Understanding Airline Mileage Credit Cards vs Cash Back Cards: A Comprehensive Guide
When it comes to choosing between airline mileage credit cards and cash back cards, many consumers find themselves torn. This article aims to clarify the benefits of each, focusing on how mileage rates typically convert to a percentage cash back, the differences between cards with and without annual fees, and the advantages of mileage credits over points.
Benefits of Airline Mileage Cards
Several years ago, I had a rewards credit card that allowed the redemption of points for various items—mostly unnecessary trinkets. However, the realization that cash back cards offered more flexibility and utility forced me to consider the advantages of air miles credits.
For cash back cards, the redemption process is often convoluted. Typically, 10,000 points equate to $100 or 20,000 points to $200. By contrast, for an airline card in the United States, you can often secure a return flight domestically for around 25,000 miles, which is equivalent to $250. My personal preference is to use my air miles for flights that would otherwise cost between $300 and $500, making 25,000 miles a better deal than 250 points.
Advantages of Airline Miles
Air miles programs vary widely by airline. For instance, one-way flights can sometimes be purchased for 7,000 to 10,000 miles, which presents an even more cost-effective option.
When it comes to the accumulation of points, I generally don't find the specifics of earning or accumulating 1 for this and 2 for that particularly interesting. My primary goal is to earn the introductory bonus amount, usually a significant chunk of miles or points. I steer clear of cards with annual fees and favor those that waive the fee for the first year, canceling the card before the second year's fee is applied. Over the years, redeeming air miles for free flights has proven to be a valuable benefit, with fees and taxes sometimes equating to at least $15,000 to $20,000.
Comparing Miles to Points
The exchange rate between miles and points can vary significantly. Typically, points can be redeemed for cash at a rate of 1–2 cents per point, with domestic coach flights offering lower rates, and business or first-class flights on long-haul routes offering higher rates.
The best way to model the discount is by dividing the ticket price by the number of miles. This calculation provides a clear picture of the savings you can achieve. For instance, if a domestic coach ticket is $300 and it takes 30,000 miles to book it, you are essentially getting a discount of 1 cent per point. If you were to use cash, the discount would be 1 cent per dollar.
Conclusion: Cash Back vs. Mileage Cards
My standard recommendation is that most people are better off with a 2% cash back card than a 1 mile per 100 dollars airline card, unless they have a flexible schedule and are experts in redeeming for fancy cabin awards. Even a 100,000-mile business class award to Europe, retailing at $5,000, offers a better deal if you'd otherwise have paid for it.
Ultimately, the choice between an air mileage card and a cash back card depends on your travel habits, financial goals, and the specific benefits offered by each card. Understanding these nuances can help you make a more informed decision that aligns with your personal travel needs.