Friday, October 7, 2016

My Last Miles Redemption is an Example Why I Prefer to Earn Cash, not Miles

Earlier this week, I pointed out that I was able to use Delta SkyMiles to book a trip from NYC to TLV for only 70,000 points round-trip per person.

If you have followed my blog for a while you may know that I highly prefer to earn cashback over points with my credit cards.  You won't see me whip out my Starwoods credit card for everyday purchases (I actually don't even have a Starwoods - I know, the pain!).

I will use my latest redemption as a real life example.

Let's assume I would have booked the same flight with cash as I would have for miles.  It's not true since I would have booked a more convenient direct flight since it was basically the same price as one with a stopover but let's gloss over that for a moment (even though that's one of my reasons for disliking miles).

Had I not had miles to burn I would have used cash which would have cost about $900.

My flight cost me 70,000 miles + fees.  Let's do some math.

It cost me $102.79 per person in fees.  In addition, Membership Rewards charged me $0.0006 per mile to transfer to Delta to help pay for a Federal excise tax.  That's $42 per ticket so a total of $144.79 per ticket.

Sure, that's a lot out of pocket compared to $900 but the $144.79 I paid means that I only saved $755.21 as compared to paying cash since I had to pay $144.79 anyways.  My 70,000 miles saved me $755.21, not $900.

That's a value of $0.010788 per point.

Let's say I used Starwoods card to earn all those Delta Miles for 1.25 miles per dollar spent when you transfer in 20,000 point blocks.  I would have had to spend $56,000 on my credit card to earn 70,000 miles.

Had I simply used a 2% cashback credit card, that same $56,000 in spending would have earned me $1,120 in cash.  I could have paid for my flight and kept over $360. I would have no blackout dates, had a more convenient flight and I could still earn miles for my actual flight making the cash redemption even more valuable.  Things would have just been more simple too.

Why Did I Use Miles?

So, if I think cash is so much better why did I use miles for my redemption instead of cash?  Well, that's easy.  I used miles because I had miles.  I would much rather pay with miles than cash once I have them.  That's cash I can keep in my pocket.

The better question is why did I earn those miles to begin with?

Here are my guidelines for earning miles:

1) Sign up bonuses - You earn many miles for very little spending that it makes sense to earn miles.

2) When I can earn more miles than cashback, I'll take the miles.  For example if I earn 3x Thank You Points with Citi ATT for an online purchase, I will take that rather than 2 cents (if I had such a card).   I know I'll use the points anyways and I will be able to redeem them for more than $0.01 per point.  If I can earn the same amount of miles as cash, I will take the cash for the convenience.

3) When the miles can be redeemed for cash.  Ultimate rewards can be redeemed for $0.01 per point so even if I only earn the same number of URs as cash, I will take the URs since I know I can always redeem for cash and I have the flexibility of redeeming for higher value redemptions.

I don't want to rehash all the reasons I like cash more than miles but it is important to note that this is a personal decision.  I don't travel first class, I don't travel business class.  I'm not always flexible in my travel times.  Those are the real sweetspots for miles redemptions.  If you get more mileage (see what I did there!) out of your miles, by all means continue to go for the miles.  This is what works for me and my family.  Maybe it doesn't work for you.

For further reading, you can check out some of my older posts on the subject:

Cashback vs. Points - What's Better?
Fidelity American Express is Padding my Retirement Account