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

07.10.2024 - 15:32 / thepointsguy.com

These days, you can pay for almost anything with a 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 likely shouldn't pay with your credit card.

It's typically only worth paying a fee if the value you're earning on a 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.

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 since these currencies vary and can have different values depending on how you redeem your points or miles.

Let's say you're 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.

As an example, the Citi Strata Premier℠ Card (see rates and fees) earns 3 ThankYou points per dollar at restaurants. As of October 2024, TPG values Citi points at 1.8 cents per point. That equals a 5.4% return on restaurant spend, which means this card offers better value in this scenario.

But, let's say you typically use your Citi Double Cash® Card (see rates and fees) for all of your purchases, with a simple earn rate of 2% back on every purchase (1% when you buy, 1% when you pay). Paying a 3% premium for dinner is tricky here.

If you hold a premium Citi card like the Strata Premier, you can transfer your Double Cash rewards to Citi's transfer partners to get TPG's target value of 1.8 cents per ThankYou point. Otherwise, you'll only get one cent per point for your rewards, making a cash payment a better value in this scenario.

This is just one example of many scenarios where you'll need to do some quick math to determine whether using your credit card will give you a return on spending that surpasses the surcharge. Other examples may include purchasing produce at a farmer's market, paying for rent or making a purchase at a small