Credit card reward points can be a game-changer for frequent travelers. They offer the opportunity to travel for free or at a significantly reduced cost, depending on the number of points accumulated and the redemption options available.
But, as I work with clients, a question often arises: should one use credit card reward points for travel or just pay cash instead?
The answer is not always straightforward. It depends on a variety of factors such as the number of points they have, the value of the points, and the available redemption options.
Recently, I came across a tweet from someone wondering if they should use their 250,000 AmEx points or pay $5,000 for a first-class ticket to Paris.
It echoed what a lot of my clients shared. So, how do you decide if using reward points is the right choice?
Here’s the tweet by Shaan Puri that inspired this post.
To break it down for you, the fundamental question he had was this.
Were his AmEx points for a first-class ticket to Paris worth $5,000?
Here’s how I approached it.
The Mathematical Approach
The usual valuation for every AmEx point on average is around 1.8–2 cents.
This means that 10,000 points are worth $180-$200.
However, keep in mind, the value of points can vary depending on the redemption method. For instance, redeeming points for travel will provide a higher value than redeeming them for merchandise or gift cards.
In this context, he has accumulated 263,000 AmEx points and wants to redeem these points for a first-class flight. Assuming a standard valuation of 1.9 cents/point, he can get a travel value of $4,997 (263,000 points x 1.9 cents/point).
It is important to note that the value of points can also vary depending on which rewards program you are using. Some programs offer a higher value per point, while others offer a lower value per point. Therefore, it is essential to research and compare different redemption options before choosing the best one.
The Matter-Of-Fact Approach
The second way to look at it is to assess how many points he actually has and whether or not he minds spending (or overspending) his points.
For example, if he has millions of points in his AmEx card, using up 263,000 points should be a no-brainer. This will not make a significant difference in his overall points balance.
However, if he had a limited number of points and was saving them for a specific redemption option, it may not be worth it to use them for this first-class flight to Paris.
On the other hand, if you don’t have a lot of cash or you are not willing to spend cash for your flights, using up more points over cash will be the route to consider.
Before making a final decision, it’s crucial to consider other factors that may affect the value of credit card reward points. For instance, some credit cards offer transfer bonuses for specific airlines, which can increase the value of your points.
To maximize the value of your credit card reward points, consider the following tips:
- Research and compare different reward programs and redemption options. Look for programs that offer a higher value per point and flexible redemption options.
- Take advantage of bonus points offers for specific purchases or sign-up bonuses for new credit cards.
- Check for blackout dates or restrictions before transferring your points to airline programs to ensure that you can use them for the desired travel dates or hotel stays.
- Consider the value of the points in relation to your overall travel budget. Using reward points for a high-value redemption option may be worth it if it allows you to save money on other travel expenses.
- Don’t transfer your points to airline programs before finalizing your itinerary. Once the transfer is complete, the process cannot be reversed. This could affect your redemption if you choose to revise your travel plans.
Making the right choice will give you a chance to travel in Business or First Class — giving you a budget-friendly luxury trip of a lifetime.