Tuesday, October 2, 2012

Points and miles versus cash back

I had an interesting discussion this weekend with some of my friends on how they go about optimizing spending on their rewards earning credit cards to earn cash back, points, and miles on all their credit card purchases.

My friend, let's call him Cashback Carl, is all about the cash back.  Whenever he reaches certain thresholds of cash back, he requests a statement credit or a check mailed to him.  
"It's like getting free money every few weeks for doing nothing!" he says.  You can't really argue with that logic.  Cash back on normal purchases is great, and one of the biggest reasons I always advocate making your purchases with your credit card (and NOT with debit cards or cash).  His favorite card right now is the The Blue Cash Preferred® Card from American Express, which earns 6% cash back on grocery store purchases, 3% cash back on gas and department stores, and 1% cash back on everything else.  He will frequently purchase $500 Visa or Mastercard gift cards at the grocery store, then use those cards to effectively get 6% on ALL of his credit card purchases.  

My other friend, let's call him Peter Points, is about using rewards credit cards to earn free points and miles.  "When I use my Ultimate Rewards points, 1 UR point is only worth 1 cent, but 1 airline mile can be worth much more than just 1 cent, up to 2-3 cents per point!"  His favorite card right now is the Chase Sapphire Preferred card, because he travels frequently out of the country and this card doesn't charge any foreign exchange fees.  "I like to let my points accumulate and I treat these points and miles as a separate savings account.  When I hit certain goals, I use the points and miles and convert them into a free vacation for my wife and me.  I get much more value out of these points when used to convert to free hotel stays and free airline flights than just plain cash back.  Let's face it - to me, cash back is boring."

The three of us had a great discussion about earning rewards and points and I found myself completely agreeing with everything Peter Points had to say.  There's something to be said about earning enough reward points and miles to earn a free trip for you and your significant other / family / friends than just getting a cash rebate.  Peter Points is right; cash back IS boring.

While cash back does serve a purpose, I've decided to focus most of my spending on earning points and airline miles from now on.  I'm putting most of my spend on either my Chase cards to earn Ultimate Rewards points or my American Express Starwood Preferred cards to earn Starpoints.

I've discussed different ways to earn more points and miles before.  Credit card sign up bonuses are the fastest way to jump start your points earning accounts.  Then, don't forget to always pay with credit.  Optimize spending to earn more than 1 point per $1 spent whenever possible.  This is achieved by going through online shopping portals and 
double dipping your credit card spending. 

The main reasons to consider saving up your credit card rewards points and not turn them into cash back are:
  1. Your points / miles act like a separate savings account that you are going to use for vacation purposes only
  2. Each of your points / miles are often worth more than their equivalent cash value. 

We’re currently saving up large amounts of Chase Ultimate Rewards Points, Citi Thank You points, and Starwood Preferred Guest Starpoints for our next international vacation next year.  We’re thinking of going somewhere in Asia.

Here are a few ideas on great deals for hotel points:
A stay at hotel Aloft Bangkok, Thailand runs for 3,000 SPG Starwood Preferred Guest Starpoints each night.
A stay at Hyatt Regency Jing Jin City China runs for 5,000 Hyatt points (converted from Chase Ultimate Rewards points) each night.

Which do you prefer?  Cash back or points and miles?

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