you’ve purchased from.

Thus, the more people using their cards, the more these credit card companies will make.

As a result, credit card companies make deals with a bunch of different merchants so they can:

• Incentivize you to spend more money with specific merchants by giving you a good deal. This helps you win since you’re getting a great deal, and helps the merchants win since they get more business.
• Incentivize you to use their credit cards with their specific benefits, as opposed to a competitor’s card that don’t have such benefits. This helps the credit card companies win since they’ll get more profits.

In other words, you should care about credit card points because as a consumer, you’ll reap the benefits from exclusive deals that credit card companies provide.

Examples Of How Credit Card Points Are Used

Most cards by default give a 1% cash back for your purchases. For example, if you buy $1000 of goods with a card, you’ll get 1000 points. As such, you’ll get 10 dollars back (1 point = $0.01 for the most general case).

Another example: Chase Freedom Flex/Chase Sapphire Reserve gives you 3X points when you spend money at restaurants. So if you spend $1000 at restaurants, you get 3000 points. In this case, 1 point is still worth $0.01 and you can redeem it for $30 back if you’d like.

Last example: if you use the Chase Ink Business Cash card, you get 5X points back when you use that card at office supply companies, like Staples. So if you spent $1000 at staples, you’d get 5000 points back, and you could redeem it for $50 back if you’d like.

So at the end of the day, by exploiting these specific credit card categories, you’ll get 3-5% cash back instead of 1% cash back…who cares?

The trick here is you don’t redeem your points for cash back, because that’s the worst way to utilize the points.

The Awesome Part About Points

Instead of redeeming your credit card points for cash back (1 point = $0.01), you can transfer the points for specific things so you can maximize the value of those points (i.e. get more than $0.01 of value per point).

Things are about to get real crazy here so bare with me.

As an example, suppose you have a Chase Freedom Flex card, and a Chase Sapphire Reserve.

• The Chase Freedom Flex gives 5X points back on rotating categories. So let’s say this quarter they’re giving 5X points back on groceries, and you spend $1K on groceries this month (though if that’s the case you’re spending too much and you can learn how to save on groceries here). This means you get 5000 points.
• Let’s also say from previous vacations, you spent $3K on your hotels and flights with your Sapphire Reserve. This card gives you 3X points back for those purchases, so you’d get 9K points.
• Let’s also say you got a 50K signup bonus with Freedom Flex, and another 100K signup bonus with your Reserve card.
• In total, you’d have 5K + 50K + 100K + 9K = 164K points.
• Now, Chase Sapphire Reserve’s special power is 2 things: 1) You can transfer any and all other Chase credit cards’ points into this card, and 2) You can transfer the Reserve’s cards points onto travel partners.

This means even though the 164K points is split between 2 credit cards, you can transfer every last one of those points to a travel partner.

Why is this awesome? Here’s an example:

If you redeemed the 164K points for cash, you’ll get back $1,640. But keep in mind that without your signon bonus, getting 164K points means roughly $32K to $164K spending (depending on how you use your cards). Getting $1640 back for $32K – $164K spend isn’t that great.

But we can do better by redeeming credit card points in a different way.

Travel Partners

Now, let’s say you transfer all 164K points to Singapore Airlines.

Pre-COVID, you used to be able to fly first class for 120K points, long-haul from SFO to HKG.

That’s a 14 hour flight of a dedicated servant giving you Dom Perignon or Krug, nonstop. And you can order as much caviar and ramen as you’d like (don’t ask me how I know or why I like that combo). The your dedicated flight attendant will notice you’ve drank too much and when you wake up from your nap, there’s 4 water bottles on your first class dashboard so you can rehydrate yourself during the flight.

Unsurprisingly, this costs a lot. Like $12K USD, a lot.

Being able to redeem your 120K points for a $12,000 flight means your points are no longer worth only $0.01, but $0.10.

This is why credit card points are so insanely awesome! Instead of taking the low-hanging fruit and redeeming it for cash back, you can capture 10 times more value if you redeemed it for a first class flight where you’d get treated like a king.

Let’s go even more crazy with the math.

Right now, Chase Sapphire Reserve offers 10X points for all Lyft rides. This means that per dollar you spend with Lyft, you get 10 points. If each of these Lyft-generated points were used on Singapore Airlines first class, every dollar spent on Lyft is a dollar you don’t have to pay for a first class ticket.

Example: $100 on Lyft = 1000 points = $100 towards Singapore First Class (since 120K points = $12K USD ticket, or $0.10 of value per point).

Other words: for every dollar you spend, you get a dollar back and your “cash back” when used this case is 100%.

And that’s only one example. Across flights, hotels, and various exclusive experiences you can only book with your credit card points, there’s hundreds of different combinations you can do to maximize the value of your points.

As such, if you’re going to spend money and try and live a good life anyway (this blog is about making good money, and living a good life – not either/or), you should “splurge” on expensive things with credit card points that you’ve already accumulated.

For me, it isn’t worth getting $1640 back in cash (which won’t even afford a business class ticket), when I can use the equivalent points and redeem it for a first class hotel or a 4-night stay at a 5-star hotel.

But maybe you hate yourself and only want to ride economy where the person next to you with hair legs rub up against your legs. Hey, whatever floats your boat. In this masochistic case, you still want to be using credit card points since 164K points can get you multiple round-trips of economy long-haul flights.

And since you’re going to be eventually flying somewhere anyway, there’s no real rush to redeem 164K points for $1640 when you can be more practical and redeem that for multiple economy flights (which will be worth much more than $1640 / $0.01 per point when you do cashback redemption).

So again: my recommendation is don’t be crazy and redeem your credit card points every month. It’s really bad value.

Currently, I only redeem my points for flights / hotels (but I double check each time to make sure that I’ll get a lot more than $0.01 value per point before I pull the trigger).

How To Get Started

With tons of credit cards, it’s really hard to know which ones you should get.

Some credit cards have sign up bonuses, and some cards are free, while some come with annual fees.

I go into the exact credit cards I use, how I use them, and how I exploit each credit card’s points in depth here.

In any case, some basic research and education can help you maximize your savings instead of only getting back $0.01/point.

Think about it: one of our biggest expenses is travel. Flights and hotels cost a ton. What if you never had to pay for travel again because every dollar you spend just living your everyday life can generate enough points to cover your vacation expenses?

For me, I ultimately care about this stuff because my regular expenses can help create enough points so that I can go on a luxurious vacation that I’ll remember for the rest of my life. That’s the power of credit card points.

Compare these everlasting memories you can make from awesome trips vs. if you were to just redeem your points for an extra $1000 each year.

I’ll take the awesome memories that I’ll remember on my deathbed any day.