The Math Behind the Credit Card Points

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.

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.

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

How to Play the Credit Card Rewards Game

In the past year, I have began dabbling with credit card reward points and sign-up bonuses to make travelling more affordable.  To this end, I've poured over websites, pestered my poor brother-in-law for advice (thank you!) and researched cards that would give me the greatest return.  I wanted to share my experience with our readers who may be interested in maximizing the returns on the money they're already spending.  (And encourage you to use your copious airline miles to visit us!)  

In less than a year of use, I have earned SIX FREE one-way flights between the US (East Coast) and Switzerland.  These flights have been on quality airlines including Swiss Airlines and Lufthansa.  Interested?  Read on:

Our first flight to Switzerland on Swiss Air was completely booked on points.  Dattebayo.

WARNING - This is my own personal experience using credit card programs to earn rewards for travel and does not constitute financial advice.  Make choices that make the most sense for you and your financial situation.  Signing up for credit cards is not actually a game and managing your finances takes commitment and careful management.  Nothing is gained by earning points by spending beyond your means.  If you cannot pay off your balances, forget about points.  You'll do more harm than good.  Pay, then play....then visit us!  

These are the three cards I have:

1)  Chase Sapphire Preferred

2)  Chase Freedom

3)  United MileagePlus Explorer Card (also Chase)


The Chase Sapphire Preferred is the most versatile.  

If you like eating out and travelling, this is the perfect card for you!  Double Reward points for restaurants and travel!

The Pros:
-Great sign up bonus 40,000 Reward Points
-Consistent point accrual
-Free points transfer to many airlines and hotels 1:1

The Cons:
-The spending requirement may be too high for some people.
-$95 yearly fee, waived first year

The Points:
You earn 1 Reward Point per dollar spent, 2 Reward Points per dollar spent on travel and restaurants and 3 Reward Points per dollar spent if you book a flight/hotel online through the Chase Sapphire website. 

Yes, Double points even with McDonalds...although Ashley doesn't seem to think it's worth it.

The Bonus:
If you spend $3000 on the card and pay it off within three months, you get 40,000 Reward Points sign-up bonus.

The Notes:
 I use this card all the time in Switzerland because it has no foreign transaction fees. 


The Chase Freedom offers extra bonus categories. 

The Pros:

-No yearly fee.  It's free!
-Up to 5x points on rotating categories.
-Low spending requirement for earning sign up bonus of up to 30,000 Reward Points.

The Cons:
-Quarterly categories may not match your spending habits.
-Reward Points can only be redeemed as cash.  No conversion.

The Points:
Unlike the Sapphire where Reward Points accrual categories are fixed, with Freedom you earn x5 points on certain categories that change every quarter.  For example, this quarter you earn 5 Reward Points for every dollar spent on gas stations, theme parks and Kohl's Department stores.  Next quarter has x5 points for purchases made on Amazon.com and department stores (JCPenny's, Sears and Macy's).  Spending in all other categories gives you 1 Reward Point per dollar spent.  Reward Points can only be redeemed for cash directly (1,000 points = $10).  SEE NOTE.

When we were moving out of our Philadelphia apartment, we rented a car and paid for gas with our Freedom.  At the time, using the Freedom at gas stations netted us 5 Reward Points on every dollar spent.

The Bonus:
There is currently a 10,000 sign-up bonus (this amount fluctuates depending on current promotions) for spending only $500 on the card and paying it off in three months.  However, I was able to negotiate it up to 30,000 (more on this below).

The Notes:
So if these Reward Points can only be redeemed as cash, how does that help me visit you in Switzerland?  Well, Freedom points can be transferred to points programs on other Chase cards that allow you to redeem points on things like airlines and hotels (like the Chase Sapphire Preferred).  Direct purchases using points tend to be "worth" more than the actual monetary value of the points themselves.  For these reasons, this card is most valuable when you can transfer the points to another card with better rewards.  


My ideal airline for travel to and from Switzerland is United and their partners (Swiss Air and Lufthansa), so I have the United MileagePlus Explorer Card.

I was able to book a free flight with Lufthansa to reach the States for the Fourth of July holidays.

The Pros:
-One of the best sign-up bonuses offered.  Up to 55,000 United Miles!!!
-Free first checked bag on United Flights
-No foreign transaction fee

The Cons:
-$95 yearly fee, waived first year


The Miles:
I do not earn Chase Reward Points with this card.  This card is directly linked to my United Frequent Flier account, and each dollar spent on the card gives one United mile.  Double United Miles are earned when United flights are booked with the card.  Only 30,000 United Miles are needed for a flight to Europe from the US.

The Bonus:
Chase is offering 30,000 bonus miles if $1000 is spent in the first three month.  However, when I signed up earlier this year in January, I had to spend $3000 in the first three months it was open to get a 50,000 mile bonus.  I also added the Swiss Ms. as an additional authorized user, which earned us another 5,000 miles.

The Notes:
Other great benefits include no foreign transaction fees and first bag checked free on United Flights booked with this card.  The accrued United miles can be used to book flights on United and other partner airlines, such as Swiss Air, Lufthansa and Air Canada.

Lufthansa: One of the nicer airlines I've traveled on.  

General Remarks and Tips:

How to increase your points without increasing your overall spending:
While the spending requirements can seem daunting, with the proper timing and management , you can usually achieve the minimums if you plan your spending.  

1)  Many bills (such as cell phone, electricity, water, TV and internet) can be paid with credit cards.  
2)  Use the credit card for everyday expenditures, such as groceries, eating out and gas.
3)  If you know you will be making a big purchase in the future (such as a new laptop, plane ticket or wedding), time the new credit card so you can use big ticket purchases to achieve bonuses.  
4)  Most importantly, take a look at your expenditures before getting any credit card!  Make sure you can meet the minimum amount without having to break your budget or increase your normal spending.  The reward cards are supposed to help you save money with points, not spend more money for points!

We planned in advance and had the Sapphire Preferred while we were in India!  (SwissMs: This is not me.)

Maximize your Sign-up Bonus:
When I signed up for the Chase Freedom, I only received 10,000 points.  Later, I learned that the Freedom used to offer larger sign-up offers up to 30,000 points.  After reading various articles online, I contacted Chase to request an increase in my sign-up bonus to match their earlier offer.  Within three business days, an extra 20,000 Reward Points got deposited into my account!

This strategy does not always work.  When attempting the same request with the Sapphire card, I was told that requests for matching offers would only be considered within the first three months of opening the card.  So when you sign up for a credit card, do some research to receive the maximum bonus possible.  Follow up within three months to check for better offers.

For airline mileage cards, like the United Explorer Card, additional bonus miles are offered  when you can show increased activity on a connected frequent flyer account.  If you've ever opened a free frequent flyer account with an airline, you know the airline's credit card offer is not far behind.  When I first signed up for the United Explorer card, I already had a frequent flyer account, but had not booked a flight on United in years.  My frequent flyer mile balance was stagnant so my sign-up bonus offer was low.   In order to show recent activity, I read that I could convert points from my Chase Sapphire card to United Frequent Flyer Miles and add them to my account.  This makes it appear that I recently earned frequent flyer miles without actually needing to book a flight.  I followed this advice and received a much higher sign-up bonus offer.  Again, it is definitely worthwhile to research the maximum sign-up bonus available.

Maximize your Points:
If you've already met the spending requirements for your bonus, be aware of which categories offer higher rewards and at what times.

For example, while I would typically use the Sapphire Preferred for dining out (x2 points), the Freedom offered x5 points on restaurant purchases during the second quarter.  Using the right card at the right time gives you higher returns.

Find your perfect airline:
For us, Swiss Air is frequently the most convenient carrier when traveling to and from Zurich.  Swiss Air is part of the "Star Alliance" Partnership of airlines which included United Airlines, Lufthansa, Air Canada and many others.  Points earned on any partner airlines can be redeemed on any partner airline.  This means that points earned on my United credit card can be redeemed with any "Star Alliance" airline which allows you many flights to choose from and great date availability.  Of course, the most convenient airline for you will highly depend on where you live and where you want to go.  Choose cards that can earn rewards on airlines that fly where you know you want to travel.  (*Cough**Cough*Switzerland.*Cough**Cough*)

Cancelling your Card:
One thing to be mindful of is that some of these cards have yearly fees, but fees are typically waived for the first year of use.  If you don't feel like paying the fee after the first year, simply cancel the card.  From my readings and research, signing up for and cancelling cards can only hinder your ability to get obtain cards in the future if you do it right after you earn the sign-up bonus.  As such, keep the card around until the year is almost over, and if you feel it's not worth the yearly fee, call Chase to cancel it.  

While it should be fairly straight-forward cancelling the card, you may have trouble cutting the Sapphire Preferred.  It's made out of metal.  I'm not kidding.

The Significance of Others:
I should also add that I have been the primary card holder on all these accounts.  The Swiss Ms. could technically repeat what I have done, and we could have a total of TWELVE FREE one way trips from Switzerland to the US.  Keep in mind that would double the spending requirements and potential yearly fees.  Managing your cards also becomes far more complicated the more you have.  I am still very much a beginner at this, and haven't dabbled in the other types of reward points programs offered through other credit card companies.

Don't let that smile fool you.  Taking care of multiple cards makes her quite nervous, and I have only one chance at the credit card rewards "game."  As such, I have been hesitant to get a second person involved.

Hopefully, this will encourage you to make the most of your money by playing the credit card companies at their own game.  Spend smart, travel free, and have fun!

-Herr Cervelat & The Merry Swiss Ms

PS.  For those of you who want to go down the rabbit hole, I found this website to be very helpful when I started.  Happy reading!  

PPS  Part 2 on the Math Behind the Credit Card Points!