Maximize the Value of Your Airline Miles and Points
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When people learn how much I travel, and how little I pay, they typically want to get in on the deal. And while everyone recognizes that earning points and miles is a challenge, few realize that learning the best way to spend them is at least as important. So when I redeem any of my airline, hotel, or credit card rewards, the first thing I want to know is how many cents per point or mile am I getting. I need to know this in order to ensure that I am getting the most value from my points and miles, as well as my reward credit cards.
How do you know how much value you are getting when you redeem an award? Ask yourself a few questions. (See also: Best Travel Rewards Credit Cards)
1. What Does the Product or Service Cost?
This is the easiest question to answer, and most people stop there. But there is a lot more to determining the value miles and points than getting a quote for the cash price.
2. What Do I Have to Give Up to Redeem the Points?
With most airlines, points or miles can only be redeemed at the lowest mileage levels for a small fraction of the seats. So, if you have to cut your vacation short by a few days or accept an extra change of planes in order to reach your destination, you are getting less actual value from your reward ticket than the value of a restriction-free, full cash ticket.
3. What Is the Cheapest Alternative?
When you find an available award flight or hotel stay, you can't just look up the price from the company that offers it. You should also consider if there is a comparable flight or hotel room being offered by a competitor at a lower cost. Since the lower priced option is what you would have paid, that is the maximum your award is worth.
4. What Is the Reward Worth to You?
The best value for airline and hotel rewards is typically for luxury travel. When redeemed for flights in business class, or reward nights in luxury hotels, it is easy to receive rewards that normally sell for five cents per point/mile or more.
But unfortunately, you can't really conclude that you are receiving $8,000 in value for a business class flight, unless you normally pay cash for those tickets. Instead, I like to perform a thought experiment.
I ask myself what is the most I would have paid in cash for the business class seat, compared to the standard economy seat. What I usually decide is that it is worth about 50% more than a coach seat, not the two to five times it usually sells for. And coincidentally, that is often about how many more miles a business class reward requires, so I gladly pay it when available.
5. How Many Points or Miles Can I Earn by Paying Cash?
Finally, the last thing to consider is the rewards you would earn if you paid for the travel with dollars. For example, if you purchased a ticket for a three thousand mile round trip flight for $500, you would have earned 3,000 miles plus perhaps another 1,000 miles from an airline credit card. If you valued your miles at 1.5 cents each (which is the standard estimated value), you would have a missed out on $60 worth of miles by redeeming a reward instead of paying cash. So essentially, you are losing a little more than 10% of the value of your miles because you don't earn miles on reward tickets.
The Two Cent Rule
Despite my five part methodology, I try not to overthink this. My goal is to get at least two cents in value for every dollar I spend on a credit card that returns points or miles.
Why two cents?
Because that is essentially what you always get when you use a card with a fixed value rewards program. For example, each mile earned on a a travel rewards card that offers double miles on all purchases is worth one cent each as a statement credit towards any travel reservation.
Getting More Than Your Two Cents' Worth
The two cent rule is a pretty good goal, but we can do better using a couple of strategies. First, use a card that offers bonus miles or points on certain categories of spending. Next, I zero in on the highest value reward options. For airline miles, this includes last minute flights and trips in international business class. For hotels, sometimes it means a luxury property, but I have also gotten amazing deals on nice hotels in the suburbs and near major airports that can still be expensive.
When you take the time to calculate how much your reward points and miles are worth, only then will you be able to earn the most valuable travel rewards.
How do you make the most of your airline miles or points?