Is it smart to use points to pay off credit card debt?

Is It Wise to Use Points to Pay Off Credit Card Debt?

When faced with credit card debt, many individuals consider using their accumulated rewards points to settle the balance. However, financial experts generally advise against this strategy for several reasons.

Accruing Points vs. Direct Repayment

Prioritizing direct repayment of high-interest debt is a more effective financial move than accumulating points. The interest charges on credit card debt can accumulate rapidly, especially on balances with high annual percentage rates (APRs). By directly applying payments towards the debt, you reduce the amount of interest you owe and save money in the long run.

Hidden Fees and Diminishing Returns

Many credit card rewards programs come with hidden fees and diminishing returns. Earning points often requires spending a significant amount of money, which can increase your debt. Additionally, the value of points can fluctuate, and redemption rates may change over time. As a result, you may not receive the full value for the points you have accrued.

Opportunity Cost

Using points to pay off debt can result in a missed opportunity to use them for other valuable purposes. For example, you could redeem points towards travel, gift cards, or even cash back. These rewards can provide greater value than applying them towards credit card debt.

Other Repayment Strategies

Instead of using points to pay off credit card debt, consider the following strategies:

• Balance Transfer: Transfer the balance to a card with a lower APR or a 0% introductory APR.
• Debt Consolidation Loan: Obtain a personal loan with a lower interest rate than your credit card debt.
• Debt Management Plan: Work with a credit counseling agency to develop a payment plan that consolidates and reduces your interest rates.

Conclusion

While it may be tempting to use credit card rewards points to pay off debt, it is rarely the most financially sound decision. Prioritizing direct repayment of high-interest debt, avoiding hidden fees, and considering other repayment options will ultimately save you more money and help you escape debt faster.