Video SRQ: Is It Worth it to Pay a 7% Credit Card Fee to Earn Capital One Rewards Points?

by on June 9, 2013 · 19 comments

in British Airways, Capital One, Delta, Sunday Reader Questions, Video Blog Post

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TPG reader Katie is doing some home improvements and wants to use her Capital One Venture Rewards card to pay for them, but that might not be the best idea:

“We have to have $2,900 worth of work done on the house. Our handyman accepts credit cards, but he’ll have to charge a 7% sales tax. Would the points earned on a Capital One Venture Rewards card be worth the extra $200 it would cost us to put this purchase on the card? I’m not sure how to figure that out.”

Of course I try to put any and every expense possible on my credit cards in order to earn points, so I’m glad to hear you’re thinking that way as well. In this type of situation, however, it is absolutely not worth paying an extra 7% just to use your Capital One Venture Rewards card.

Capital One miles are valued at about 1 cent per point when you go to redeem them, so if you were to pay this charge, you’d basically be paying 7 cents to get one cent back. Personally, I wouldn’t pay 7 cents for any point – it’s sort of like spending 7 cents to buy a penny.

Putting extra spend on a Delta Reserve card is worth it because you'll earn elite miles.

Putting extra spend on a Delta Reserve card is worth it because you’ll earn elite miles.

Some vendors only charge 2 or 3% for using a credit card and when paying your taxes it will cost you 1.89-3% depending , which I have done before. I justified paying the extra fee because not only can the value of a point be more than 2 cents, but the benefits you get from the points can be worth much more than that. For example, with the Delta Reserve card you’ll earn 15,000 MQM’s for spending $30,000 in a calendar year, which will help you maintain your elite status. Also companion passes like the British Airways Travel Together ticket, which you earn after spending $30,000 in a calendar year on your British Airways Visa, can be worth thousands of dollars depending on how you use and value them.

Earn the British Airways Travel Together ticket by spending $30,000 per calendar year on your British Airways Visa.

Earn the British Airways Travel Together ticket by spending $30,000 per calendar year on your British Airways Visa.

In general, I try not to pay more than 2 cents per point, especially when I can get them through lucrative credit card sign up offers. I recently did an app-o-rama in March and signed up for 5 new credit cards that earned me 315,000 points once I hit the spend thresholds on each card. Being able to go about my spending as normal and earn hundreds of thousands of points is a much better option to me than paying extra for them in a situation like this.

As always, it really depends on your personal situation – do you pay full price for first class and will using miles actually save you that much money? There’s no one right way to value your miles, but you should always evaluate how much you’re going to pay to get those points or miles and what value you’ll get for them in the end. If you’re not going to redeem them for more than what you paid, it’s not worth it and you should pay with cash even though it pains me to tell you that.

Since I’m frequently asked how much certain points and miles are worth, here are my personal valuations of different currencies:

Aeroplan Miles: 1.7-2 cents each
American Airlines Miles: 1.8 cents each
Amex Membership Rewards Points: 2 cents per point
Barclaycard Arrival Miles: 2.2 cents each
British Airways Avios: 1.5 cents each
Capital One Miles: 1 cent each
Chase Ultimate Rewards: 2 cents per point
Citi ThankYou Points: 1.33 cents per point
Delta SkyMiles: 1.5 cents each
Marriott: 0.5-0.7 cents each
Hilton HHonors Points: 0.5 cents each
Hyatt Gold Passport Points: ~2 cents per point
Southwest Rapid Rewards: 1.8 cents per mile
Starwood Preferred Guest Points: 2 cents each
United Miles: 2 cents per mile
US Airways miles: 1.8 cents per mile
US Bank Flexperks Points: 1.33-2 cents each

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • lamonster

    Why would you value barclay card points at 2.2 cents each? I understand the per $ spend is worth 2.2 cents each, but the actual points are worth 1 to 1.1 cents each

  • Mike Arbucci

    Venture is 2 pointsper dollar, so it’s 2% back, not 1%. Still a crummy deal if you’re paying 7% premium, though!

  • TheInternationalLine

    If she wanted to go through the hassle, it seems like Vanilla Reloads and Bluebird (or another prepaid card combo) would allow her to earn miles and pay her contractor with a billpay check.

  • listen

    You should encourage your reader to pay all sales tax legally due, regardless of whether the vendor is willing to be complicit with you in being a criminal. Municipalities are closing libraries, defering essential maintenance, and furloughing employees. It is beyond obnoxious for you to relax poolside and encourage criminality

  • Graydon

    I think the issue here is why is her handyman charging sales tax only when a credit card is used? Does that mean the income is not reported if they write a check or pay in cash? Tisk tisk. What’s next – no insurance? Find a legit contractor who reports sales and carries insurance. Yes you will pay more but there will be no “hidden credit card tax fee” and you don’t have to worry about his injury on your property, potential lawsuits etc.

  • Jim

    I think their is another point that you are missing, the builder is obligated to charge you 7% sales tax regardless of you method of payment. And you are obligated to pay it. If you or him ever go though a sales tax audit, you will wish you paid the 7%. Even when I buy things on the internet (for my business) and not charged sales tax I still calculate the sales tax and pay it. State laws will vary, however a contractor should be collecting sales tax and turning it over to the State to pay for schools,and other services that are provided. Maybe you think you won’t get caught, and you probably won’t. But you do owe the 7%.

  • Steve

    You’ve completely ignored the ethics of tax evasion?!

  • Grant

    Agreed, very fishy.

  • Michael T

    I’m fully with some of the other commenters here. The real question is “should I pay cash to evade the tax laws in my state or should I pay with my miles earning credit card”? I love, Love, LOVE this blog, but this post/question turned my stomach. I thought the whole purpose of this game was the best way to earn/spend/maximize miles both legally and ethically.

  • jmw2323

    because it’s worth that much more than a card that only gives 1% cash back

  • thepointsguy

    Totally agree, but this post wasn’t about digging into tax issues, but more about when it makes sense to “pay” for points.

  • thepointsguy

    You earn 2x points on every dollar spent so at 1 cent each you’re getting 2% back.. plus you get a 10% rebate when redeeming for travel so that points are worth 10+% more, so 2.222% (because you keep getting the 10% rebate every time you redeem)

  • thepointsguy

    I’m not a tax/law expert, so I stick to what I know and that is points and whether it would make sense to pay for them. Agree no one should break the law, but the reader isn’t- it is their contractor and we don’t have the full details. So I focused on the math and whether it would make sense..and it doesn’t in this case.

  • Andrew

    WHAT’S OBNOXIOUS IS READING YOUR REPLY. You really took the time to write this???? WOW… He in no way shape or form “encouraged criminality”

    TPG is not a babysitter, he doesn’t need to remind us to pay our taxes. He indicated the laborer not charging her tax is illegal – that’s more then enough that needs to be said. His role is not one of a tax accountant, tax professional or tax attorney. She was asking a question as far as points are concerned. THAT’S IT.NOTHING MORE. The decision to not charge Katie the sales tax is strictly between Katie and the laborer. TPG doesn’t need and shouldn’t need to encourage anyone to pay his or her fair share. Would you prefer it if each day at the top of the website he reminded us not to drink and drive, not steal, not shoot people, etc. You really think we need a blogger to tell us that. Is that why you come to this site, for advice and guidance like that?

    If she had asked this question instead (with no mention of taxes)”I want to pay an outstanding $3,000 bill using a credit card but the merchant is charging me a 7% surcharge to put it on a credit card, should I pay the fee in order to get the points?” Would you of had issue with her question? Of course not… . She essentially asked is 7% a good price for points. Instead, you start jabbering on about furloughs and libraries being closed and how TPG encourages criminality poolside… haha laughable, your a joke… What is wrong with you… How in the world do you get your response from his answer??????? Her question had nothing to do with the legality of taxes being paid. JUST ABOUT POINTS.
    Do you still live at home? Does your mom dress you? Do you think it’s the newscasters role to tell you not to shoot people after they report a story about a shooting?
    What a stupid response… If he’s so obnoxious QUIT COMING TO THE SITE…
    Her question was completely ridiculous, your post was way worse.

  • Andrew

    NO NO NO NO NO. THAT’S NOT THE ISSUE. Why is everyone deviating from a simple question…. The question is about simple math – should I pay a 7% fee to get the points. That was her question in the simplest form… You people, all lawyers obviously, are asking question about his insurance, why’s he not charging that, charging that, TPG encourages criminality. “Under the table deals” happen all the time… Is that what we are going to talk about now.?

  • Andrew

    Also… If you have a visa black card by barclays… 1000 points equals $20 in airfare. 1000 points is a $10 statement credit

  • Andrew

    He’s answering a question about points – not tax law… if you want to talk tax law I’m sure there are plenty of blogs out there about the fascinating world of tax law.

  • Graydon

    Sure, it’s more important that points.

  • Andrew

    At least you make sense…. Good reply.

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