We have been very surprised by how popular our credit card post has been, and even more surprised that some people have decided to try our advice. In this post, I'd like to discuss a few more tips to help you make credit card decisions.
Establish what the points are being used for and get the right card:
Smart, calculated credit card spending can seem like a game to gather as many points as you can, but don't forget that just collecting points does no good. The points need to be spent to have any value. We like to use our points for plane tickets and travel.
For us, the Chase Sapphire Preferred is a good fit because the Ultimate Reward Points can be transferred at a 1:1 point transfer to many participating airlines (British Airways, United, Southwest, Virgin, Korean Air). This gives us great flexibility, since we are not locked into any particular carrier. The Sapphire Preferred also gives double points on all travel related expenses (hotels, rental cars, airline tickets, etc.), essentially earning double miles. The card also has no foreign transaction fees which is a must as expats.
Moving Past the Allure of Point Hoarding:
It is so easy to get caught up earning points that you can lose track of your spending. As we touched on our earlier credit card post, nothing is gained from points when you spend beyond your means. However, credit card programs always find ways to incentivize spending, such as with double, triple and even quintuple reward points.
To illustrate, we were recently booking plane tickets, and we had two choices:
Option A) Spend $770 on plane tickets using the Chase Sapphire Preferred booking directly through the airline. The Sapphire gives double points on travel, yielding 1440 points.
Option B) Spend $800 on plane tickets by booking directly through Chase's travel website. Booking through the travel website yields triple points on travel, yielding 2400 points.
Which option makes the most sense? Surely the extra TRIPLE points I get with option B (extra 1200 points!!!) make up for the additional $30 I have to spend, right? At the end of the year, Chase also awards an additional 7% bonus on all points earned that year. 7% x 1200 points = 84 more points!!! The choice is clear! (Or is it...)
Let's take this one step at a time.
Chase allows you to "cash in" your points at a conversion of 1000 points = $10, meaning 1 point = 1 cent. I like to assign this value to my points because it illustrates the worst case scenario, or lowest possible value. (Depending on how you redeem your points, they could be worth more.)
For option A, you spend $770 and earn $0.01 x (1440 + 7% x 1440) = $15.40 in points
For option B, you spend $800 and earn $0.01 x (2400 + 7% x 2400) = $25.68 in points
In essence, option A "cost" $754.60 (price of ticket minus value of points earned), while option B "cost" $774.32 (price of ticket minus value of points earned). Option B costs $19.78 more, taking into account points.
I would choose option A, but the credit card companies certainly make option B seem very appealing! One would have to value the points at least 3 cents/point for option B to be profitable.
For more visual people, I have used graphs to illustrate my point. The x-axis represents the amount of real money spent on a ticket. The y-axis represents the cost of the ticket minus the value of points earned through that purchase.
Assigning a one cent per point is a very conservative estimate. Using these rules can help you make purchasing decisions that are in your best interest. Depending on how you spend your points, they can actually be "worth" more than a few cents. In a future post, we'll discuss strategies for spending your points to maximize their value.
I hope this post helps you avoid the pitfalls of point hoarding, and enable you to continue enjoying the added value points have to offer.
-Herr Cervelat & the Merry Swiss Ms
Establish what the points are being used for and get the right card:
Smart, calculated credit card spending can seem like a game to gather as many points as you can, but don't forget that just collecting points does no good. The points need to be spent to have any value. We like to use our points for plane tickets and travel.
For us, the Chase Sapphire Preferred is a good fit because the Ultimate Reward Points can be transferred at a 1:1 point transfer to many participating airlines (British Airways, United, Southwest, Virgin, Korean Air). This gives us great flexibility, since we are not locked into any particular carrier. The Sapphire Preferred also gives double points on all travel related expenses (hotels, rental cars, airline tickets, etc.), essentially earning double miles. The card also has no foreign transaction fees which is a must as expats.
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| In addition to airlines, the Sapphire Preferred has many other partners. Chances are good that one of these programs will fit your needs! |
Moving Past the Allure of Point Hoarding:
It is so easy to get caught up earning points that you can lose track of your spending. As we touched on our earlier credit card post, nothing is gained from points when you spend beyond your means. However, credit card programs always find ways to incentivize spending, such as with double, triple and even quintuple reward points.
To illustrate, we were recently booking plane tickets, and we had two choices:
Option A) Spend $770 on plane tickets using the Chase Sapphire Preferred booking directly through the airline. The Sapphire gives double points on travel, yielding 1440 points.
Option B) Spend $800 on plane tickets by booking directly through Chase's travel website. Booking through the travel website yields triple points on travel, yielding 2400 points.
Which option makes the most sense? Surely the extra TRIPLE points I get with option B (extra 1200 points!!!) make up for the additional $30 I have to spend, right? At the end of the year, Chase also awards an additional 7% bonus on all points earned that year. 7% x 1200 points = 84 more points!!! The choice is clear! (Or is it...)
Let's take this one step at a time.
Chase allows you to "cash in" your points at a conversion of 1000 points = $10, meaning 1 point = 1 cent. I like to assign this value to my points because it illustrates the worst case scenario, or lowest possible value. (Depending on how you redeem your points, they could be worth more.)
For option A, you spend $770 and earn $0.01 x (1440 + 7% x 1440) = $15.40 in points
For option B, you spend $800 and earn $0.01 x (2400 + 7% x 2400) = $25.68 in points
In essence, option A "cost" $754.60 (price of ticket minus value of points earned), while option B "cost" $774.32 (price of ticket minus value of points earned). Option B costs $19.78 more, taking into account points.
I would choose option A, but the credit card companies certainly make option B seem very appealing! One would have to value the points at least 3 cents/point for option B to be profitable.
For more visual people, I have used graphs to illustrate my point. The x-axis represents the amount of real money spent on a ticket. The y-axis represents the cost of the ticket minus the value of points earned through that purchase.
 |
| If you value points at one cent/point, then spending $770 with double points is about equivalent to $780 spent with triple points. |
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| If you value points at three cents/point, then spending $770 with double points is about equivalent to $800 spent with triple points. |
Assigning a one cent per point is a very conservative estimate. Using these rules can help you make purchasing decisions that are in your best interest. Depending on how you spend your points, they can actually be "worth" more than a few cents. In a future post, we'll discuss strategies for spending your points to maximize their value.
I hope this post helps you avoid the pitfalls of point hoarding, and enable you to continue enjoying the added value points have to offer.
-Herr Cervelat & the Merry Swiss Ms
Very astute calculation! I do the same thing whenever I'm thinking of buying something through an airline's shopping portal. Those deals where you get 4 miles per dollar spent or something. Inevitably, the item costs more through those websites, so I do a cost calculation on the miles I'm essentially "purchasing" by paying more for the item instead of buying it on Amazon or at the grocery store, etc, where it would be cheapest.
ReplyDeleteOne cent per point is very conservative, especially for Ultimate Rewards which are so flexible and transferable. I keep a running tally of all the points I've earned and used and so far have gotten 3.2 cents value per point, mostly due to those business class flights which would cost so much money. Hotel points are usually not worth as much, and you're lucky if you get 1 cent value.