Recently, I took part in a conversation which made me realize that not everybody knows when you should and shouldn’t use a rewards card – specifically when a cash discount is available.

You see, due to our ongoing home remodeling project, Greg and I have been spending more money than usual. We are adding a room and a new patio to our home, so we have had to buy all sorts of items ranging from carpet to paint to furniture.

Anyway, the conversation in question took place at the furniture store with a really helpful sales guy named “Tim.” Once we picked out our new sofa, coffee table, and recliner, Tim informed us of a special sale they had going on. Not only were our furniture items already on sale, but we could get an additional 20% discount if we paid cash! The discount dropped to 15% of the total if we paid with a credit card.

I questioned Tim about the discount. Why were they making customers pay an extra 5% to pay with a credit card when the store swipe fee was likely only 2.5% to 3%? Tim informed me that this is one deal where he couldn’t budge, and – if I wanted the full 20% off – I had to pay with cash or a check.

He then went on to explain that, many times, his customers value their rewards more than the additional discount. “Sometimes, if they fly enough, their miles are worth more than 5% off,” he said.

Ugh.

How Much Are Your Miles Worth?

Our sales guy has no idea that I write about credit card rewards for a living, so – at this point – I found our conversation very amusing. But, it also made me sad. Do consumers really think their rewards are worth more than a 5% discount?

Most cash back credit cards offer 1.5% to 2% back at most, and even the best airline and travel credit cards offer points and miles that tend to cap out at 2% to 3%. Sure, you can get exceptional value out of airline or hotel points sometimes…but that’s usually only in unique situations like booking a pricey first class flight with miles or using a free night certificate to stay at the Conrad Maldives Rangali Island.

I did not need to do the math to know I would take the extra 5% off and pay with a check, but I’ll still share our example here to illustrate how this works.

In total, we spent slightly over $8,000 on furniture at this store. That may sound like a lot, but first of all, I paid in cash. So, bite me. Second, we got a sofa, loveseat, recliner, TV stand, two end tables, and a new mattress. That’s a lot of stuff!

Here’s how much we would have earned in rewards with our favorite go-to rewards cards:

  • Chase Sapphire Reserve: I would earn 1 point per $1 spent on this purchase, so I would have earned 8,000 Chase Ultimate Rewards points. Since Chase Ultimate Rewards points are valued at around 2 cents each, this option would leave me with approximately $160 in points.
  • Barclays Arrival Plus World Elite Mastercard: I paid off my house with this card because it’s so amazing, but it’s not great enough to give up a 5% discount. This card doles out 2x points for each dollar you spend and points are worth one cent each. As a result, I would receive $160 in travel credit for using this card.
  • Hilton Aspire: I am huuuuuuuuuuuge on racking up Hilton Honors points this year, cause duh, I want to go to the Conrad Maldives Rangali Island! This card lets you earn 3x points on regular purchases, which means I would rack up 24,000 Hilton Honors points if I used my card to buy our furniture. Those points are worth around one half cent apiece, so this means I would get approximately $120 in value. Womp womp.

On the flip side, the 5% discount I got for not using a credit card is pretty good. Since 5% of $8,000 is $400, that’s more than twice the rewards I could earn with my favorite cards, the Chase Sapphire Reserve and the Barclays Arrival Plus World Elite Mastercard. This is a no-brainer if I’ve ever seen one.

How to Decide Between a Cash Discount and Rewards

Should you take a cash discount or use a rewards card instead? These four questions will help you decide how to get the most value from your spending.

If you’re struggling to decide whether you should use a rewards card for a purchase or take a cash discount, asking a few simple questions should clear things up pretty quick. Here are the questions you need to ponder before you pay:

  • How much are the rewards I’m earning actually worth? If you don’t know what your points and miles are worth, The Points Guy reports monthly valuations. Checking to see how much your points are worth (on average) can help you figure out whether to pay with your rewards card and forgo a cash discount.
  • How much is the discount worth? Compare your potential rewards haul to your potential cash discount and note the difference.
  • Are you going to carry a balance? If you’re going to charge a large purchase and need a while to pay it off, please don’t use a rewards credit card. Most charge APRs of 15% or higher, meaning you’ll pay more interest than your rewards are worth. If you need time to pay off a large purchase, get a credit card with an introductory rate of 0% instead.
  • Am I earning a huge signup bonus? This is one scenario where you may want to forgo a cash discount to use your rewards card. Why? Because signup bonuses make it easier to earn a ton of points on your spending. Imagine you signed up for the Chase Sapphire Preferred card and decided to use it for new furniture. You earn 50,000 points after spending $4,000 on your card within three months, which is worth $625 in travel through the Chase portal. Therefore, the rewards you earn could easily be worth more than the cash discount – unless you spend even more than I did.

The Bottom Line

While we all love our points and miles, it’s important to keep the big picture in perspective. Giving up a 5% discount ($400 in my case) to earn $160 in travel rewards would have been crazy, but it’s easy to see how someone could make this mistake if they didn’t do the math.

If you want to use rewards to your advantage, you need to be smarter than the retailers. Unfortunately, that means being willing to forgo points and miles in some cases. Furniture stores and the other retailers are happy to overcharge you for using a credit card if you’re willing to fall for it, so it’s up to you to know when to draw the line.

Have you ever taken a cash discount over rewards? Let’s discuss in the comments below!Should you take a cash discount or use a rewards card instead? These four questions will help you decide how to get the most value from your spending.