Credit card points can save you money on holiday shopping, but you could be better off saving your rewards instead

By Holly Johnson

This page includes information about the Discover it® Cash Back, Discover it® Student Cash Back product, which is currently not available on Business Insider and may be out of date.

retail cyber online shopping gift card holiday black friday sale credit card
Crystal Cox/Business Insider

This article is brought to you by the Personal Finance Insider team. It has not been reviewed, approved, or otherwise endorsed by any of the issuers listed. Some of the offers you see on the page are from our partners like Citi and American Express, but our coverage is always independent. Terms apply to the offers listed on this page.

The holidays might look different this year due to the pandemic, but the shopping season and its many sales will likely continue as usual — albeit online rather than in person, in many cases.

More than ever, many of us will be looking for ways to save on gifts and other purchases during this notoriously expensive season. If you have a stash of credit card rewards, you could redeem some of them to offset purchases, from gift cards to getting cash back as a statement credit. But is it better to use your credit card rewards now, or save them for travel down the line?

We're focused here on the rewards and perks that come with each card. These cards won't be worth it if you're paying interest or late fees. When using a credit card, it's important to pay your balance in full each month, make payments on time, and only spend what you can afford to pay.

Should you use points for holiday shopping?

Should you really be using your rewards to cover your holiday shopping bill? That's really up to you, but there's certainly nothing wrong with this strategy.

A lot of people save up their cash back or travel points for a splurge they really want — or for a luxurious trip when they're ready to travel — but if you'd like help covering holiday bills, it could absolutely make sense to redeem them to lower your out-of-pocket costs.

On the other hand, if you aren't worried about cash flow, now could be the perfect time to open a new card to earn rewards you can use later on — especially now that so many cards are offering elevated welcome offers

If you have some points racked up on a rewards credit card and you haven't used them yet, here are some of the smartest ways to use points for holiday gifts and other spending this year.

The best ways to use points to save on holiday expenses

Use statement credits and cash back to cover purchases

First off, keep in mind that most rewards and cash-back cards let you redeem your points for statement credits or a check in the mail. You can use either option to pay for holiday gifts, or to cover the cost of holiday parties and other end-of year expenses.

Using rewards for statement credits or cash back may or may not be a good value depending on the type of rewards credit card you have. Cash-back credit cards tend to offer 1 cent per point in value for this option, which is solid if not spectacular, but the same may not be true with other flexible rewards or flexible travel points.

When you redeem American Express Membership Rewards points for statement credits, for example, you'll only get 0.6 cents for each point you redeem.

Redeem rewards for gift cards

You can also cash in all kinds of different points for various gift cards, whether you have a Discover credit card like the Discover it® Cash Back or another cash-back card like the Chase Freedom Flex℠ or the Capital One Quicksilver Rewards Credit Card.

Generally speaking, you'll get 1 cent per point when you cash in rewards for gift cards, but this can depend on the rewards credit card you have.

You can also redeem Chase Ultimate Rewards, American Express Membership Rewards points, and Citi ThankYou Rewards points for gift cards, so make sure to check all of your options.

Chase Ultimate Rewards tends to have the broadest selection of options including gift cards for GrubHub, Wayfair, Sephora, Lowe's, and more. And when there's having a sale, you can frequently find gift cards for 10% off or more.

Also remember that you could use gift cards to purchase holiday gifts, but you could also give gift cards as gifts themselves.

Cash in points for merchandise

If you have flexible rewards points with a program like Chase Ultimate Rewards, Citi ThankYou Rewards, or American Express Membership Rewards, don't forget that you can cash in your points for merchandise from retailers you would probably shop with anyway. With Chase Ultimate Rewards, for example, you can use points to shop in the Apple Store or on Amazon.com.

Points redeemed for merchandise through Chase Ultimate Rewards are worth 1 cent each, so keep this in mind if you have a card like the Chase Sapphire Preferred® Card, the newly updated Chase Freedom Unlimited®, or the brand-new Chase Freedom Flex℠.

You can also use flexible points from the Citi ThankYou program to shop with retailers like 1-800 Flowers, Amazon.com, and Best Buy. Eligible cardholders can also use their points to shop with PayPal with millions of retailers around the world.

If you have a card that earns American Express Membership Rewards points, you can "pay with points at checkout" with retailers like Walmart.com, Amazon.com, Best Buy, PayPal, and more. Just keep in mind that you'll only get around 0.7 cents per point in value if you redeem Amex points for shopping.

Earn a big sign-up bonus to defray holiday costs

If you want to earn points as you shop for the holidays but also save money in the end, consider signing up for a rewards credit card that lets you score a big welcome bonus you can redeem after the fact.

The new Chase Freedom Flex℠ is an excellent option for this strategy, since you can earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening, and you can also earn 5% cash back on up to $1,500 in quarterly bonus categories after activation (then 1%), 5% back on travel booked through Chase, 3% back on dining and drugstores and 1% back on other purchases.

By spending $500 on holiday shopping with your new card, you could earn the welcome bonus and rewards on your spending, then use your points for statement credits to your account. The Freedom Flex card also gives you 0% APR on purchases for 15 months, followed by a variable APR of 14.99% – 23.74%. This means you could pay off your holiday purchases for 15 months without any interest, leading to more potential savings.

Our best credit card offers and deals page can tell you about all the other sign-up bonuses you could be earning right now.

There's no 'right' way to use your points

If you're planning to spend money on holiday gifts or splurges for yourself this year, it's smart to take stock of your credit card rewards to see how they can help you. You may be able to cash in points for gifts you couldn't otherwise afford, or for gift cards you can give or use to buy gifts your family and friends will love.

However, it could make more sense to sign up for a new credit card and use it for holiday purchases so you can earn a big welcome bonus. If you start working toward the minimum spending requirement now, you could even parlay the points or cash back you earn more into gifts for loved ones on your list.

Just remember that, when it comes to using a credit card for rewards, it's crucial to pay off your balance each month and avoid interest at all costs. At the end of the day, you'll only end up "ahead" with rewards if you stay out of debt.