How much do I need to travel for mileage rewards to beat cash back?

Question

I'm happy with my cash-back rewards cards. I pay my balance in full and don't care about the interest rate. Now I'm trying to evaluate a promotional offer for an airline miles card to see if it's worthwhile.

I've seen a bunch of other threads on the topic, covering the various pros and cons of cash and miles. The general rule of thumb seems to be, if you travel a lot (especially on a single airline), mileage cards are worth it, otherwise stick with cash back.

What I can't figure out is: how much travel is "a lot"? Is there a model or calculator out there that can tell me how far/how often you'd have to travel for miles to break even with or beat cash back? Or are rewards programs too opaque or unpredictable to do a straightforward comparison? Does it all work out to roughly 1-2% in the end and it's just a personal preference what form you want to receive it in?

Answer 1

You can see miles earned per dollar spent in the CC offers; and miles needed to redeem a ticket by reading the airlines rewards program documents online. That would give you an initial indication of if you could break even or not.

However, the main reason behind not being recommended unless you fly a lot is that airlines also tend to put a lot of restrictions on redeeming miles. eg Unless you're willing to spend a lot more miles than the minimum, you'll have a hard time actually being able to get a free ticket/upgrade because blackouts will prevent using them around peak travel dates and the number of miles tickets they're willing to issue on any given flight is very low. To work around the latter, you can either fly a lot to eventually get lucky; or plan your vacations very far in advance so you can be the lucky person claiming one of the few miles seats available on a flight.

Anecdotally, the only person I know who's managed to make a miles card work is self employed, lives in an expensive area, and runs all of his business and personal expenses through his miles card.

Answer 2

Basically, point systems dedicated to a particular vendor (airline, retailer, other) can offer you more (apparent) value because they're "buying" the ticket from themselves at wholesale rather than retail cost, so a point costs them less than its value to you. So if you actually need those points for something you're going to buy anyway, from that particular vendor, it can be a better deal.

But the operative words are if and can. Figure out the value of a mile, for the typical routes and typical times at which you fly. Figure out how many miles you get per dollar spent. Decide how much flying you expect to do, on a regular basis, on that airline. Decide whether you're willing to accept a slightly-larger-but-delayed return which can only be used with that one company, or would rather have a bit less with more flexibility and sooner.

You may also want to look at "generic points" cards. My credit union offers one; they have a point system which can be traded in for cash (at one exchange rate), or points/vouchers at specific vendors (at a different exchange rate, presumably depending on what kind of deal they can cut with that vendor). That's a compromise between the two; you don't get as much value per dollar of purchase as a dedicated card, but you have a lot more flexibility in where, when, and how you use those recaptured pennies.

Finally, there are services which claim to be able to exchange points in one network of airlines for points in another network -- while, of course, skimming a percentage off the top for their own profit. Presumably they have deals with the various networks similar to those of the generic cards, but which include being able to sell points back to the airlines (probably at a lower cost than they pay when purchasing those points). That's a last-ditch solution if you decide you really need to use points from one airline to buy tickets on a competing airline; you lose some of the value but recapture some flexibility.

Which suits you best depends on what you're buying when. If you're already trying to build up points on a particular airline because you're flying with them on a regular basis (visiting relatives every year, for example), having your purchases contribute to that pool is worth considering. If your travel is scattered across multiple airlines, I suspect you're better off with generic points, cash-back, or points at some vendor you do shop with relatively frequently.

Answer 3

I love playing with credit card rewards. I own over 6 different credit cards so that I can stretch my rewards as far as I can with every single purchase I make. Not one of them is an airline/miles credit card. My opinion is that they are not worth it.

To properly answer your question, you need to tell us the description of the program you're considering. I often browse through the latest credit card offers in existence and have rarely found a travels one that boils down to more that 2% worth of a purchase; so, I bet that the one you're considering does not either.

Here's my set of credit cards that so far has made airline ones worthless:

1- Discover card: 5% on certain categories per quarter.

2- Chase Freedom: 5% on certain categories per quarter.

3- US Bank Cash+ Rewards: 5% on other categories that neither Discover nor Chase Freedom cover in a given quarter. This is a 5% category gap filler if you will.

4- Sallie Mae Rewards: 5% on gas, groceries and Amazon.

5- Chase Ink: 5% on my internet, phone and cable bills, plus some other supply stores I usually never go to.

6- Citi Double Cash Rewards: 2% on EVERYTHING else.

As you can see, I get 5% on almost every purchase I make. If the program you're considering beats that, or even the 2% from the Citi card by more than 1 percentage point, then it's worth it. If not, then don't worry about it.

Answer 4

One major reason to choose miles credit cards is the initial reward bonus: some of them go as high as 50,000 miles (=$500-$1000) assuming a minimum $3000 or so spent within the first few months. Most 'dollars' credit cards don't hit anything close to that as an initial bonus. A not uncommon strategy among those with a lot of good credit is to periodically obtain one of these cards (so long as it doesn't push your total revolving credit usage up too high versus income), to get the miles bonus. This of course is only worth it if you're going to use the bonus (ie, you're someone who infrequently travels, but does spend a lot occasionally - like a once every five years' anniversary cruise/trip).

That's the major reason for getting miles cards, unless you do a huge amount of travelling and getting the 'gold'/whatever status is useful (it can be!). Otherwise Discover, Chase Freedom, or Citi Double Cash Rewards are all good options, as are several other similar but slightly different cards (some of which come with bonuses as well, albeit smaller).

I would also note that recently cash back cards have started to get somewhat better - I noticed my Discover More card for example probably should be converted to a Discover It card (if they will let me!) as it's no longer .25% for the first $3000, but 1% flat; several other cards have improved as well, with the de facto standard now being 1% minimum (as of 2013, basically). If your card is more than a few years old, it's definitely worth looking into a new one (or at least upgrading to your current issuer's newest offering).