Managing Your Points

I’ll fess up: I don’t use my credit card rewards programs correctly, and it’s costing me money. Not too much, but if you’re going to travel in style and/or inexpensively, then you need to incorporate a good card rewards strategy. In this post I’ll discuss point/miles/cards, and how to get the most out of it. I’m going to assume throughout that you’re not a super-frequent flyer, because then your strategies will be different. Super-frequent fliers will think nothing of booking a flight from LA to Sydney and back just to accumulate the miles. The rest of us don’t have this option. If you do,  though, you should be following The Points Guy.

First, the basics – y’all probably know all this, but to recap: It used to be that credit cards and airline points/miles went hand-in-hand: you used the card that got you miles for the airline that serviced your needs best – for us in Birmingham, that amounted to either Delta or SWA. If you were lucky, or good at finding deals for point multipliers, you could fly for free. 

Credit cards eventually moved away from the airline strategy to a straight forward point strategy: cash back, not miles (though some still call them “miles”, and the traditional miles programs still exist). $1 purchase = 1 point. 100 points = $1. So, you’d get a straight up 1% on your purchases. Easy. And since cards want you to spend, they’ll give you multipliers on certain spend, or during certain periods. 2X is pretty common, and still works out for the card issuer: they get a little over 2% of the transaction fee, so 2X points is break-even in that regard. Once you get to 3X, the card issuer is coming out behind on the transaction, unless they have a deal with the specific vendor. Usually, though, they’re hoping usage will result in interest balance, and they’re mostly right. 

Chances are your current card gives you 2%, on average. That’s pretty good. You can definitely boost that by finding out when certain cards have certain multiplier periods, and load up then. For example, the bank where I work, BBVA Compass, has an NBA Amex card that gives you a 10X point multiplier for all purchases made during NBA All-Star weekend and the NBA Finals. That’s 10% cash back, no matter where you use it: I know, I'm a homer on this -- but that's super rich. I don’t know of another card that does that for you. I’m going to try to make any necessary big-ticket purchases then – school tuition, for example. My school will let me charge tuition on a card, though they pass on the transaction fee (3%) – this is pretty common. I still come out 7% ahead, provided I can pay it back quickly. 

Maximizing these offers is a good idea, in general. The problem is that it’s now pretty much decoupled from travel. I get cash back, but rarely do I let it accumulate. Often I’ll apply it to a balance right then and there. That’s great, but it only helps me with my airline bills in a big picture kind of way. If I were disciplined, I’d set up a travel savings account at my bank and automatically put cash in monthly – and somehow resist the temptation to raid it when an unexpected expense pops up. That’s the best practice. 

Miles programs force me to save for travel, since the miles aren’t really good for anything else. That’s nearly the only reason I still participate. I expect that the next time I use my miles, and get down to a zero balance, I’ll switch to regular balance rewards, and try very hard to leave them alone.

Because I’m in Birmingham, Delta and SWA are the most common carriers, and so Delta miles are the most use for me. (I don’t fly often enough to qualify for SWA flights). Delta has made it difficult to redeem miles – confusing, at least. You can use your Delta Amex card to get spend levels to qualify for their million miler club, etc, which gives you access to discounts, mileage boosts, and their club lounge. I have no way to reasonably reach their requirements, and really, no need for the perks. I don’t fly often enough. The way I figure it, either you fly a bunch and reach their targets easily, or not at all. 

Anyway, Delta still uses an award chart with variable redemption rates. I’m not going to go into them all, I’ll just focus on US-Europe. You have two options there: 

1.)        Use miles for a coach ticket

2.)        Use miles for a business class ticket

You use to be able to use miles to upgrade an existing ticket, but that option is only available on domestic flights. It was a pointless hassle before that restriction anyway.

Now, let’s start with point 1. Delta’s current redemption rate is 60,000 miles for a R/T coach ticket – that is, at least 60k. They release a few tickets every flight at 60,000, and then as those are used, the cost ratchets up to 90,000, 120,000, etc. They do have a handy tool on their website that lets you shop for affordable mileage flights pretty easily, but generally, if you want the good and cheap flights, you have to book early – 330 days in advance. But the good news is that you can book and then change pretty easily, usually without a fee.

Now, the problem with using miles for straight coach is that it’s a terrible value. 60,000 on a ticket that costs $800 = $0.013/mile, or a 1.3% return on credit card dollar spent. That’s poor, so I don’t even bother with it.

That gets us to Option 2: Business Class Award. This is generally what I shoot for, and if the chat boards can be believed, so do most others. First, the math: A Business Class ticket to Europe, from ATL, Goes for $3,500 or so, and rarely goes on sale. The lowest redemption amount for a business ticket is 125,000 miles. The math says…$0.028/mile, or 2.8% return on every dollar spent. Now that’s better – better than, say, Capital One’s straight 2%. 

It’s a little less than 2.8%, since you have fees to pay even on an award ticket, but they’re not much, $150 or so. If you’re lucky, you can even find a flight from Birmingham for 125,000 miles. The key is to a.) look early – 300+ days in advance -- and b.) look to different European cities. ATL-PAR books pretty quickly, but some routes, like ATL-BCN aren’t as popular. Spend two days in Barcelona, then take a cheap Euro flight to Paris. It’s my favorite way to use Skymiles. And the Delta tool on this is surprisingly useful. 

So, if you’re doing the miles thing, this is the best bang for your buck. Spend whatever you can pay off on the card, look for multipliers (most are worthless) and special offers. Delta used to run sales to purchase miles at a discount: I haven’t seen a sale in a few years, but when they happen, it’s usually in December, so check around then. And get a card for your spouse, each new card will get you 50,000 miles as a bonus. Amex charges a fee, but the perks – free bags on domestic flights, plus a companion ticket – can offset that.

Otherwise, I recommend going straight cash back and being disciplined. Take a look at the BBVA Compass Amex card and the 10X points during the NBA finals. Chase Visa has quarterly categories that give 5%, but I think you end up closer to 2% over the course of the yea. Capital One is 2X all the time. That’s your baseline. You can be crafty and use 4-5 different cards at different times, and maybe you can get 5% over the year. That’s better than my 2.8% on my Delta card. But it takes work.