It can be tempting to put big purchases on your credit card in the name of racking up rewards, and doing so often pays off — but only if you're able to pay off the balance in full and on time. Otherwise, the rewards you earn will likely be erased by interest, late fees or both.

Whether it is "smart" to pay with rewards points depends entirely on the redemption value you are receiving. Generally, using points for "cash back" or to "pay with points" at checkout on sites like Amazon often provides the lowest value, frequently hovering around 0.5 to 0.7 cents per point. In contrast, transferring those same points to travel partners (airlines or hotels) can yield a value of 2.0 cents per point or higher, especially for business class flights or luxury stays. However, there are times when paying with rewards is the smartest move: for example, if your points are nearing an expiration date, using them for any purchase is better than losing them entirely. It is also a wise financial move if using points prevents you from taking on high-interest debt or allows you to preserve your cash for essential living expenses or emergency savings. The "gold rule" of rewards is to calculate the "cents per point" value: if you are getting less than 1 cent per point, you are likely better off saving them for a higher-value travel redemption. Ultimately, if the rewards provide you with a "free" experience or item that you otherwise couldn't afford or wouldn't buy, they have served their purpose as a useful financial tool.