Do this, not that: 3 ways to optimize your credit card rewards

You've opened your first rewards credit card, earned the welcome bonus and are sitting on a stack of miles or points. Now what?

Figuring out the best way to use your rewards isn't as straightforward as earning them. Most miles and points can be redeemed in all sorts of ways and each method yields a drastically different value. A 50,000-point credit card welcome bonus could get you $400 in merchandise, $500 cash or a $1,500 business-class flight to Europe.

Before hitting submit on redeeming your hard-earned points, here are three things to consider if you want to get the most value for your effort.

Regardless of how you choose to use your rewards, you'll want to get the most value for your effort. Each program has different redemption options and the values for each redemption vary. So it's important to think about what's important to you and to understand all of the options you have for redeeming your credit card rewards.

Redeem for cash back not merchandise

Do this when: Cash back redemptions are more valuable (almost always)
Skip this when: There are limited-time promotions for paying with points

One of the easiest ways to use points is to redeem them directly with a retailer. This isn't always an option, but you can pay with points at many different stores. For example, you can link several credit card rewards programs to your Amazon account and redeem them at checkout.

This is almost always a suboptimal use of credit card rewards.

The reason you'll want to avoid paying with points at checkout is that you can often get better value by redeeming your rewards for cash back, which is almost as simple. Loyalty programs such as Chase Ultimate Rewards® and Citi ThankYou® Rewards allow you to redeem points for one cent each as cash back. In other words, you can turn 10,000 points into $100 in cash or a statement credit on your card.

If you use those same points to pay for an Amazon purchase you'll usually get 0.8 cents per point in value. Instead of receiving $100 in cash for your 10,000 points, you'll get $80 in Amazon merchandise. By cashing out your points, you'll get a higher dollar value and be able to pay for the purchase with a credit card and earn rewards.

The only exception to this is when there are limited-time promotions that offer greater value. For example, you may be able to get 30%-50% off your Amazon order when you pay with at least one point.

Book once-in-a-lifetime experiences not just another vacation

Do this when: You want the highest value per point
Skip this when: You don't have enough points or can't find awards when you want to travel

Points and miles can unlock the once-in-a-lifetime experiences you otherwise couldn't (or wouldn't) pay for, thanks to generous credit card bonus offers.

For example, you could get the Chase Ink Business Preferred® Credit Card, which has an welcome bonus of 100,000 points after you spend $15,000 on purchases in the first three months after account opening. Including the points you earn from meeting the spending requirement, you'd have at least 115,000 Chase points. You can then use those rewards to book a first-class flight with Emirates. You'll get a fully flat bed, gourmet meals and, depending on the plane, access to a shower spa with heated floors. A one-way first-class flight from New York to Milan typically costs $6,000-$8,000 but you can book that route for as little as 102,000 Emirates miles.

If a private island stay is on your bucket list, you can book the Calala Island resort for 35,000-45,000 Hyatt points per night. This resort is exclusive – it only has four rooms and regularly costs over $2,000 per night. But you could earn enough points for two nights with the limited-time Chase Sapphire Preferred® Card welcome bonus. After you're approved for the Sapphire Preferred, you can earn 80,000 bonus points after spending $4,000 on purchases within the first three months of account opening.

Have a goal instead of looking for the "best rewards"

Do this when:  Always
Skip this when:  Never

Have a goal in mind for your rewards before you apply for a credit card That way you can ensure you're earning the credit card rewards that provide the most value to you.

Figure out what you want to use points for and work backward from there. Think about where you want to go, where you're traveling from and what specific expenses you'd like the points to cover. You don't want to end up with a bunch of miles for an airline with limited service to your home airport. And if you're vacationing with a big group, some rewards are better for homestays and vacation rentals than others.

Of course, your goals and priorities for your points will likely change, which is why you should consider flexible rewards programs. These programs allow you to transfer points to a variety of airlines and hotels, as well as redeem rewards for cash back, gift cards and more. You can earn flexible rewards with Amex, Capital One, Chase, Citi and Bilt. Many of the credit cards associated with these programs reward you generously for your spending and have hefty welcome bonuses, including The Platinum Card® from American Express and the Capital One Venture Rewards Credit Card. Terms apply.

There are so many ways to redeem credit card rewards that it can be difficult to figure out the best way to maximize value. And how you even define "best" often depends on what you value.

You can keep it simple and cash out points to use for anything you'd like. Or you can book luxury flights and resorts that normally cost thousands of dollars.

Regardless of what you value, the rewards you earn will be more useful to you if you know what you want to use them for before you earn them. That way you won't end up earning the wrong type of points or miles for your goals.

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For rates and fees of The Platinum Card® from American Express, click here.