While chatting with a friend recently, she shared that she didn’t bother with miles and points, instead opting for 1 percent cash back from her credit card. Depending on how much you spend, 1 percent cash back can add up quickly — but she was missing out on something much more valuable.
It’s easy to put a value on a dollar, but not quite so simple to put a value on an airline mile or credit card point. This challenge has led many people to blindly choose a cash back credit card, even when that card is not the best option for their needs.
Below, we’ll take a look at cash back vs. points, and help you choose which option makes the most sense for you.
The value of cash back
The majority of cash back credit cards pay around 1 percent back on all purchases. If you spend $100, you get $1 back. If you spend $1,000, you get $10 back.
Some of the more valuable cards, like the Chase Freedom, offer a bit more. Freedom offers 5 percent cash back on rotating categories, but that is limited to $1,500 in combined purchases each quarter. Alternatively, the Fidelity Rewards Visa Signature card offers a flat 2 percent cash back on all purchases.
If you spend about $3,000 per month between groceries, shopping, entertainment, utilities, and other eligible purchases, a 1 percent cash back offer would net you $360 per year. With a 2 percent card, that’s $720 per year. Not chump change, but can you do better?
What are airline miles worth?
We know what a dollar is worth. In the cash back vs. points debate, what are airline miles worth?
Chase Ultimate Rewards points are a popular method to earn miles and points since there are several cards that can generate them and they can be used in several ways.
You can earn Ultimate Rewards points with the Chase Sapphire cards, Ink Plus, and even the Chase Freedom card if you also have an open Sapphire Preferred, Sapphire Reserve, or Ink Plus card in the same Chase user account.
Ultimate Rewards points can be redeemed in the following ways:
- Cash back: One point equals one cent. This is essentially equivalent to 1 percent cash back.
- Book travel through the Ultimate Rewards portal: Booking travel through the portal yields a 25 percent bonus over cash back, making each point worth 1.25 cents.
- Transfer to a partner hotel or airline: Chase Ultimate Rewards offers a stable of transfer partners with a 1:1 point transfer ratio. By transferring to partners, each point can be worth up to around 5 cents.
Did that last bullet get your attention? Booking travel through a partner can yield a value five times better than cash back. Here’s how it works.
Let’s say you have a Chase Sapphire Preferred card, which earns 2 points per dollar spent on travel and dining, and 1 point elsewhere. You have accumulated 140,000 points, thanks to the 50,000 point signup bonus and your regular spending over time.
You can turn that into $1,400 cash back, $1,750 in travel booked through the Ultimate Rewards portal, or transfer the points to a travel partner. It’s true that $1,400 is a lot of money and $1,750 is enough for an international coach plane ticket to many destinations — but we can do better.
A quick search at transfer partner United Airlines shows that for 140,000 points (plus $263 in taxes and fees), you can book a round-trip business class ticket from Los Angeles to London.
Paying cash for the same exact ticket would cost a heck of a lot more — $6,088.76, to be precise.
Taking out the taxes and fees, paying cash for this plane ticket costs $5,826 more out-of-pocket than booking with miles. Some quick math gives us the value of each mile:
$5,826 / 140,000 = 4.16 cents
Clearly, in this case, points are worth more than dollars.
Keep in mind that you can book a coach flight to Europe for around 50,000 points, so if you have saved up 140,000 points you’re not far away from three round-trip flights to Europe (or six domestic round-trip flights).
Using an estimated $1,500 to $2,000 price tag on a coach ticket to Europe, that makes 150,000 points worth $4,500 to $6,000 — still a lot more than $1,500 cash back.
You can do similar comparisons with other cards popular with travel hackers. You can also earn miles and points directly with your favorite airline or hotel chain using its specific branded credit card.
Cash back vs. points
If you’re not interested in traveling, going after points and miles won’t be worth all that much to you. However, if you want to see the world, miles and points can get you there at a much lower out-of-pocket cost than paying full-price for each plane ticket and hotel room.
If you want to travel regularly, you’re much better off with a miles or points travel rewards card than paying cash. Just don’t get caught up in a debt trap by spending more because of your travel rewards credit cards. Stick to your budget and only spend what you would have anyway while earning miles and points for travel.
Everyone has different spending, debt, and travel habits, so there is no right or wrong answer. But if you love to travel, it’s easy to see how the math works out in your favor when you choose miles and points over cash back. Your next vacation could be just a few swipes away.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|