If more money has ever stood in the way of your desire to travel, then this page is going to rock your world. In a previous article titled “The Greatest Travel Tool Ever Invented,” I revealed that credit cards are indeed the greatest tool for traveling the world and paying significantly less than the standard price. How? Through (1) signup bonuses, (2) paying your ongoing bills on the right cards, and (3) maximizing the benefits / perks that come with those cards. This post is going to focus primarily on #2…ongoing spend, and making sure you get a card that is right for you. Welcome to the rewarding side of life. Let’s get started.
PART 1: SETTING THE STAGE
In broad, general terms, the baseline for comparison in this whole game is 1%. Regular cash back cards earn and redeem at a 1% rate. Points cards earn at 1 point per dollar spent, and these points are generally worth 1¢ ($0.01) each when you redeem them. (Yes, since 1¢ is the same as 1%, points cards and cash back cards are very similar in value). So when you see 1X points, it’s about 1% cash back. 2X points? Yep…that’s 2% cash back. But 1% is only the baseline that we use to compare cards to each other. THE GOAL is to achieve more than 1% as often as possible. Some cards have structures like “3% on groceries, 2% on gas, and 1% on everything else.” Those are called bonus categories because they provide a return greater than the 1% base rate. Keeping the baseline in mind will be helpful as you begin this adventure. In future posts I’ll demonstrate that in reality, points are not created equal. Some can be worth a lot more (or less) than others. But for now it’s helpful to realize that points cards and cash back cards are actually quite similar; they just give value in a different way / currency.
TYPES OF REWARDS CARDS
1) Cash Back cards give you several cash options. You can usually opt for a check in the mail, a credit on your monthly statement, a direct deposit to a checking / savings account, or use it to shop online. They typically earn at 1-2%, and some have bonus categories. Simply put, these are flat-rate cards. Two percent is two percent. The value at which you earn doesn’t change nor does the value at which you redeem. These are best for cash.
2) Miles cards give you value in the form of airline miles that can be redeemed for flights (typically the best value) or for other travel expenses with that airline’s travel partners (e.g. rental cars, hotels, cruises, etc. Note that the value is not usually as good with these options). These cards are best for flights.
3) Points cards actually have 3 subgroups: (a) hotel points, (b) flexible points, and (c) transferrable points
(a) Hotel points are specific to a particular hotel chain. They can be redeemed for free nights (typically the best value) or for other travel expenses with that hotel’s travel partners (e.g. flights, rental cars, vacation packages, etc. // value not as good). These cards are best for free nights.
(b) Flexible points refer to the points earned by cards like the Capital One Venture card, Discover it Miles card, Wells Fargo Rewards card, U.S. Bank FlexPerks Gold, and others. They cannot be transferred to other partner programs; rather, they’re redeemable on the bank’s website or portal for things like travel, gift cards, cash, online shopping malls, etc. Thus, they’re flexible because you can use them in a variety of ways. Note: It’s common for points to be worth more on the redemption side for certain categories. For example, 20,000 points from the Capital One Venture card are worth $200 in travel but only $100 in cash. Therefore, make sure that you use your points in the categories where you get the most value. These cards are best for covering things like taxes, fees, short & inexpensive domestic flights, and expenses not covered by other cards.
(c) Transferrable points have the same flexibility as the flexible points cards, but then add an incredible benefit: you can convert them into points / miles of other programs. For instance, the Chase Sapphire Preferred card allows you to convert 20,000 Chase Ultimate Rewards points into 20,000 Southwest Airlines Rapid Rewards points. It’s like having access to a bunch of different rewards programs at the same time. Transferability means options, so you don’t have to lock yourself into earning one type of currency and limit your redemption outlets.
Now, it’s important that you get a card that fits YOU. Think of it like a clothing accessory. Some styles fit certain people better than others. Here’s what I suggest:
1. Get a card that rewards you best for what you do the most. That’s the most important advice I can provide in the entire post. For example, if you spend a lot of money on eating out, then get a card that rewards double or triple points (2-3% cashback) on dining. In other words, get a card that offers bonus categories that cover areas where you spend the bulk of your money.
2. If you value travel, start with a card that offers transferrable points. It’s far better to work with a currency that offers the greatest amount of redemption outlets so you can have a lot of options when putting together a trip itinerary. It wouldn’t be smart to earn Southwest Rapid Rewards points if you’re goal is to fly to Europe (Southwest doesn’t fly to Europe).
3. Be sure to consider what kind of travel you intend to do (domestic vs. international), where you want to go on your next trip (not all airlines fly to all locations, and not every hotel chain is found in every city), and the airport you fly out of (airlines have hub cities where they have a massive presence, like Delta Airlines in Atlanta or American Airlines in Dallas).
The best transferrable currencies are:
- Ultimate Rewards (UR) points by Chase
- Card Examples: Sapphire Reserve, Sapphire Preferred, Freedom, Freedom Unlimited, Ink Preferred
- Membership Rewards (MR) points by American Express
- Card Examples: Platinum Card, Premier Rewards Gold Card, Everyday Preferred Card
- ThankYou (TY) Points by Citi
- Card Examples: Preferred, Premier, Prestige
PART 2: Here’s the really cool thing
Let’s say you’re looking at the Sapphire Preferred card by Chase and that it has a 50,000-point sign up bonus. What’s that worth? Well, start with the 1% line of thinking to get a comparative baseline. You’d get $500 because 50,000 / $0.01 = $500.
That’s the value if you redeem for cash or gift cards. The card gives you an extra 25% if you redeem those points for travel. So, that $500 cash back value would be $625 if you redeem for a flight, hotel, car, etc.
And it can get even better with transfer partners.
Let’s say you got that 50,000 point signup bonus and now you’re looking at a flight on the Chase website (yes, Chase has its own travel booking portal, which is like its version of an Expedia/Kayak/Travelocity, etc., and that’s where you get the extra 25%).
You see the flight you want and it costs 30,000 Chase UR points round trip. Great – you have enough from that signup bonus, and since UR points are flexible, you are able to search multiple airlines, compare prices / routes, and book whatever you’d like.
Going forward, we’ll assume United Airlines has the best route / timing / price for your purposes and that 30,000 UR points is still the cost.
To compare, you then go to United.com and price the same flight using United miles. You notice it would only be 25,000 miles, which is a better deal. Fortunately for you, United is a travel partner with Chase, so instead of redeeming UR points directly through Chase, you decide to transfer 25,000 UR points to your United MileagePlus account and book the flight there, saving you 5,000 UR points.
This is where transferrable points, for example, can be worth a lot more than just $0.01 each. When expensive air routes or hotel rooms are able to be redeemed for a relatively low number of points, you can get incredible value. And using a transferrable currency like Chase Ultimate Rewards allows you to transfer to wherever the best value is at the time.
In future posts, I’ll give more in-depth tutorials of the Chase, AMEX, and Citi rewards platforms. In the meantime, feel free to post questions below or on Facebook if you need some guidance to get started.
Final note: If you have credit card debt, focus on paying it off completely before diving into the points & miles game. The interest charges will be more than the value of the points you earn, which means the banks will be winning instead of you. To help pay off your debt faster, I recommend transferring your debt to a card with a 0% APR for at least 12 months. It may not have many (or any) rewards, but it will be a far better tool to assist you in paying the debt down faster.