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

Mar 20, 2021

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These days, you can pretty much pay for any purchase on a credit card. But, you might find that some merchants will charge an extra fee for that privilege. The extra fee might be charged by your wedding venue, your landlord, the local corner market or even your utility company.

And while the federal government allows merchants to charge a fee (with certain limitations in place), in some states, it is illegal.

So let’s say you have the opportunity to use your rewards credit card for a payment, 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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Before you hand over your credit card, make sure the fees you are charged (if any) are worth it. (Photo by Justin Paget/Getty Images)

Value is worth more than the fee

All points are not created equally, so before you swipe your card, you’ll want to find out the average value that you’ll receive with each point earned.

This valuation will 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 when booking a seat in the back of the plane.

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 (depending on the state, this may or may not be allowed). 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.

(Photo by Alexander Spatari/Getty Images)

The Citi Prestige® Card offers 5x ThankYou points on dining purchases. TPG values Citi ThankYou points at 1.7 cents per point, thus every dollar charged is worth an 8.5% 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 you $3 more but will earn you $8.50 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 for all of your purchases, due to the simple 2% cash back rates (1% when you buy, plus 1% as you pay). Paying a 3% premium for dinner, but yet only earning 2% total in return will never be worth it.

That’s similar to giving someone $3 for only $2 in return — a trade you’d never make.

Related: Simple and rewarding: Citi Double Cash Card review

Paying more to earn points could come in quite handy if you are looking for your own cabin in the front of the plane. (Photo by Emily McNutt/The Points Guy)

Earning a welcome bonus

Some welcome bonuses are easier to obtain than others, due to lower minimum spend requirements.

But then there are some highly desirable credit cards where earning the welcome bonus might be out of reach without really trying hard. The only way to be even remotely close to meeting the minimum spend requirement in some cases is to put every dollar spent on your credit card.

Related: Limited time credit card offers

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 — and 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 spend is by paying for your $5,000 rent (over the course of three months) on your credit card — but, your landlord doesn’t take credit cards as a direct payment.

There are many third-party apps that allow you to pay your rent online, but they all come with a fee. The app Cozy charges a 2.75% fee, which means that the $5,000 paid will cost you $137.50 in fees. While it’s never fun to pay more for your living costs than you already have to, you could still come out ahead on the welcome offer by incurring a few fees along the way.

TPG values Chase Ultimate Reward points at 2 cents apiece, which means the 100,000 points earned is worth $2,000 when transferring your points to partner airline and hotel programs. Although, 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.

Related: How to maximize your Chase Ultimate Rewards points

Earning extra benefits

Many credit cards offer increased benefits with a certain threshold of credit card spending, 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.

For example, one of the best perks of the World of Hyatt Credit Card is that for every $5,000 you spend on the card, you’ll earn two nights towards Hyatt Globalist status. Right now, World of Hyatt has slashed its program requirements in half, which means you’ll need 30 nights within the 2021 calendar year to earn Globalist status.

Just being a card member already gives you five nights towards status, which means you only need 25 more nights to unlock free breakfasts, potential suite upgrades, some waived fees and more. With personal and business travel still slower than normal this year, there’s a good chance that earning those nights might be hard to do — but, fortunately, the credit card can help.

Let’s assume you stay ten nights during the year with Hyatt, leaving you with only another 15 nights required if you hold the card.

Park Hyatt Beaver Creek (Photo by Summer Hull/The Points Guy)

With an admittedly large $40,000 in spending on your Hyatt credit card, that would earn you the additional nights needed. Depending on your personal situation, you might be able to do this by using bill-pay service Plastiq to pay anything from college tuition, summer camp, preschool and more. Plastiq charges a 2.85% fee, which means your $40,000 in charges over the course of the year will result in a pretty penny in fees — $1,140.

Related: How to Reach Airline or Hotel Elite Status More Quickly With Plastiq

However, in addition to earning 40,000 bonus points from your credit card spend (valued at $680 due to Hyatt points being worth 1.7 cents per point) and Globalist status (perks includes breakfast for four, complimentary upgrades and waived resort fees), you’ll also earn two extra category 1-4 award night certificates.

This is because Hyatt offers milestone benefits and once you hit 30 nights, you’ll receive an award night certificate.

Additionally, the World of Hyatt Credit Card awards a Category 1 – 4 night certificate after $15,000 in annual spending on the card. These certificates are valued at about $250 each if used at a Category 4 property, which is another $500 in value you’ll have from your card spending.

The math on this only works out if you place a real value on having Hyatt Globalist status, but many do, so you can come out ahead with close to two years of elite perks and more if you time it correctly.

Hyatt Globalist status can score you full complimentary breakfast (Photo by Katie Genter/The Points Guy)

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 earning a higher value than you’re paying, or making tangible progress towards unlocking a higher-value goal on your cards.

Featured photo by Maskot/Getty Images

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*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.

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