How Much are my Credit Card Points Worth?

BLUF: Cash back cards with no annual fee are the best cards on the market because they A: require no effort to unlock their savings, B: offer the highest CASH value, and C: incentivize saving.

As I talked about earlier, credit card companies make unfathomable amounts of money off the interest of unpaid balances. They use that money to offer crazy incentives to encourage more credit card use. Some people love to “credit card hack” by signing up for many (10+) cards to stack sign up rewards with special benefits on certain purchases. They use the points to travel lavishly and for “free.” If you want to do that, there are many resources out there (The Points Guy). If that interests you, check it out! For me, I love cash back.

Currently, I have the Amex Platinum, Amex Gold, Citi Double Cash, and Capital One SavorOne. I only have the Amex cards because they waive the annual fee for active duty military. When I am out of the military, I will cancel those cards.

I am going to give you a very personal breakdown of my spending to illustrate why.

The Amex Platinum is one of the most well known annual fee credit cards. Right now, the annual fee for a Platinum card is $695. They advertise benefits that far surpass that dollar amount. Here are some: $200 hotel credit, $20 credit each month ($240 annual) on entertainment subscriptions, $15 per month ($20 in December for $200 annual) on Uber, and a $200 airline fee credit on your selected airline. There are several more worth hundreds of dollars each. This does not include the additional benefit you get from the points. The Gold card costs $250 per year and offers $120 in Uber Cash and $120 toward select restaurants.

However, you only save money on these cards if you spend more than the annual fee each year on applicable expenses! The old saying “the more you spend, the more you save,” actually applies here, and I hate that phrase. The annual fee is a sunk cost each year which helps people justify spending for the credits. If you encounter a situation that requires you to cut back on your expenses (moving, transitioning jobs, medical bills), then you lose that money. The annual fee traps you into a lifestyle of spending on monthly subscriptions, Ubers, and airline drinks in order to “earn” your card each year. It does not encourage you to cut back and invest your savings.

Now let's talk about points and miles. Each mile and/or point is worth around 1 cent on average (100 points = $1). Depending on the card, airline, and deals, they can range from .5 to 1.5 cents. The Platinum offers 5x points on travel and 1x points on everything else. The Gold card offers 4x points on restaurants and groceries and 1x points on everything else. “I already spend most of my money on food and restaurants, so this is awesome!” Is what I said a few years ago. But let’s look at what that actually means. Here comes a very personal look at my (Wilson’s) expenses. To note, Julia and I put all possible expenses on the Gold and Platinum cards.

Since January 1st, I have spent $6,730 on restaurants and groceries for 26,920 points, $2,248 on travel for 11,240 points, and $8,564 on everything else for 8,564 points. In total, we have spent $17,542 and got 46,724 points. Now let’s calculate what this actually means.

Amex lets you use points to pay for certain expenses each month at a horrible rate. 167 points = $1 or .6%. If we assume there are enough eligible charges to use all my points, I would get $280 in statement credits. Now, we add in the $20 Hulu credit per month for an additional $100. We will also assume we used half of our eligible airline credit (Delta or die) for another $100 (usually we use all $200 in November/December). In total, I have received $480 in benefits from these two cards only five months into the year. The $945 in combined annual fees I will have to pay when I am out of the Army will surely pay off by 31 DEC! I am only $464 in the hole!

Let’s assume my expenses remain constant for the rest of the year. I use the remaining $100 airline credit, $140 in Hulu credit, and get 65,415 points (9,345 per month) redeemed for $392. My total cash saved is now $1,112! Subtract the annual fees and I am still in the green with $167.

Now, let’s look at the rewards if I used my Capital One card on food (3% back) and Citi 2% cash back card on everything else. My $6,730 on food and $10,812 in expenses this year would have earned me $418 in statement credits. Just like above, let’s assume my expenses remain the same for the rest of the year. I am on track to spend $16,152 on food and $25,948 on everything else (I told you this would be very personal). With cash back redeemed in statement credits each month, I would earn $1,003.

It is that simple. No worrying about eligible expenses, no sunk cost justifying spending more money on an airline, no need to redeem points for a ticket, no transferring of points, and no additional work. When I am out of the Army, cash back will crush the Amex cards in rewards.

For those who do not think cash is king and want to travel, you are probably thinking the rewards for travel are better than .6%. Which they are! They are 1% when redeemed through Amex. If you transfer points, the highest you’ll find is 1.5% cash value (that’s rare). Let’s assume next year, I take all the points I earn this year and redeem 100% of them for airlines and hotels at 1.25%. With 112,140 points, I would get $1,402 in tickets and rooms. If I include all the additional benefits (even the ones I don’t usually take advantage of) and subtract the annual fee, I would be beating the cash back cards.

Then, if you take the time to use different cards for different expenses and add in sign up bonuses, you could be seriously increasing your benefit.

This requires you to be diligent about which credit card to use where and transferring points. If you are up for that task, good for you. But let me remind you of one thing. Credit card companies are cold-blooded, capitalist companies. All they care about is profit. If they were losing money on the average Platinum card holder, they would raise the annual fee. If everyone took full advantage of these programs, they wouldn’t offer them. The average customer gets sucked in with attractive offers but then never redeems their points because life gets in the way!

For me, I value cash back. If you value travel, there are many great options for you. Like everything in personal finance, it’s a personal choice. Don’t be sucked into certain credit cards that advertise unbelievable rewards. It will not be as easy to redeem the points as it is to get them.

Call to Action

Determine what you value, cash back or travel rewards. Your credit card choice should reflect this decision. There are way more cards than the four I talked about!

What We’re Reading/Listening To:

Military Money Show by Lacey Langford. Through this podcast, Lacey interviews a wide range of people with the goal of providing sound money advice to service members, veterans, and military spouses. Check out the show here!

Debrief on Deck

Next week I will talk about ‘good’ debt! It is a scary thing, but using other people’s money (OPM) is how the rich get richer.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (Twitter and Instagram).

Until then, stay the course.

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