Using points and miles to travel is one of the most helpful ways to reach your destinations. However, the web is full of credit card ads and online self-titled travel gurus trying to sell us various products to earn a commission instead of recommending something that fits our lifestyle and spending habits.
Some credit cards, as a benefit, are part of a loyalty program. A loyalty program rewards you for using their product or service. For example, when using credit cards, you receive a cash reward or points to exchange for products and services.
There are multiple credit card loyalty programs, and each one offers you a different reward value and flexibility. The more flexible a loyalty program is, the more options you have. To maximize the value we receive from each loyalty program, we must understand how they work. I have grouped loyalty programs under three categories: Cashback Programs, Co-Branded Loyalty Programs, Bank Loyalty Programs.
Cashback Programs:
Straightforward and easy to understand. You are paid back a percentage of the amount you spent. Popular programs provide you between 1% to 2% back, sometimes with bonus categories up to 5%. Payment might vary by program, but you can usually receive your cashback earnings as a deposit, statement credit, check or exchange them for gift cards. This kind of loyalty program is easy to understand and redeem. If you are not interested in doing points and miles, this is an easy and rewarding way to accrue earnings. A sound cashback credit card should be free (no annual fee) and pay you back, on average, more than 1.5%.
Co-Branded Loyalty Programs:
These credit cards partner with other major companies; we will focus on airlines and hotel credit cards. You will receive back points or miles that you can exchange for flights or hotel stays with the credit card partner. However, each loyalty program is unique. Travel or hotel redemptions differ by program. For example, an award trip from North America to Europe on American Airlines costs 30K miles plus taxes, while a similar trip on Delta Airlines costs 40k miles plus taxes. Award redemptions are specific to each airline. Other programs such as Southwest have a fixed value for each mile, so you can expect to get about 1.6 cents per mile when booking a flight.
The number of miles and points you earn varies depending on how you use your credit card, but you usually get extra points for spending money with the partnering airline or hotel. Some co-branded cards also give you bonus points or miles for restaurants or gas expenses, to name a few.
Since the value of points and miles vary depending on each program, it is a bit more complicated to calculate how much value you are getting back. Depending on your reward redemption, 100,000 Hilton points can be equivalent to 20,000 American Airlines miles (point valuation is beyond this article’s scope, we’ll revisit it in a later article).
Some extra valuable perks could be a generous sign-up bonus, priority boarding, room upgrades, more award availability, etc. Finding the best value for your miles and points can be challenging, and it’s not for everyone.
You can find entry-level co-branded credit cards with no annual fee and premium cards that cost $550 per year. If this is your first co-branded card, look for a card with an airline or hotel that you will use, a generous sign-up bonus of at least 50,000 miles or points, and a $95 annual fee, hopefully waived for the first year.
Bank Loyalty Programs:
If flexibility is helpful to plan your trips, this is where bank loyalty programs shine. Some of the most well-known programs are American Express Membership Rewards, Chase Ultimate Rewards, and Citi ThankYou Points. Bank points can get complicated, but they are also the most flexible. These programs allow you to convert your points to airline miles and hotel points, use them as cash to book trips, buy gift cards, and sometimes receive statement credits. Due to their flexibility, you can usually find the most value for your award with one of their multiple travel partners. Most bank loyalty programs have bonus categories, where you receive more earnings by spending on restaurants or travel. Like co-branded cards, fees range from $0 to $575 per year, so do benefits and perks. Some cards reimburse you for travel, give you free food delivery subscriptions, and might even provide you with status with some hotels. A bank loyalty program is great to start learning how to maximize your credit card rewards. Look for a card with a generous sign-up bonus of 50,000 points or more and with a $95 annual fee (if waived, even better).
Recap:
Cashback credit cards: Easy to understand and redeem as cash.
Co-branded loyalty credit cards: Rewards can hold a lot of value. Usually, you can only redeem with the airline or hotel partner. Finding the best rewards is more complicated than cashback.
Bank loyalty credit cards: The most flexible with various travel and hotel partners. Finding the best awards requires proper valuation.
Be conscious of the effects of applying for a credit card. It will impact your credit score, and if you can’t pay off each statement or meet the spending requirements, it could negate the benefits of the card. If you are applying for a large loan such as a car or mortgage, possibly it’s a good idea to wait before getting a new credit card.
However, if you are financially sound and looking to add a credit card to your wallet to maximize your rewards, some credit cards and their loyalty programs could benefit you.
If you have any questions or comments, don’t hesitate to leave them below or message me. I’m always happy to share my knowledge.