Is it worth paying with a rewards credit card even if it incurs fees?

Nowadays, you can pay for almost anything with a credit card. However, some merchants will charge a fee an additional fee to get that privilege, which is completely legal in most areas. That extra fee could be charged by the wedding venue, the homeowner, the local corner market, or even your utility company.

So let’s say you get a chance to use it credit card rewards to make a purchase; Is it still worth it if you are charged transaction fees?

Typically, these fees range from 1-4%, but more commonly you’ll see a 3% fee. That means, for every dollar you spend, you can expect to pay 3 cents more in fees. If the rewards you earn per dollar are only worth 2 cents each then no, you probably shouldn’t pay with your credit card.

Typically, you should only pay a fee if the value you earn from your rewards credit card is greater than the fee paid. But that math can be a little more involved on some cards.

Let’s break it down to see when it is – and isn’t – worth paying fees to use your credit card.

Earn rewards worth more than the surcharge

All grades are not created equal. Before swiping your card, you’ll want to find out the average value of the rewards you’ll earn. Our updated TPG points and miles pricing per month as these currencies are different and may have different values ​​depending on how you redeem your points or miles.

Let’s say you’re eating out and a local restaurant offers a 3% discount when paying your bill in cash versus paying with a credit card. The only way it makes sense to use a credit card is if you get more than 3% value from the points earned.

As an example, Citi Strata Premier℠ Card (see exchange rates and fees) earn 3 ThankYou points per dollar at restaurants. As of October 2024, TPG value Citi points at 1.8 cents each. That equates to a 5.4% return on restaurant spending, meaning this card offers better value in this case.

However, let’s say you use it often Citi Double Cash® Card (see exchange rates and fees) on all your purchases, with a simple 2% return on every purchase (1% when you buy, 1% when you pay). Paying a 3% cover charge for dinner here is a pain.

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

This is just one example of many situations where you need to do some quick calculations to determine whether using a credit card will give you a return on spending that exceeds the surcharge. Other examples might include buying produce at a farmers market, paying rent, or making purchases at a small family store.

Related: Credit cards with the best rewards for each bonus type

Earn welcome bonus

Some welcome bonuses are easier to get than others due to lower minimum spend requirements. But then there are some very popular credit cards with welcome bonuses that require large spending amounts.

Think about credit card with a 100,000 point welcome bonus or more for example. The only way to get close to the minimum spending requirement in some cases is to put every dollar spent on your credit card.

For example, let’s say the card you’re applying for requires spending $6,000 in three months to receive the welcome offer.

Let’s also say that the only way you can meet the minimum spend amount is to use your card to pay rent of $2,000 per month. That’s a total of $6,000 over the course of the three months that you’re working with this welcome bonus.

If your landlord doesn’t accept credit cards directly, there are many Third-party app that lets you pay your rent onlineBut all have to pay a fee. plastic For example, charging 2.85% means you’ll pay a surcharge of $171 over three months.

Calculate the value of your welcome bonus against the fee you pay when you pay your rent through one of these services. TPG’s monthly pricing can help you calculate how much your welcome bonus might be worth. Compare that value to the cost you pay and see if the extra cost is worth it to you.

Many times, the value of the welcome bonus will significantly exceed the cost of any fees incurred from paying your rent with a credit card.

Related: Should you use Bilt Mastercard? Why it could be a game changer for renters

Earn more benefits

Many credit card offers Increase benefits after spending a certain amount amount on the card each year, such as bonus points, awards night certification, and/or the opportunity to achieve elite status.

Depending on the benefit you will receive — and how much you truly value that particular benefit — you may see value in paying transaction fees as needed. the Hyatt World Credit Card provides some perfect examples. For every $5,000 spent on the card, you’ll earn two qualifying nights World of Hyatt elite status.

This can help you achieve elite status faster, reducing the number of nights you need to stay in a hotel to qualify for a certain status level. Best of all, just becoming a cardholder gives you five nights to earn status.

Let’s say you pay $2,000 per month leaseand you decide to add two rent payments to the $5,000 spending requirement to earn two more qualifying nights. Considering Plastiq’s 2.85% fee, you’ll pay an additional $114 over those two months.

Whether that fee is worth it to you depends on how you value those additional qualifying elite nights. If you’re a Hyatt loyalist and stick with the chain at least a few times per year, those extra fees are definitely worth it if it means achieving higher elite status.

However, if those two additional qualifying nights don’t get you to the next Hyatt status level, or if you don’t regularly stay at Hyatt hotels, the additional fee won’t be worth it.

Bottom line

Paying extra to earn more points or miles or to receive additional benefits may or may not be worth it. It all depends on the points or miles earned, the additional benefits you can get, and the value you get from it all.

Before you go ahead and pay transaction fees for every credit card swipe you make, figure out a course of action. Make sure you’re getting more value than the surcharge you’re paying, or make sure you’re making tangible progress toward your goal of higher value on your card.

Related: Credit card economics: Look at fees you rarely see