When it’s better to pay cash and save your rewards for later

It might seem counterintuitive to pay for a trip when you have enough rewards. But it can be a savvy move from a rewards-maximization standpoint. Cash vs rewards

We asked a couple hard-core rewards travelers how to decide when to use your rewards – and when to book with cash and bank your points for later.

Figure out what type of rewards you have

There are three main kinds of travel points – and the type you have can influence whether you use or save your rewards:

  1. Generic points: These points have fixed value (usually 1 cent each), and you use them to cancel out travel purchases. Cards that earn this type of point include the Capital One Venture and the Barclaycard Arrival cards.

    There’s not much strategizing required when using this type of reward, so, if you’ve got ‘em, use ‘em.

    “With fixed-value points, there’s really no huge benefit as to when you use them, because you’re never really going to win in any major way, or lose in any major way,” says Gilbert Ott creator of God Save the Points, a rewards-travel site geared at world travelers.

  2. Airline/hotel points: These are the miles you earn with a specific airline or hotel (via a co-branded credit card, or from flying or staying with the airline or chain).

    These points fluctuate in value depending on the dollar value of the flight or hotel stay, which means strategizing comes into play. If your points fetch a poor value for a particular trip, you may want to use cash for now and wait until a more valuable opportunity comes along.

  3. Flexible points: Some cards, such as the Chase Sapphire Preferred, the Starwood Preferred Guest card from American Express (a CreditCardForum advertising partner) and cards in the AmEx Membership Rewards Program, let you earn points that can be transferred directly to partner airline/hotel programs.

    These flexible points are valuable and could be worth saving. You may have enough Starwood points for a free night – but those points might be more valuable if you save them and transfer them into one of the program’s airline partners later.

    “I’m more prone to covet and hold on to flexible currencies, Starwood being one of those,” says Jesse Smith, founder of rewards-travel consulting service Loophole Travel.

Calculate the per-point value

If you have one of the latter two types of points above, calculating their value for a particular trip can help you decide whether to use them now or pay cash.

For details on calculating point value, go here. Basically, you’ll divide the cash cost of the flight or hotel night by the number of points required. That leaves you with the dollar value per point.

So, what’s a “good” value? That’s personal, and both Smith and Ott have settled on their own benchmarks. Ott uses the value of credit card generic travel points as a starting point – and that means trying for at least a 1-cent-per-point value.

“As long as it’s more than the credit card company thinks it’s worth,” Ott says. “But I strive for at least 2 cents per point. I want to do better than that.”

For example, say you’re taking a domestic flight that would cost $100 cash or 25,000 miles with Delta.

“That’s a bad deal because you’re getting much less than 1 cent per mile,” Ott says.
In that scenario, paying cash (if you can afford it) and saving those points for a pricier flight later might be wise.

Smith has his own “mental benchmarks” that vary by rewards program. But the thing many travelers miss when calculating point value, he says, is comparison shopping. Many travelers will just do the math and then decide whether the per-point value is a good deal.
“I think it should be taken a step further,” Smith says.

Specifically, look for low-cost cash options, regardless of hotel chain or airline. If you find a deal, it might be smart to just book it, pay cash and use your points later for a destination that doesn’t have good deals.

“If I find an Airbnb that I’m comfortable staying at and it’s going to cost me $50 a night, now I’m going to use that $50 in my calculation, whether I’m thinking about using 10,000 Starpoints or 50,000 Hilton points,” Smith says.

Consider using cash and points

While booking a trip 100 percent with points is satisfying, a savvier move might be using cash in ways that boost the value of your points. For example, you might pay cash for a cheap “positioning” flight into a major gateway city that has more rewards space at lower redemption tiers, Smith says.

Or, you might pay points for the big flight to a major European city and take advantage of Europe’s slew of discount carriers to get to your final destination. Smith is doing that for an upcoming trip to Ireland and Scotland.

“For the big flights, we’re booking with points,” he says. “But we’re going Dublin to Glasgow, and you can buy a ticket for $30. I’m not going to throw out 4,500 Avios when I could book it for $30.”
As for hotels, some programs let you redeem a combination of points and cash for a rewards night.
Instead of burning the bulk of your points on a rewards night, you might add a little cash to the mix and keep the majority of your balance intact. The Starwood Preferred Guest program allows you to book with a combination of cash and points, and, as of March 24, 2016, Marriott will allow this as well.

Find out if you’ll lose any benefits if you pay with rewards

Rewards tickets don’t let you accrue miles/points toward status. So, if a flight or hotel stay would bump you into the next elite tier, consider paying cash if you can afford it.

“You might get status for the next year that gets you free checked bags, the possibility for upgrades, fee waivers, lounge access, things that are meaningful money toward travel,” Ott says.

Ott and Smith also emphasize that reward programs sometimes run promos that accelerate your path to elite status or multiply the points you earn. These usually require paying cash to fly a certain number of miles or stay a certain number of nights within a certain period of time. Smith says he decided to pay cash for a (relatively inexpensive) IHG stay instead of using Hilton rewards. Due to a promotion IHG was running at the time, foregoing a free stay got him nearly 40,000 points.

Finally, keep in mind that your credit card may offer travel protections you won’t get if you pay with points. While using points to book a rental car via your card’s travel portal may seem like a good way to save money, you’ll probably end up paying more for rental car insurance (which your card may offer for free, if you use it to pay for your booking).

“If you pay with the Chase Sapphire Preferred, you get the primary rental car insurance, which is a huge deal,” Smith says. “Under no circumstances do I recommend paying with points for a rental car.”

Think about your personal finances and travel goals

Clearly, paying for travel with cash and saving points can have value. But paying with cash for strategic purposes requires you to, well, have cash. If you don’t, both Ott and Smith say, just use the points.

“Points are totally personal and there’s no perfect way to use them,” Ott says. “There are maximal ways to use them, but any time they can help you do something that you wouldn’t be able to afford otherwise, I think that’s a great situation.”

So don’t feel bad if you can’t afford to hold out for the best redemption value.

“If you’re broke and you want to go to a wedding and you couldn’t get to the wedding otherwise, use the points,” Smith says. “Don’t hold back because you want to be tight-fisted with your points.”
The if-you-can’t-afford it-use-points rule applies to luxury travelers as well.

“It can be about aspirational travel and opening up cabins that may otherwise be unavailable to people without points,” Ott says. “I, personally, am not going to pay $10,000 for a ticket. But 100,000 miles? No problem.”

If you decide to pay with money, use the right card

When we say “use cash,” we don’t mean you should literally use cash. We mean use a card – and the right card, at that. If you’re stockpiling points in a particular program, consider using that airline’s or hotel’s co-branded card. If you found a good deal outside your loyalty program of choice, consider using a generic travel rewards card. That’s what Smith did when he found out that Hilton reward nights in Edinburgh were running upwards of 40,000 points a night (his personal limit). Rather than burning that many points, he booked with cash at IHG.

“It was £48 a night,” he says. “I paid for it with my Barclaycard Arrival, so I could pay myself back with those points later.”

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