Miles make it insanely easy for points addicts to travel in comfort for free. But given the plentiful devaluations over the past few months, some of you must be thinking whether it’s worth going to 2% cashback.
My answer to that question is that it’s complicated. That’s a horribly ambiguous answer, but it’s the truth.
The value of my redemption of points is the maximum of the price it costs OR the price you’re willing to pay. The latter is much more difficult to define given that everyone has a different willingness to pay. So I go by the maximum price the award costs.
This is where a lot of bloggers tend to overvalue their awards. They go and say, oh – a Cathay Pacific First Class oneway ticket is 8000 bucks, and you only paid 67,500 AA miles, which means your miles are worth 11.8 cents!
I could not disagree more with that statement, because your miles are NOT worth 11.8 cents. Here’s how I look at it. I ask myself this:
What is the maximum amount of money it would cost if I tried to buy it?f
For a person with absolutely no miles/points knowledge at all going through expedia to purchase the ticket, it would cost $8,000. But given that we are fairly intelligent, I know that we can buy miles directly from AA. In fact, they’re having a promotion on purchased miles right now.
The cost of 67,500 miles is just under $1700.
There is absolutely no way that you can say your points are worth 5 cents apiece when you can buy them for 2.4 cents apiece. That’s why the idea that “I use credit cards because I can know I get at least 5 cents in value from my miles” is a fallacy, in my opinion.
In this scenario, that means that 67,500 miles and $1638 USD is the same thing when it comes to getting that first class redemption on Cathay Pacific. So if you spend $67,500 on your credit card at 1$/mile, those 67,500 miles are worth 1638 in this extremely simplified scenario. You’re getting a 2.4% return on your credit card spend.
But as I said, that’s an extremely simplified scenario. There’s tons of other possibilities that could work out such as if you had shared US Airways miles at 1.15 cents apiece. If you managed to share exactly 120,000 miles over several transactions, that would have cost you just under $1400 roundtrip. With a 2% cashback card, you’d only need to spend $70000, versus $135,000 on your AA-earning credit card at 1$/mile.
There’s also the other possibility of spending a significant amount on category bonuses at 2miles/1$. That again changes the math within the scenarios.
It gets even more complicated with hotels, because there are even more options. If you use 20,000 Hyatt points for a category 5 property which is currently retailing for $550, but there’s a similarly ranked luxury property that goes for $390 with an FHR rate which includes benefits like upgrades and a complimentary dinner, does that mean your points in the redemption were valued at 2.75 cents? Not necessarily.
On top of that, cash doesn’t devalue subject to the whim of loyalty programs, it doesn’t expire, and it’s fully transferrable.
That’s why it’s complicated. There’s no absolute answer telling whether you should use cash back cards.
I think most of use would agree that Starwood points are probably the most valuable points on an absolute scale – that is, 1 Starwood point (or 10k starwood points) is more valuable than 1 AMEX Membership Reward point, 1 Chase UR point, and other airline and hotel currencies.
The latest promotion for purchasing SPG miles, which is a 25% discount on buying 20,000 SPG points, brings each point down to 2.625 cents per point. With a 25% transfer bonus to airlines, that means it costs 2.1 cent per point for most airline currencies. You’re limited to 20,000 per account, but you and your family members/friends living at the same address could purchase 20,000 points each and pool them.
I would like to think that I can max out the value of SPG points at 2.6 cents when I make redemptions and 2.1 cents when transferring to airlines, so at the very least, spending on SPG should be at least equal or greater than cashback cards.
I think, however though in the long-run, this is really insignificant.
How do I earn miles?
For most of us (for me anyways), the majority of our miles come from one or several of the following activities:
- Signup Bonuses
- Manufactured Spend
- Buy Mile Promotions
- Signup Bonuses
- Signup Bonuses
- Signup Bonuses
Like milenomics, I don’t get bankrolled for any business travel because right now I’m a full-time student. So most of my travel are from award tickets, and airline elite status for the most part is not worth the cost of mileage running. Hotel status is fairly easy to get. For me, that means that I try to bring down the miles required and the cost of acquiring the miles as much as I possibly can.
My favourite example of this is Lifemiles, and to a smaller extent, Aeroplan. I can shave a significant percentage off the regular miles rate required through trick and glitches not learned from FTU’s or seminars, but through building meaningful relationships and having a passion to extract the maximum value from my miles.
Then of course there are the public promotions to purchase miles during USDM Share Miles or the Lifemiles Purchase Promotions, as well as huge mileage mall bonuses (think 40/60x luggage and 36x Nordstrom) bonuses, and promotions like the Aeroplan Star Challenge. These also constitute a larger portion of my earnings than everyday spend.
Manufactured spend, for the most part, is irrelevant of cashback spending as you’re leveraging 2x-5x category bonuses, debit cards, prepaid cards, money orders, and other secret methods to generate miles for a ridiculously low cost, and in some cases, for free.
Finally, credit card signup bonuses will amount to a significant amount of most people’s miles earnings in an year. Whether you use cashback credit cards or not, you’re still going to earn 6 figures worth of miles by churning credit cards. If you’re not, then you’re doing something wrong.
What to Do?
That’s why I think that at this point, it’s too hard to say whether to use cashback or other credit cards. Some people have it easier trying to earn miles, and other don’t. But more importantly, you have to know how to maximize your miles, learn how to redeem them effectively, and get in on cheap opportunities to accrue miles.
Today, for the first time, my miles balances of all the accounts I control fell below 7 digits.
Certain people with 5 million+ mileage balances will either be laughing at how few miles I have, or wanting to lower their accounts even more, because all of us know that all loyalty programs will devalue at some point. But I’m just grateful that I have the ability to travel like the 1% for 1% of the retail ticket price, whenever I want. You should too.