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Should I pay with a rewards credit card even if it incurs fees?

Aug. 05, 2022
10 min read
High angle view of customer paying through card reader while owner using digital tablet at food truck
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You can pay for nearly anything with a credit card these days. In fact, you may be surprised at what you can pay for with your credit card. However, some merchants will charge an extra fee for that privilege, which is perfectly legal in most areas. That surcharge might be charged by your wedding venue, your landlord, the local corner market or even your utility company.

So let’s say you have the opportunity to use your rewards credit card for a purchase; is it still worth it if you are charged a transaction fee?

Typically, these fees are anywhere between 1-4%, but more commonly you’ll see a 3% fee. That means, for every dollar you spend, you could be paying an extra 3 cents to swipe the charge. If the rewards you earn per dollar charged are only worth 2 cents each, then, no, you should not generally pay with your credit card.

It’s typically only worth paying a fee if the value you’re earning on rewards credit card is more than the fee paid. But that math can get a little more involved on some cards.

Let’s break it down to see when it is — and is not — worth it to pay a fee to use your credit card.

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Earning rewards that are worth more than the surcharge

All points are not created equal. Before you swipe your card, you’ll want to find out the average value of rewards you'll earn. TPG updates our points and miles valuations each month.

This valuation can vary depending on how you redeem your points or miles. For example, using your miles for a first-class ticket typically receives a higher valuation than booking a seat in the back of the plane.

Before you use your credit card, make sure the fees you are charged (if any) are worth it. (Photo by Justin Paget/Getty Images)

Next, let’s say you are dining out and your local restaurant gives you a 3% discount for paying your bill in cash versus paying with a credit card. The only way it’ll make sense to use your credit card is if you are receiving more than 3% in value from the points earned.

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The Citi Prestige® Card (no longer open to new applicants) offers 5 ThankYou points per dollar on dining purchases. TPG values Citi ThankYou points at 1.8 cents per point; thus, every dollar charged is worth a 9% return at those rates. In this example, it makes sense to use your credit card to pay, even though you’ll be paying a little more for your meal. A $100 restaurant bill, for example, will cost $3 more when paid with a credit card but will provide you with $9 in reward points.

The information for the Citi Prestige has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

But, let’s say you typically use your Citi® Double Cash Card (see rates and fees) for all of your purchases, with a simple earn rate of 1 ThankYou Point when you buy, plus 1 point when you pay your bill. Paying a 3% premium for dinner is tricky here. If you use the points for at least 1.8 cents in value each, you've received a 3.6% return. If you cash out the points for statement credit (1 cent apiece in value), you'd get a 2% return — losing money by paying the extra fee to use your card.

Related: Even more rewarding: Citi Double Cash Card review

Another common expense is groceries. Most supermarkets accept credit cards without adding surcharges, but what about buying fruits and vegetables at a farmers' market? These vendors may add an extra fee for paying by credit card.

A 3% fee to pay by credit card means you need to earn at least that much in rewards. How these merchants will be classified on your credit card bill is not certain.

If you know for sure it will code as "groceries," you could use a card with bonus earning on groceries. The American Express® Gold Card provides an 8% return on the first $25,000 of purchases at U.S. supermarkets each year (according to our points valuations). If the purchase does not code as groceries, you would earn just 2 cents worth of points per dollar spent — less than the fee you're paying.

On the flip side, numerous credit cards provide bonus earnings at gas stations. Paying an extra 3% in surcharges can be worth it since there are several cards where you could earn more than 3% back in rewards. The Citi Premier® Card (see rates and fees), for example, provides a 5.4% return on spending here, so it's probably worth paying the additional fees.

Related: The best rewards credit cards for each bonus category

Earning a welcome bonus

Some welcome bonuses are easier to obtain than others, due to lower minimum spending requirements. But then there are some highly-desirable credit cards where earning the welcome bonus might be out of reach without really trying hard.

Think about credit cards with welcome bonuses of 100,000 points or more, for example. The only way to be even remotely close to meeting the minimum spending requirement in some cases is to put every dollar spent on your credit card.

Related: 13 credit cards that can get you $1,000 or more in first-year value

Emirates first class. (Photo by Victoria Walker/The Points Guy)

For example, right now the Ink Business Preferred Credit Card is offering a sign-up offer of 100,000 bonus points after you spend $15,000 in the first three months from account opening. And while this is a phenomenal offer — valued at $2,000 by TPG — spending $15,000 within a short time period can be quite challenging for many.

Let’s say the only way you’re able to meet the minimum spending amount is by using your card to pay your rent of $2,000 each month. That's $6,000 total over the course of the three months in which you're working on this sign-up bonus.

If your landlord doesn't accept credit cards directly, there are many third-party apps that allow you to pay your rent online, but they all come with a fee. Plastiq charges a 2.85% fee, meaning you would pay $171 in surcharges over the three months.

Given that TPG values Chase Ultimate Reward points at 2 cents apiece, the 100,000 points earned from this bonus would be worth $2,000 when transferring your points to partner airline and hotel programs. Moreover, you can always offset the amount paid in fees by redeeming a small portion of points as a statement credit (in this case, 13,750 points), so you truly are made whole. Then, everything else earned is pure profit. In this situation, paying $165 in fees to earn a bonus worth $2,000 is clearly worth it.

Related: Should you use the Bilt Mastercard? Why it could be a game changer for renters

Earning extra benefits

Many credit cards offer increased benefits after spending a certain amount of money on the card each year, such as bonus points, award night certificates and/or opportunities to unlock elite status. Depending on the benefit you’ll receive — and how you actually value that particular benefit — you might find value in paying transaction fees, when necessary. The World of Hyatt Credit Card provides some perfect examples. For every $5,000 spent on the card, you'll earn two nights toward World of Hyatt status.

This can help you achieve elite status more quickly, reducing the number of nights you need to spend in hotels to qualify for the status level. On top of this, just being a cardholder already gives you five nights toward status.

World of Hyatt's top-tier Globalist status can score you a full complimentary breakfast each day. like this one at the Park Hyatt Majorca. (Photo by The Points Guy)

The other spending-based perk on the World of Hyatt card is the ability to earn a free night award (valid at Category 1-4 hotels) after spending $15,000 on your card in a calendar year. You'd have a free night award, six nights of credits toward status from the spending and the five elite nights you get automatically. That's 11 nights of credit in your Hyatt account without counting your nights spent in the hotels.

Related: Sweet Spot Sunday: Spend $15K on the World of Hyatt Card, get a heap of perks

What if you spent that entire $15,000 on purchases with merchants who don't accept credit cards? Assuming you used Plastiq to pay (with a 2.85% fee), you'd pay an extra $427.50 in fees.

What would you get for this $427.50 in surcharges? You'd earn a free night award, which you should be able to redeem for at least $200 in value. You'd also earn at least 15,000 Hyatt points, which TPG values at $255. The six additional elite night credits you'll earn are harder to quantify. This will be based on the value you assign to having status with World of Hyatt and how often you're enjoying the perks your status confers.

This can be a gray area for many people. Are the fees worth it? It depends on your situation and how much value you'll receive in return since you're effectively buying your elite status by paying these extra credit card fees.

Related: What is World of Hyatt elite status worth?

Bottom line

Paying an extra fee to simply earn additional points or miles may or may not be worth it. It all comes down to the number of points or miles earned, as well as the value you are receiving from those perks. You’ll also want to factor in any welcome bonus offers and extra benefits that you might receive with heightened credit card spending.

But before you go ahead and pay for transaction fees on every credit card swipe you make, do the math on a course of action. Make sure that you’re getting more value than the surcharges you’re paying or ensure you're making tangible progress toward unlocking a higher-value goal on your cards.

Featured image by Getty Images/Maskot
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.