Made a new year’s resolution to get rid of credit card debt? Here’s how reward points could help.
With increased spending throughout the Christmas season and huge bonus point offers on the table, this time of year can be ideal for earning credit card rewards. But if you have used plastic to pay for your spending over the summer holiday period, chances are that you’ll have both a bigger point balance and more debt in the new year.
Usually, the interest applied to your balance will outweigh the value of the rewards you earn. So if you’ve made a new year’s resolution to pay down your card debt, you may want to consider turning your reward points into credit for your account. Here, we look at how this option works and the value of using points for a cashback to help you decide whether or not it will be worth it for you.
How can I use reward points to pay off credit card debt?
Most reward credit cards allow you to redeem points for cash back on your account. Some programs, such as Amex Membership Rewards and Citi Rewards, even have different options for account credit and annual fee credit.
The process for using points for a cashback reward varies between programs, but generally involves the following steps:
1. Log on to your credit card account or reward account (if they’re separate).
2. Search for “cash back” or browse the rewards categories. Note that the account credit option is usually included in categories for “financial options”, “gift cards and cash” or “other rewards”.
3. Select the amount of cash back you’d like to redeem with your rewards.
4. Follow the prompts to complete your redemption.
Once your redemption is processed, allow several days for the cashback reward to be credited to your account.
How much cash back will I get for my reward points?
The amount of points required for a cashback reward varies between reward programs. Below, we’ve outlined the amount of points required to redeem a $100 cashback through all the major credit card reward programs.
Note that for programs that do not offer cash back as account credit, we have listed alternative options and the points needed in the “redemption requirements” category. This should help give you an idea of the possible costs and savings with your rewards program.
|Rewards program||Points for $100 cash back)||Redemption requirements|
|American Express Membership Rewards||14,500|
|ANZ Rewards Program||25,000|
|Bankwest More Rewards Program||38,000|
|Bendigo Bank Rewards||38,464|
|Citi Rewards Program||From 40,000|
|Commonwealth Bank Awards Program||Not currently listed. Please refer to the CommBank Awards website when you log in for current cashback offers|
|Heritage Bank Heritage Credits||Not listed|
|HSBC Rewards Plus||30,000|
|Jetstar credit card rewards program||N/A|
|KrisFlyer Rewards Program||N/A|
|Macquarie Bank credit card rewards program||27,500|
|BOQ Q Rewards®||40,000|
|Qantas Frequent Flyer||N/A|
|Emirates Skywards Rewards||N/A|
|Suncorp Bank Rewards||40,000|
|Westpac Altitude Rewards||25,000|
If we look at credit card reward programs specifically, the median cost for a $100 redemption is 34,000 points. The specific point amounts range from 14,500 (AMEX Membership Rewards) to 40,000 (Citi Rewards, BOQ Q Rewards®, Suncorp Rewards) for these programs.
For programs that don’t offer cash back on your account but do offer an equivalent, such as gift cards, many options require 20,000 points or less, with the Myer One program offering the most competitive transfer of 10,000 points for a $100 Myer One gift card. So, in some cases, it may be better value to redeem points for gift cards and then use your own cash to pay off your credit card, rather than using points directly.Back to top
What are the other factors to consider?
Before using reward points to pay off your credit card balance, make sure you consider the following details:
- Point value. Depending on your reward program, a cashback may not be the most cost-effective way to use your points. Make sure you consider the amount of points you’d need to use for a cashback redemption, and compare it to other reward options to decide if this will give you the most value and convenience based on your circumstances.
- Shopping and frequent flyer programs. If you have a credit card that earns points for a supermarket or frequent flyer program, you may not be able to redeem them directly for cash back on your credit card account. But programs such as flybuys, Woolworths Rewards, Qantas Frequent Flyer and Velocity all offer alternative cashback options you could consider instead.
- Minimum payments. While getting cash back credited to your account can reduce your balance, it usually doesn’t count towards your minimum monthly payment. This means you will still need to pay at least the minimum amount listed on your statement to keep your account in good standing.
- Reward processing. Remember to allow time for your cashback reward to be processed. As a guide, it could take anywhere from 2–30 days for your reward to show in your account, so remember to continue making repayments in that time to reduce the overall interest you pay on your debt.
- Other redemption options. It’s worth comparing the value of a cashback redemption with other options that also give you a way to save money, such as gift cards. As our analysis in the table above shows, in some cases you could get a $100 gift card for fewer points than a $100 account credit would cost you.
Should Milla redeem her reward points for cash back or gift cards?
At the start of December, Milla was approved for a new American Express credit card that offered 1 Membership Rewards point per $1 spent and 30,000 bonus points if she spent $3,000 in the first 3 months she had the card. Milla ended up spending $4,000 in December and started the new year with 34,000 points and $4,000 debt.
While Milla wants to pay off her credit card, she also wants to get good value out of her rewards. So she considers the following options:
- Redeeming Membership Rewards for cash back on her account: If Milla used these points for cash back on her account, she could get $200 (29,000 points). This would leave her with 5,000 points in her account.
- Redeeming Membership Rewards for gift cards: Alternatively, Milla could use her points to get a $250 Woolworths WISH gift card (33,750 points), leaving her with 250 points in her account. In comparison, an account credit redemption for $250 would cost 36,000 points, which means the gift card offers greater value.
Based on this comparison, Milla decides to redeem her points for a $250 gift card. She uses this to pay for her groceries, and puts the money she’d normally spend on shopping towards paying off her credit card balance.
As you can see, redeeming your reward points for cash back to repay your credit card balance isn't always the most valuable way to use your points. It could help you make a dent in repaying smaller debts but make sure to compare your options before redeeming your points. If you do need to clear your debt and want to save your points for a different reward, a 0% balance transfer credit card could always come in handy.Back to top