With money still tight in many families this year, you may be considering using credit card reward points to save money while purchasing gifts for loved ones on your holiday list. But is this really a smart financial move? The answer, of course, is "It depends."
When should you use rewards points to buy holiday gifts?
If you have the money to pay for a gift, then you should probably save your points for airline rewards or other high-value exchanges. By using a high rewards credit card to buy the gift and then paying off the balance, you will earn more points instead of draining your account. "If you have a choice, then you can more effectively use the points in another way instead of buying merchandise, which typically has a low exchange rate," says Liz Weston, personal finance columnist and author of " The 10 Commandments of Money: Survive and Thrive in the New Economy." But if your alternative is not buying the gift or carrying a balance on your credit card, then using rewards points to purchase gifts can be a solution to your gift giving dilemma. "Paying off your credit card each month is the key to making the math work with rewards points. If money is tight and this is the only way you can buy a gift without carrying a balance, then using points to buy gifts can be a great option," says Weston. Other situations where it can make sense are when you have points that are going to otherwise expire or if you aren't planning on using the points for airline travel.
Will the manners police give you a ticket?
Another common concern about using rewards points for presents is the etiquette aspect. Jodi R. R. Smith, president of etiquette consulting firm Mannersmith and author of "The Etiquette Book: Complete Guide to Modern Manners", says to keep the focus on the thought behind the gift instead how you bought the gift. "When you give them the gift, don't tell them that you used your credit card points. That doesn't make anyone feel good who receives the present," says Smith. "The source of the funding for a gift should never be the focus whether you paid by cash, credit or rewards points." Since you don't want your loved one to try to return the present because it is the wrong size or style, it is especially important to purchase gifts that you know that they will like. "When using points for a present, you really want to consider their likes, dislikes and interests. Because the more on target the gift is, the less issues you there will be," Smith says.
How can you get the most from your rewards points?
Before redeeming any points, do the math to make sure you are getting the most out of your rewards points. "You want your rewards to earn at least a penny a point. If the exchange rate is less then it's not a good deal," says Weston. "One of the best solutions is to use your points to buy gift cards and then use the gift cards to buy a gift since the exchange rate is typically much better for gift cards than merchandise." Another option is to use the points to buy one of the lifetime experiences through auctions offered by some credit card companies, such as Chase Ultimate Rewards and American Express. Experiences can include premier seats at a sporting event, tickets to a movie premier or even backstage passes to a concert. Since these are gifts you would most likely not be able to give otherwise, they may be worth the tradeoff of not getting the highest return rate. Smith suggests that before purchasing experiences that you ask the person in advance if it is a gift that they are interested in and also make sure that the time is mutually convenient. "You can also personalize the gift by creating a homemade certificate telling them about the event," Smith says. "The most important part of giving any gift, no matter how you pay, is that you take the time to think about the person whom you are giving the gift to."