Should I pay with a rewards credit card even if it incurs fees?
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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.
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.
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 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.
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, for example, provides a 5.4% return on spending here, so it’s probably worth paying the additional fees.
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.
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.
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.
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Receive 1 Free Night Award every year after your Card account anniversary. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy points) at hotels participating in the Marriott Bonvoy program.
- Limited Time Offer: Earn 125,000 Marriott Bonvoy Bonus Points after spending $5,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 8/31/22.
- 6x points at hotels participating in the Marriott Bonvoy™ program.
- 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
- 2x points on all other eligible purchases.
- Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
- Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy points) at a participating hotel. Certain hotels have resort fees.
- Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
- Terms apply.
- See Rates & Fees