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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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.