One of my relatives has recently asked whether its best to focus on earning cash back or miles with your credit card. I figured I would do a post giving my humble opinion on the matter. There is no question, that it’s worthwhile getting an airline card with 50000 miles bonus and putting the minimum spend to get that bonus, usually 2 or 3 thousand dollars in 3 months.
But what do you do after that? Also, some people are simply not in a position to get a new card due to poor credit or plans to buy a house. And if you are tempted to overspend, it’s best to stay away from new credit, period. But , lets assume a family already has a mileage earning card and a basic 2 percent cash back card. Which one to choose?
Quite simply, there are only 2 scenarios when mileage card makes more sense. That is, when you are trying to top off an account for a specific award or trying to save up your miles for business or first class. There are exceptions, but overall for a family cash back rules. First, it is almost impossible to get more than 1 or 2 business class seats on a flight, and it would take an obscene amount of time to collect miles needed. Second, you most likely will not get more than 2 cents per mile in value in economy (remember, we are measuring against a 2 percent cash back card for simplicity).
I am always amazed, how many bloggers value a mile at 2 cents a piece. But when miles are on sale for 1.6 cents a piece, they don’t want to buy them. How come? That’s a pretty hefty discount. The truth is , I doubt many people value miles at 2 cents a piece, although some probably do. Suppose, a person puts all of his spending on a mileage card and reaches 100000 miles needed for a business class seat to Europe. They feel really good about getting their free flight. But the truth is , they actually paid 2000 dollars because they have foregone a 2 percent cash back on the same amount of spending through a regular card.
It is a pretty good deal, depending on the time of the year, but it’s not free. Let me give you an example of the best redemption I have made to date, and we will crunch the numbers. A few years ago I have redeemed miles for 3 economy seats from USA to Europe. The miles were earned through some flying and credit card bonuses. The award price was 50000 miles per person for a ticket that would have cost me approximately 1350 dollars. I paid 250 tax, so I got 1100 dollars out of 50000 miles. Thats 2.2 cents return per mile. Pretty good , right?
But remember, I have foregone 10000 miles, I would have earned, by getting an award ticket instead of a paid one. So I have to deduct about 100 dollars, which is the value of the miles at 1 cent a piece. So, by that math I got 2 cents per mile. The thing is though, since then the award price for the same ticket has gone up from 50000 to 60000 miles.
Plus, I had to go when the award seats were available, costing me flexibility. And you can’t use miles for paying your bills, unlike cash. So, even in my best redemption I could not get more than 2 percent back. My average redemption is closer to 1.5 cents per mile, by the way. That’s why it usually makes no sense to continue charging everything on a mileage card for a family, like mine.
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Author: Leana
Leana is the founder of Miles For Family. She enjoys beach vacations and visiting her family in Europe. Originally from Belarus, Leana resides in central Florida with her husband and two children.
@ Brent First, thanks for your input, I appreciate it. The roundtrip distance from Orlando-Minsk is around 10000 miles (or close to it, I just said 10000 for simplicity), that’s the mileage I have foregone , by getting an award ticket. You have pointed out correctly,that the best time to leverage the miles is during peak dates. For a family of 4, it would be hard to find seats all on the same flight, though. And even if flight is available, it might be at terrible times, like in the middle of the night. Those are all things, one should consider. Don’t get me wrong, I love miles, but will not accrue them through regular spending for my family. But to each his own, it’s a personal thing. Thanks again for your comment!
A couple of points- First, you wouldn’t forego 10,000 miles by flying on an award ticket. It is only 5,000 miles roundtrip to europe from the east coast, and since you aren’t a frequent traveler you won’t be in 1.5 or 2.0 bonus fare buckets. Second, you talk about lost flexibility by booking with miles. I would point out that many families need to fly peak periods (summer and holidays) and on peak days (Fri through Monday), and that is when you can leverage miles best verse the astronomical fares charged in these high demand periods. If you are locked into one airline’s program you may have a problem with inventory but if you use chase ultimate rewards and use UA, BA, etc, you can usually find seats, especially on international flights.