Of course you're right. I buy a 48" peg aka a dowel. You ever used the entire 48" as one peg? Me neither. For the skinny stuff, I hammer in lengths of bamboo BBQ skewer.
I get the screw holes done then use a 3/8" Forstner to drill the pit for the cover plug. Don't even bother to glue that in place. Just tap it in flush = done.
I know that there's some sort of drill bit so you can cut plugs out of matching wood
Matter of personal taste I guess but after learning about plug-cutters I never use dowel/pegs to cover screws.
The end-grain is hard to sand, looks out of place.
If you like them obvious for contrast, I suggest plugs cut from another different color species, they are much easier to sand.
The "drill bit" you speak of is a plug cutter, I have a set of 4-5? different sizes.
If you're going to invest in them don't buy the one toothed black Vermont American, they do a terrible job.
My plug cutters have 4 teeth, cut nice clean plugs.
If species/color is matched and grain orientated right, plugs disappear.
Dowels are of course indispensable for other applications like joining.