Three kinds of currency
Rewards come in three forms. Airline miles and hotel points belong to a single company's loyalty program and are spent with that company and its partners. Flexible bank points are earned on a credit card and can be redeemed for travel through the bank or transferred into several airline and hotel programs, which makes them the most useful kind. Cash back is the plainest, and at one and a half to two percent on everything it is the benchmark that any travel card has to beat.
What a point is worth
A point is worth whatever you would otherwise have paid in cash. Take the cash price of the ticket, subtract the taxes you still owe on the award booking, and divide by the points required. A flight that costs 450 dollars, or 30,000 points plus 11 dollars in taxes, returns a little under one and a half cents per point. One cent is the floor, since most bank points can be cashed out near that rate. Anything above one and a half cents is a good redemption. Compute the figure every time, because programs price the same seat differently from day to day.
Bonuses and annual fees
The sign-up bonus is where most of the value lies. A typical offer gives a large block of points for spending a few thousand dollars in the first three months, which can equal years of ordinary earning. Time an application to land before an expense you already have coming, such as an insurance premium, and never buy things to reach the threshold. Judge an annual fee by subtracting only the credits and perks you would have paid cash for anyway. Each application adds a hard inquiry that lowers your credit score by a few points for some months, so stop applying for six to twelve months before you seek a mortgage.
The ways to lose
- Carrying a balance costs twenty percent or more a year in interest, which erases rewards worth about two percent.
- Hoarding fails because programs raise award prices without notice, so earn points with a trip in mind and spend them.
- Miles in some programs expire after twelve to twenty-four months without account activity.
- Award tickets on some international carriers come with surcharges of several hundred dollars.
Note Before you close a card, move or spend its points, which are usually forfeited on closing, and ask the issuer whether you can switch to a version with no fee. That keeps the account's age on your credit report.
