Credit card rewards can be very lucrative. If you play the game right, the rewards can add up to much more than merely pocket change. In 2016, my wife and I were able to gain over $13k of combined value from all of our rewards programs.
Why do credit card companies allow this? Because having you as a customer is even more lucrative.
Even if you never pay a penny in interest, credit card companies still make money on every purchase you make. Typically 2.9% plus $0.30 for each transaction. Then add interest and fees on top. It’s easy to see how they are more than willing to give you 1-2% back in order to get your business.
By maximizing sign-up bonuses, everyday spending, shopping portals, and dining programs, you can really take advantage of the available rewards. None of the points we redeemed were earned from travel. All of them were earned from the methods mentioned above.
I am going to give a complete breakdown of every rewards programs we used in 2016, how much value we received from each, and the credit cards used to earn the rewards. Here in Part 1, I focus on the rewards programs where we earned the most value. In Part 2, I will discuss the other programs that provided us with a little extra value.
Southwest Rapid Rewards ($5,327.36)
Southwest offers the best value for domestic travel and it’s not really close. By utilizing the Southwest Companion Pass, my wife and I were able to fly 42 flights for $252 last year on Southwest. We used 173,081 Rapid Rewards points to get all our flights, which brings the average value to 3.08 cents per point. That’s a fantastic value and a reminder that not all points are created equal.
The majority of the points were earned from the sign-up bonuses of the two Southwest credit cards, which is also how we hit the 110,000 points needed to earn the Southwest Companion Pass. Southwest is a transfer partner of Chase Ultimate Rewards, so we funnel points from everyday spending on the various Chase-branded credit cards to redeem more flights at fantastic value.
Most airline-branded credit cards are not worth keeping long-term, but the Southwest Premier credit cards are an exception. You receive 6,000 points each anniversary. At an annual cost of $99, you need to get back 1.65 cents per point to break-even. That’s pretty standard value for Southwest and there is upside for a lot more.
American Aadvantage ($2,541.20)
The entire value was received on 2 roundtrip tickets to Europe where we only used 72,000 miles in total. That’s a value of 3.53 cents per point. It was really a perfect storm to get that value as American Airlines changed its pricing on Off-Peak award flights last year. We flew in March-April 2016 when the Off-Peak award flights for Europe were 20,000 miles each way. Now these flights are 22,500 miles each way and Off-Peak dates have been shortened by 2 months from May 15 to March 15. Taking the same flights this year would now cost 120k miles.
With the Citi AAdvantage card, you get 10% of your miles back on award flights (up to 10k max per year), which reduced our miles needed from 80k to 72k. We earned all the points needed from the sign-up bonuses of Citi AAdvantage card (50k bonus) and the Starwood Preferred Guest (30k bonus). Starwood allows you to transfer points to many other rewards programs and when you transfer 20k points at once, you receive a 5k bonus. This was a backward thinking process where identifying the ideal award flights came first followed by determining which credit cards to open to get the required miles. Long-term planning pays dividends in the credit card game.
Both of these credit cards have been cancelled as I don’t find they are worth keeping beyond the sign-up bonus. I can definitely see value in keeping the Starwood card, but we are preferential to Hyatt.
United MileagePlus ($2,459.28)
Cards: Chase United MileagePlus Explorer (2x)
We used the United miles for the same exact redemption as American above — 2 roundtrip tickets to Europe — which provides an interesting point of comparison. The overall value was pretty comparable, but we used 120k United miles versus the 72k American miles. That lowered the value per point to 2.05 cents. Anything above 2 cents per point is still great value, so it’s not meant as a blemish on United but more to highlight how great the value above was. Clearly it was too good since American raised their price and shortened their Off-Peak timeframe. We were fortunate to be able to take AAdvantage of that.
United and American are very similar in that they offer much better value for international flights than domestic. Which rewards program is better depends on the specifics of your travel plans. Unlike the American cards, the United miles were a forward thinking process. We each got the United MileagePlus Explorer card when the sign-up bonus was bumped to 50k. Now that appears to be the standard offer but a couple years ago the typical offer was 30k. We jumped on a great offer and sat on these points for a while until the opportunity to use them came along.
United is a transfer partner of Chase, so it makes no sense to keep the United cards when the Chase cards offer significantly better earning power. As a result, we cancelled both cards before the annual fee was due.
In my opinion, Hyatt offers the best value of any hotel rewards program, both in terms of redemption value and the actual product. The Hyatt Place branded Category 1 and 2 properties are new with modern designs and they only cost 5,000 or 8,000 points for a free night. Hyatt also has very luxurious hotels in their portfolio, which you can take advantage of with the Chase Hyatt credit card. Instead of receiving a points sign-up bonus, you get 2 free nights at any Hyatt property in the world. So better make them count.
We used our 2 free nights at the Park Hyatt in Milan, a Category 7 hotel that cost $572 per night. Not a bad way to start our honeymoon. Since we were in Milan for 3 nights, we transferred 30,000 Chase Ultimate Rewards to Hyatt to get the 3rd night for free as well. Although that is a lot of points for one night, the value was still good at 1.91 cents per point. Another option is to have you and your partner each get the card to spend up to 4 nights at any Hyatt in the world.
The annual fee for the Hyatt credit card is $75, but you receive one free night at any Category 1-4 property with each anniversary. That room typically can easily cost at least double the annual fee, making the Chase Hyatt a no-brainer credit card that everyone should get and keep.
American Express ($375.00)
The American Express Blue Cash Preferred is a staple in our credit card portfolio due to its 6% cash back on groceries. Unfortunately, that 6% is limited to $6,000 of grocery spending each year before dropping to 1% cash back. Since groceries are typically one of the quarterly categories with the Chase Freedom card, that amount fits perfectly into our budget for 9 months of the year and consistently gives us $25-50 cash back each month.
It also offers 3% cash back on gas and department stores, which provides more value. But for as long as we have the Southwest Companion Pass, I prefer to earn 1.5% on the Chase Freedom Unlimited in those categories. Since we can redeem those Ultimate Rewards for 3.0 cents each or greater on Southwest, the total value comes 4.5% instead of the simple 3% cash back. Next year when the Companion Pass is expired, the decision will be much closer.
The groceries, gas, and department store categories on the Blue Cash Preferred are a great complement to the Chase Sapphire Reserve and Preferred credit cards, which give category bonuses for spending on dining and travel (everything except gas). The no annual fee version, the Blue Cash Everyday, offers 3% cash back on groceries (on up to 6k of spending), so you can get $180 of extra value with the Preferred if you max out the category. Of course, that comes at a cost of $95 (American Express raised the annual fee from $75 last year). The breakeven point comes to $3,166.67. As long as you spend more than that annually on groceries, the Blue Cash Preferred is, well, preferred.
It takes a little bit of time to learn the tricks of the credit card trade. But it’s an investment worth making. Here is one of the best parts about credit card rewards: it’s all after-tax! Meaning the $13k of value we gained last year is equivalent to a $16-18k raise. Think about what you could do with a $16k raise. Create that emergency fund, tackle debt, or accelerate your retirement.
Of course not all the value we received is for things we would have purchased without rewards. Some were. Some weren’t. Credit card rewards offer savings as well as the freedom to see, do, and experience more than you would otherwise. Check back soon for Part 2!
Featured Image courtesy of Nick Youngson