Finance Punk says if you aren’t using credit cards to pay for everything and earning rewards then you are leaving money on the table. Finance Punk also says, if you you are responsible with credit, you should open plenty of new credit cards every year to reap the welcome offer benefits.
So, you’ve accumulated a few hundred thousand points, miles, and rewards – now what?
What is the actual value of a specific point or mile?
Seems like a simple question and tables that put a dollar value on points are readily available on the internet but, these valuations from “points maximizers” don’t take into consideration opportunity cost or even added costs to spontaneous travel.
3 Fallacies to watch out for when maximizing rewards points and miles:
- Valuing points at the exact cash cost of travel
- e.g. buying a $10k first class plane ticket with 200k points and saying you got $0.05/point
- Spending points on travel because you have travel points, not because you always travel x times per year and usually pay cash
- e.g. taking a spontaneous trip to Bora Bora solely because you have 500k points and you just saw a cool picture of Bora Bora
- Sacrificing any aspect of the trip [or points redemption] because there is a higher point value to go to this destination or this hotel or use this airline out of this city
- People get caught up in “maximizing” their points and end up not thinking about the destinations they actually want to go to
Okay, Finance Punk, how do you value your points?
The easiest way to put a value on rewards points and miles:
Give them their cash out value:
- Chase UR points can be converted to cash at $0.01/point
- Amex MR points can be converted to cash at $0.0067/point
- Citi TY points can be converted to cash at $0.0067/point
- Airline Miles and Hotel Rewards Points can’t usually be converted to cash so these are worthless
Do not cash out points at cash value just yet.
Do, take the cash value of points into consideration when determining the best way to redeem them.
For this post, let’s focus on airline miles and hotel rewards values:
First, figure out your destination, timeline, and activities. Then, figure out how much you would pay for that same trip in cash.
For example I booked a trip to Cancun with IHG points, delta miles, and delta gift cards:
- On Delta, 2 round trip tickets to Cancun, Mexico cost $900 or 50,000 Delta Skymiles
- 6 nights at one of the resorts on the hotel strip costs around $300-$400/night during this time of year (peak season) and even more for the all inclusive resorts.
- Different hotel points have vastly different values so it’s hard to give a range but IHG has rooms for 30k points/night and marriott has rooms at 50k points/night
I ended up buying one ticket with Delta gift cards that I accumulated from American Express airline credits ($450) and the other ticket with 25k skymiles.
- In this case I would spend $450 on a round trip ticket for a wintertime island vacation so I would value those Delta points at $0.018/mile ($450/25,000miles = $0.018/mile)
I have had good experiences at Intercontinental branded hotels in the past and the reviews said that this property has the best beach on the Cancun hotel strip so I booked all 6 nights at this IHG property for 30k IHG points/night ($300/night to book through ihg.com).
- I wouldn’t pay $300/night for this hotel [or usually any hotel] so I can’t accuartely value these points at $0.01/point ($300/30,000 points = $0.01/point). Instead, I need to determine the cash amount that I would pay per night for a similar trip. This isn’t the easiest thing to do but, in the past, I have paid close to $200/night for a similar hotel so I will value it at that.
- 180,000 IHG points total for 6 nights when I [maybe] would have spend $1,200 makes my valuation $0.007/point – not a bad value when you can often buy these points for $0.005/point.