My non-contrarian contrarian argument

 

I know from the affiliate report that some of my readers got an  Amex SPG card when the bonus was increased to 30000 points. By next August you will have to decide whether to pay the renewal fee of 65 dollars or not. Assuming you are not the type to beg for fee waiver.

My husband would rather cut off his arm, than do that. So, let’s imagine this scenario. You have  plans to buy a house in the next 2 years, so you can’t switch cards for that reason. And you never got around to applying for a 2 percent card, like Fidelity Amex, because of a lack of sign-up bonus.

But you do have Sallie Mae Barclaycard and Amex SPG card and want to get the most out of your spending without signing up for any new credit. I picked Sallie Mae for simplicity, because its a Mastercard, so it would balance out Amex card for those places, where American Express is not accepted. But it could be Chase Freedom, US bank cash+ or any other card, that has bonus categories.

The idea is to maximize your 5 or  3 percent cash back earning ability. That to me is a no-brainer. No mile IMO can ever come close to being worth 5 or even 3 cents, especially for  a middle class family.

So let’s assume, that we need to make a decision on how to spread our spending and whether to keep Amex SPG card. This is the earning structure of Sallie Mae, which I have covered before:

5% rewards up to $250 total for groceries per month
5% rewards up to $250 total for gas per month
5% rewards up to $750 total for books per month
1% on everything else

Our spending is 24000 dollars per year, which probably comes close to most regular families. So let’s say, we use Sallie Mae card when we spend 3000 dollars on groceries per year, 3000 dollars on gas and 1200 on Amazon, which falls under books.That way we can maximize the bonus categories. 3000+3000+1200=7200   So that would leave us with 16800 dollars in non-bonus spending.

We can continue using Sallie Mae and earn 1 percent or switch to Amex SPG card and earn 1 starpoint per dollar.  Remember, we have to factor in the 65 dollar annual fee. I value 1 SPG point at around 1.3 cents, so it would be an equivalent of getting 218 dollars vs. 168 dollars through Sallie Mae in cash back. But  subtract 65 dollar fee, and we have 153 dollars. By that logic Sallie Mae should win, right? Not so fast!

Let’s assume, we have about 15000 SPG points left from our sign-up bonus. Normally, I would say, dump the card with the annual fee if it does not give any value upfront, like a free hotel night. But that may not hold true for all situations. First of all, if you are looking to transfer into airline miles, you get a bonus of 5000 miles per each 20000 points transfer. If you don’t plan to get an SPG card anytime soon, that alone can make an argument for sticking with this card for non-bonus spending, so you can reach that threshold.

Since I value an SPG point at around 1.3 cents (CLICK to post), that bonus would make up for the annual fee. Also, Amex has a small business promotion credit every year, though  it has been reduced to just 10 dollars per card. But even if we ignore the transfer bonus and superior American Express purchase protection and promotions, there are times it might pay to stick with Amex SPG. Of course, assuming it’s widely accepted in your area. Lets look at 3 scenarios:

1) Your family of four, including 2 small kids, lives in New York city and has no car.  You have relatives in Toronto, that you have to visit and are flexible on dates. You could rent a car, but it’s expensive and a hassle with small children. Fortunately, American Airlines flies that route and you can redeem Avios points through BA program.

That route runs only 4500 miles each way. So, roundtrip tickets for 4 would cost 36000 miles. If you continue using SPG card, at the end of the year your family would have 31800 SPG points and with the transfer bonus of 5000 points, it would be enough for 4 tickets. The airfare on that route seems to run 300 dollars roundtrip.

So your annual 16800 dollars in spending would provide you with 2 tickets to Toronto, at 9000 miles each.  We take 300 dollars multiplied by 2, minus tax on award tickets of 56 dollars per person times 2, minus 65 dollar annual Amex SPG fee= 423 dollars. Compare it to 168 dollars we would get with Sallie Mae, and gentlemen and few ladies, we have a winner!

2) Your family of 4 lives in Florida, within  driving distance to Miami. You love vacationing in Turks and Caicos, but the airfare is 500 dollars roundtrip.   American flies that route and it runs, you guessed it, 4500 miles each way plus tax, through Avios program.

You probably would never pay that kind of money for tickets, but the mileage option sure looks attractive enough to consider it. Remember, you would give up 168 dollars by foregoing Sallie Mae cash back option. The math looks like this: 500 dollars times 2, minus 85 dollar tax times 2, minus 65 dollar annual fee= 765 dollars. Caribbean, here we come !

3) Your family has plans to go to Orlando for a summer vacation. There is  Four Points by Sheraton Orlando Studio city    that is a category 1 hotel. That means it runs 2000 SPG points on weekends and 3000 points on weekdays. Even if you prefer to get 2 rooms per night, it would still be a good deal.

That is because you would be giving up just 20 dollars per room on a  weekend ( 1 percent cash back), if you used Sallie Mae card instead.  The value would be even better, if you were willing to share one room.

Of course, you  have to factor in a very real threat of devaluation. But by investing in flexible points like SPG, you do get a measure of protection. These are just a few examples of how non-cashback card can sometimes make more sense even for  a regular middle class family. You may want to read this post for more on the matter.

The same principle can be applied to all non-bonus spending, not just when you are going through a churning drout. Everyone is unique and its impossible to recommend that one “perfect” card. So do your own math and don’t be afraid to be a contrarian. Or in this case, just like everyone else in this hobby!

An update: I have adjusted my value of SPG point to 1.5 cents due to hotel category adjustments. Read my post HERE

Photo credit goes to lassotravel.com