Techniques I don't write about (but you should know about!)

The range of topics I write about here is pretty freewheeling. I have an open mind about any and all approaches to travel hacking and manufactured spend, and am willing to at least dabble in anything that sounds lucrative enough.

On the other hand, my own travel needs are met almost exclusively with US Bank Flexpoints, Chase Ultimate Rewards points, Delta SkyMiles, and Hilton HHonors points. All four are cheap and plentiful, and between the four currencies cover easily 90% of my annual travel budget at discounts of 75-85% off retail.

Consequently, I'm perfectly aware that the blog has developed a few blindspots: programs that are objectively lucrative, but which I don't interact with on a daily or monthly basis. With that in mind, here are a few programs that I've "undercovered" compared to their objective utility.

Southwest Airlines Companion Pass

Obviously there's no shortage of Southwest Companion Pass coverage thanks to their periodic 50,000 Rapid Rewards-point signup bonuses. But even if, like me, you don't chase signup bonuses, you should still consider simply manufacturing $110,000 per year on Chase's co-branded credit cards.

Why? Because if you fly Southwest regularly (and would otherwise pay cash), you're earning over 3 cents per dollar of unbonused manufactured spend. Using the linked example of 1.59 cent per point, you'll earn 3.18% cash back on your Southwest credit card spend, compared to the 2.105% cash back of a Barclaycard Arrival+ or 2.625% cash back of a Bank of America Travel Rewards card (enhanced with Preferred Rewards at the Platinum Honors level).

Thanks to Southwest's annual devaluations, this isn't a strategy you should use to earn Rapid Rewards points speculatively (I don't think you should earn miles or points speculatively at all!), but if you redeem Southwest points aggressively, this is a great deployment of your unbonused manufactured spend.

Interestingly, once you've earned 110,000 Companion Pass qualifying points, you're actually better off manufacturing your unbonused spend on a Chase Freedom Unlimited and then simply transferring the 1.5 Ultimate Rewards points per dollar spent with that card to your Southwest account.

So why don't I write about the Companion Pass more? Because Southwest doesn't serve my local airport!

Reloadit cards

If you have access to accommodating or oblivious cashiers, and registers that haven't been hard-coded against accepting credit cards, then Reloadit cards can provide access to cheap, or even free, bonused manufactured spend.

I actually do have access to accommodating cashiers, and cash registers that aren't hard-coded against credit cards. But I still don't buy Reloadit cards.

The reason is that you're now required to liquidate Reloadit cards using the official Reloadit website — you can no longer load prepaid cards through those cards' own portals. This matters because the Reloadit website is terrible.

First, each Reloadit account has a limited number of "devices" that can be registered to it. To track these "devices," Reloadit installs a cookie in your web browser and asks you to name your device.

Now, I do all my browsing in incognito mode, so all my cookies are deleted each time I close my browser. Which leads Reloadit to ask me to register my device again. Etc., etc., ad nauseam.

To incorporate Reloadits into my manufactured spend practice, I would have to either start using a special browser just for Reloadits, or muck about with different user profiles in Google Chrome. And the payoff? Saving $50 or $60 per month on activation and liquidation fees.

If that's worth it to you, you should definitely shop around for Reloadits and friendly cashiers. But it's not worth it to me, so you won't find many breaking news updates about Reloadit on this blog.

Citi ThankYou Rewards

With the slow but steady demise of manufactured spend at gas stations, the best current combination of Citi ThankYou cards seems to be the Citi AT&T Access More card combined with a Citi Prestige card. The former earns 3 points per dollar spent on online retail purchases, and the latter allows you to redeem those points for 1.6 cents each towards paid American Airlines tickets, or transfer them to one of Citi's travel partners.

This combination is tailor-made for resellers who source their products online and know how to get good value from their ThankYou points. It is expensive, though, with a $95 annual fee on the AT&T Access More card and a $450 annual fee on the Citi Prestige.

I personally don't pursue this strategy because US Bank Flexperks Travel Rewards give me a roughly similar value (up to 4 cents towards airfare on any airline per dollar of spend, compared to 4.8 cents on American Airlines or 3.75 cents on other carriers), at a far lower cost (a single $49 annual fee). Moreover, I do my best to avoid flying American Airlines, and I don't engage in more than a cursory amount of reselling.

It's a potentially powerful combination, but it's not for me, so I don't write about it much here on the blog!

Conclusion

In the real world, people constantly operate under misinformed, poorly-informed, or uninformed prejudices. That's to be expected.

But we don't have to do so blindly! By being aware of my prejudices, like my preference for lower annual fees over higher ones, I can consciously work to evaluate conflicting ideas on their merits, instead of on my own preconceived notions.

The payoff of that work may take a long time to appear, but it's ultimately a concrete improvement in the quality of my decision-making.

Starting from scratch: airline tickets

Travel hacking is an iterative game: the options you have available today are restricted by the decisions you made in the past. That's one reason I avoid giving advice whenever possible: your situation is different from mine, not just depending on the merchants you have available geographically, but also depending on which banks you have relationships with, which products you've already had or lost, and the amount of time you have available to dedicate to the game.

Having said that, I do sometimes think about how I would design a travel hacking strategy from scratch: with a blank slate, what approach would I take to the loyalty ecosystem to get the most value for my travel hacking dollar?

Today's post is about how I would approach booking airline tickets if I were starting from scratch. Tomorrow's will be about hotel stays.

Revenue versus award

Starting from scratch, there's a basic decision you have to make about how to pay for the flights you're responsible for securing each year: will you book revenue tickets or award tickets? Once you're deeply involved in the game you may have large balances across a range of programs you can deploy for their optimal uses. But when you're just getting started, it's much easier to focus on this stark choice.

When booking revenue tickets, you'll usually get a fixed return on your travel hacking dollar, or one that falls in a relatively narrow band: US Bank Flexpoints are worth 1.33 to 2 cents each, Chase Ultimate Rewards points in a premium (Ink Plus or Sapphire Preferred) account are worth a fixed 1.25 cents each, and Citi ThankYou points are worth between 1.25 cents and 1.6 cents depending on whether you have a Premier or Prestige card, and the airline marketing the flight.

When booking award tickets, there's no such band of values: points can range in value from a fraction of a penny up to 10 cents or so depending both on the cash price of the flight and the number of miles required to book it.

Note that neither of these options is any more or less "free" than the other. Since you should be manufacturing spend furiously, you're paying acquisition and liquidation fees for whichever currency you happen to choose. The only question is which strategy will bring the cost of your travel down the most.

Revenue tickets are cheap

On the revenue side, there are lots of good options depending on your situation:

• Citi ThankYou Premier. A fixed 3.75 cents in airfare per dollar spent at gas stations. At $5.75 in "all-in" cost for $505 in spend, a 69.6% discount off retail.
• US Bank Flexperks Travel Rewards. Up to 4 cents in airfare per dollar spent at grocery stores or gas stations (wherever you spend more each month). At $6.30 in "all-in" cost for $506 in spend, an "up to" 68.9% discount off retail.
• BankAmericard Travel Rewards. For those with $100,000 on deposit with Bank of America, Merrill Lynch, and MerrillEdge, a fixed 2.625 cents in airfare per dollar spent everywhere. At $4.30 in "all-in" cost for $504 in spend, a 67.5% discount off retail.
• Chase Ink Plus. For small business owners, a fixed 6.25 cents in airfare per dollar spent at office supply stores (and 2.5 cents per dollar spent at gas stations). At $9.18 in "all-in" cost for $309 in office supply spend, a 52.5% discount off retail.

When I say "depending on your situation," I mean to draw attention to the fact that you when starting from scratch, you shouldn't pursue all four options! If you don't have access to gas station manufactured spend, the Citi ThankYou Premier won't work for you. If you don't have access to grocery store manufactured spend, the Flexperks Travel Rewards card isn't for you. If you don't have access to $100,000, the BankAmericard Travel Rewards card won't give you the same value it will someone who does. And if you don't own a small business, Chase probably won't give you an Ink Plus.

Award tickets are cheap and (can be) hedged

On the award side, the picture looks radically different. Three of the four major domestic airlines offer some form of "last-seat" availability on their own flights: Delta, American, and Alaska will sell almost any seat on almost any date for some number of miles, while United reserves last-seat "standard" availability to their co-branded Chase credit cardholders. Thus there are three pots airline rewards currencies fall into:

• Delta. When starting from scratch, there are two main ways into the Delta ecosystem: their own co-branded credit cards, and American Express Membership Rewards co-branded credit cards. Unfortunately, neither of them is cheap. The American Express Delta Platinum and Reserve credit cards offer 1.4 (Platinum) and 1.5 (Reserve) SkyMiles per dollar spent everywhere when you spend exactly $25,000 (Platinum) and $30,000 (Reserve) and $50,000 (Platinum) and $60,000 (Reserve) each calendar year. But the Delta Platinum card costs $195 per year and the Reserve $450 per year! Meanwhile, the American Express Premier Rewards Gold costs $175 per year and earns 2 Membership Rewards points per dollar spent at gas stations and supermarkets. Those points can then be transferred to Delta on a 1-to-1 basis. Moreover, Membership Rewards points let you hedge your downside risk: if a particular Delta award redemption gives you less than 1 cent per Membership Rewards point, you can book it as a revenue ticket. If it gives you more than 1 cent per point, you can book it as an award ticket.
• Alaska and American. Advanced travel hackers muck about with applying for Alaska and American co-branded credit cards over and over again at various intervals. But when starting from scratch, there's a simple way into both ecosystems at the same time: with the Starwood Preferred Guest American Express. When transferred to either Alaska or American, the card earns 1.25 miles per dollar spent everywhere, which is higher than the amount you can earn directly with either airline's co-branded credit card. Like Membership Rewards points, Starwood Preferred Guest also offers a hedged downside risk, since you can redeem their points for between 1 and 1.43 cents per point for revenue tickets using "SPG Flights."
• United. If you're able to make United your main airline, then you'll never do better than with a Chase Ink Plus small business credit card, because of its bonused earning rate at office supply stores and 1-to-1 transfer ratio to United MileagePlus. But if you can't get a small business credit card, then you have some hard decisions to make. You could get a Chase Freedom Unlimited, which earns 1.5 Ultimate Rewards points everywhere, and a Chase Sapphire Preferred, which enables the transfer of Ultimate Rewards points to United, but that combination comes with a $95 annual fee. Alternatively, a Chase United MileagePlus Club card earns 1.5 United miles on all purchases but has a $450 annual fee. That's the kind of up-front expense that's not precisely crazy, but needs to be well-justified before taking it on.

Your situation should drive your decision between revenue and award tickets

As I mentioned, I try not to give advice.

Your situation is different from mine: your award availability, typical revenue flight prices, and airline service have nothing to do with mine.

But in my experience, for many people, much of the time, a focus on revenue tickets will generate bigger savings than a focus on award tickets, and if I were starting from scratch, that's where I'd start.

Fortunately, you don't need to take my word for it: all the numbers are above. Look at your own travel needs and it should quickly become obvious whether revenue flights or award flights will generate more value for your travel hacking dollar.

Tomorrow, I'll take the same approach to hotels: starting from scratch, are award nights really cheaper than just paying for your hotel stays?

When the Fun Stops

If you've ever visited Las Vegas, you've no doubt seen the constant parade of advertisements run by the Nevada Council on Problem Gambling, with the campaign slogan "When the Fun Stops."

I've persisted, in the face of pressure from Rolling Stone, in calling travel hacking "the game," which makes us players, and which usefully raises the specter of problem gaming. In general, I think there are three ways a healthy attitude towards travel hacking can become problematic.

Getting stuck on the status treadmill

One of the great intellectual triumphs of the loyalty industry was making it difficult — but just easy enough — to qualify for elite status. Hotel loyalty programs offer three good examples:

• The Hilton HHonors Surpass American Express and Citi Hilton HHonors Reserve give top-tier Diamond elite status after spending $40,000 on either card;
• The Starwood Preferred Guest American Express gives 5 nights and 2 stays towards SPG elite status just for being a cardmember;
• The Chase Hyatt Gold Passport credit card gives 2 stays and 5 nights towards elite status after spending $20,000 with the card, and 3 stays and 5 nights towards elite status after spending a total of $40,000 with the card each calendar year.

Likewise the Delta Platinum and Reserve business and personal American Express cards each offer Medallion Qualification Miles towards elite status at certain spend thresholds, the Citi / AAdvantage Executive World Elite MasterCard offers 10,000 Elite Qualifying Miles after $40,000 in calendar year spend, and the Barclaycard AAdvantage Aviator Silver World Elite MasterCard gives 5,000 Elite Qualifying Miles after spending each of $20,000 and $40,000 on the card per calendar year.

For an experienced travel hacker those thresholds are easy to meet, which is easy to confuse with being worth meeting.

But if you'll enjoy few or any of the benefits of elite status, you shouldn't be going out of your way to earn — or even think about earning — elite status in programs you don't actually take advantage of!

Losing track of point values

The Chase Marriott Rewards credit card has earned 1 Marriott Rewards points per dollar spent everywhere, well, forever.

But the Marriott Rewards program has undergone a series of horrific devaluations since the credit card was introduced!

The same card that would have earned you three free nights at the JW Marriott in Washington DC for $50,000 in spend will now barely earn you one night for the same spend (the property now costs 40,000 Marriott Rewards points per night).

If you got on board early, you could have powered your way through a series of devaluations and suddenly find yourself earning far fewer stays for the same amount of spend.

Losing track of costs

This is a story I've told before, but I think it's still illustrative. I was introducing a friend to travel hacking right about the time when Vanilla Reload Network cards stopped being sold to credit card users at national pharmacy outlets.

I broke the news to my friend and explained that only cash was now accepted for the reload cards. And my friend, who was eager to earn as many United MileagePlus miles as possible for an upcoming trip, asked me, "well, what if I take out a cash advance from my card and use the cash to buy a Vanilla Reload card?"

It's a funny story, but it illustrates an actual problem I see all too often: once folks are stuck in a groove, they'll do anything to stay in that groove, even when the costs slowly (or rapidly!) start to outweigh the rewards they were initially earning.

Conclusion

At the end of the day, I'm a travel hacking enthusiast. I think this game, in the huge variety of forms it takes, will be around for a long, long time to come.

But that general relaxation about the bigger picture shouldn't be treated as an invitation to take your eye off the particular credit cards, programs, and techniques you use!

A relentless focus is the only way to make sure you're getting the most value out of every second you spend playing this game.

And if you don't have that focus? Well, there's always tennis.

Earn cash first, spend cash last

Last week I wrote about the option of redeeming Wells Fargo's Go Far reward points for 1.22 cents each when using them to purchase Hyatt gift cards (an offer that's still ongoing).

Commenter Rob S made an observation in the comments to that post that I think is worth exploring in some more depth. He wrote:

"but those WF reward points can be used for flights at 1.5 cpp. Some people can redeem at 1.75 cpp. so i don't think I will be doing this"

Rob is referring to is what's called, for reasons lost to history, "uplift," the ability to redeem Wells Fargo rewards points for more than 1 cent each towards paid airfare after spending a certain amount on certain Wells Fargo rewards-earning credit cards.

Uplift isn't something I've written about before and I can't find any good blog posts to link to about it, but Rob is exactly correct: some people can redeem Wells Fargo rewards points for 1.5 or 1.75 cents each for paid airfare after meeting certain spending thresholds with their Wells Fargo credit cards.

The question I want to explore is, under what circumstances does uplift change the value proposition of redeeming Wells Fargo rewards for cash?

Earn cash first

I have a simple approach to my manufactured spend practice: I earn cash first. That's because cash is basically the opposite of miles and points: it's worth face value when redeemed for goods and services, and if you choose to invest rather than spend it, it increases, rather than decreases, in value over time.

Miles and points, on the other hand, are worth varying amounts depending on current cash prices and award availability. Therefore, given the option between cash and points, I'll always earn cash first.

Spend cash last

The flip side of the above principle is that once I have miles and points in my rewards accounts, I'll redeem them whenever possible rather than spending cash. Again, that's because cash is flexible and can be deployed wherever necessary, while miles and points can only be redeemed for dates and flights the loyalty programs choose to make available.

When I find that availability, you better believe I'll redeem miles and points for it.

How uplifting are Wells Fargo rewards?

Suppose a Wells Fargo cardholder has earned the maximum uplift of 1.75 cents per "Go Far" rewards point redeemed for paid travel. Keeping in mind that those rewards points can each be redeemed for 1 cent in cash, the uplift provides a discount of 43% off paid airfare (a $175 flight would cost $100 in foregone cash back redemptions).

That's a pretty good discount, for a civilian.

But a 43% discount off paid airfare is not exactly inspiring for a travel hacker. If you earn US Bank Flexpoints, then at the top of each redemption band you'll get a 50% discount off paid airfare (plus a $25 credit towards in-flight purchases). If you earn Chase Ultimate Rewards points (transferred to United or British Airways) or American Express Membership Rewards points (transferred to Delta) you might be accustomed to getting much larger discounts, depending on your local airfare market.

Hyatt gift cards are cheaper than cash

The reason I wrote favorably about redeeming Wells Fargo rewards points for Hyatt gift cards is not because they give a discount off Hyatt stays, but because they give a discount off the cash portion of Points + Cash stays (or, in the cash of pure mattress runs, the cash cost of the stay). That's the portion you've already committed to paying in dollars, which is the component you should be seeking to minimize the cost of.

Paying $41 instead of $50, or $246 instead of $300, is a savings in cash for the portion of a stay you were going to pay in cash anyway. There is literally no other currency but US dollars you can use to pay the cash portion of a Points + Cash stay.

Basis, hoarding, and devaluation

Last week a reader wrote in to suggest that I address the topic of saving up miles and points for emergencies, which gave me an excuse to think about two slightly different but related topics. The first is the question of points devaluation, either marginal like the upcoming American AAdvantage devaluation or radical like Southwest's move from fixed-value to revenue-based redemptions. The second is the question of loss of ability to manufacture large quantities of miles and points cheaply, which we had a laugh about on Twitter over the weekend.

Return on investment depends on both basis and sale price

Last month Matt at Saverocity gestured at taking the idea of "basis" from the field of finance and applying it to travel hacking.

If you buy a share of stock for $1, then however much or wildly its price swings your basis in the stock remains the same: the amount you paid for it. This matters because if you buy in at $1 and the price rises to $100, you've made a 9900% return on your original investment, while if you buy in at $50 then at the same sale price, $100, you've only made a 100% return on your investment.

Devaluations are gradual and predictable

For all the wailing and gnashing of teeth whenever an airline or hotel devalues its miles, that process is relatively gradual and relatively predictable.

After all these years, despite everything that's happened in the airline loyalty industry, the 25,000 domestic saver award ticket still exists.

It's absolutely correct to say that award redemptions for international premium cabins have gone up in price by 100% or more over the last decade, and that the airlines, particularly United and American, have imposed additional "stealth" devaluations by severely limiting saver award space, but that's a years-long process that we've become more or less accustomed to.

Increases in basis are sudden and unexpected

Let me tell you a story about basis.

It used to be possible to buy $60,000 worth of PIN-enabled debit cards at a single CVS store location in a single day. You might use a 5% cash back card like the "old" Blue Cash. Or you might use a Hilton HHonors Surpass American Express and earn 6 HHonors points per dollar (drug stores used to be a bonused earning category, since replaced with restaurants).

Then CVS imposed a $5,000 daily limit on the purchase of prepaid cards. Suddenly, the same $60,000 in monthly spend took 12 trips to the drug store. Your basis, in the form of time spent traveling to the drug store, went up 1200% in the blink of an eye.

Today, CVS imposes a $2,000 daily limit, a further 2500% increase in your time basis to manufacture the same $60,000 per month in spend, which now takes 30 trips to the drug store.

Now, time is not the only basis you have in your miles and points. Your cash basis in the same $60,000 in spend hasn't changed, since CVS's activation fees haven't changed. But a 3000% increase in your time basis is a much more serious hit to your return on investment than a 50% devaluation of the value of the miles and points you earn.

When safe returns decrease, investors reach for yield

In some ways this is a good, natural, and clarifying process. When it becomes significantly more difficult to manufacture spend, people manufacture less spend, but better spend. It really may have made sense to manufacture spend with a 2% cash back card when all it took was an online order to the US Mint and a trip to the bank with a trunk full of dollar coins. If limited manufactured spend opportunities is what it takes for travel hackers to manufacture less spend on more lucrative cards, that's generally a good thing.

In other ways, of course, this increases the threat to the remaining methods of manufacturing and, especially, liquidating spend. If previously the diversity of techniques and opportunities kept any given opportunity safe, then fewer opportunities mean a higher concentration of people using any given tool. As those of us shut down by Bluebird and Serve know, increased concentration in a technique makes our corporate benefactors more likely to close down the opportunity and force us into even more expensive avenues.

Earn as many of the most valuable points you can, but don't hoard

All of this brings me back to my reader's question about hoarding miles and points for a rainy day, and my position on hoarding hasn't changed in the slightest since I wrote about it last October.

Hoarding can't and doesn't mean "earning more miles and points than you redeem." Everyone should be earning as many of the most valuable miles and points that they can, since we don't know when the next sudden increase in purchase price, our basis, will come along.

I earn cash back when cash back is the most valuable currency for me to earn, and I earn miles and points when they're the most valuable currency to earn. I basically don't factor future devaluations into my earning decisions, for all the reasons I explained above.

But if hoarding means anything, it must mean paying cash today, instead of points, in order to save your miles and points for a speculative, future higher value redemption. And I never hoard.

Like anyone, I'll maximize the value of my cash and points by booking expensive reservations with points and cheap ones with cash or, more usually, fixed-value rewards currencies. But given a choice between an average revenue rate and average points rate, I'll redeem the points every single time.

A belated 2015 end-of-year accounting

For the last two years, I've shared an accounting of my year in earning and burning miles and points (2013 and 2014). A reader recently reached out and asked whether I would do something similar for 2015.

The more volume I've pushed through my credit cards and loyalty accounts, the more difficult it's become to track the precise number of miles and points I earn each year. This isn't because of a lack of attention to detail; I actually maintain an unnecessarily-meticulous record of all the fees I incur while manufacturing spend.

The problem is simply that loyalty programs make it terribly obnoxious to track this kind of activity, so unless you track it throughout the year, you're left flailing at the end of the year to figure out the final score.

For example, if you have an American Airlines AAdvantage or IHG co-branded credit card, every time you redeem miles or points you get a 10% rebate. Barclaycard Arrival+ cardholders get a 5% rebate on all their redeemed miles. Should those points be reported as "earned," or deducted from "redeemed" miles?

Likewise, if I redeem Ultimate Rewards points by transferring them to United or Hyatt, and then redeem those United and Hyatt points for travel, where are the appropriate columns to debit and credit the transactions?

Nonetheless, as your humble servant, I did go through all the accounts I've previously reported on and calculated the total number of points I redeemed in 2015. So without further ado, here are my total redeemed mile and point totals for calendar year 2015:

View fullsize

As you can see, my total redeemed balances come to 1,678,000 miles and points. This is more or less meaningless for the reasons I explained above (Hyatt, United, and British Airways redemptions are counted twice, both above and below the central line), but hopefully it gives the curious an idea of the rewards currencies I choose to focus on.

What revealed preferences have taught me about valuing miles and points

One fascination of the miles and points community is "valuing" their loyalty currencies. This should be, in principle, one of the most important aspects of an earning strategy: earn more valuable points before less valuable points is a mantra as obvious as it is useless.

But determining the value of points is vigorously disputed terrain.

Hotel Hustle can tell you the value other people are getting for their hotel points

I love Hotel Hustle, and write about it relatively often. It has two relevant features here: you can plug in your own points valuation and search by "Hustle Hotness:" what percentage of your assigned value you're getting at each property in your search destination.

But additionally, Hotel Hustle will show you the range of values other people using Hotel Hustle have found on their own, real-world searches.

For these purposes I've always like the median value, which has 50% of search results giving more value, and 50% of searches giving less value. So across all the tabulated Hotel Hustle search results, you can see that Hilton HHonors points are worth a median of 0.44 cents each.

That doesn't mean you'll get 0.44 cents per point, but it's a benchmark you can use to evaluate your earning and burning decisions, and it's based on real-world award search results.

Affiliate bloggers make up values depending on which way the wind is blowing

Bankrate.com employee Brian Kelly will tell you each month what cards have the biggest affiliate payouts.

Likewise Thought Leader from Behind Gary Leff will periodically post his updated points valuations.

And of course Rich Weirdo Ben Schlappig has a whole page devoted to valuing miles and points.

Here are the values revealed preferences show for the miles and points I earn

The concept of "revealed preferences" is a powerful one in behavioral economics. Rather than attempting to establish the value of goods in the abstract, or by measuring quanta of pleasure, revealed preferences allow you to determine a good's value to the consumer by the price they're actually willing to pay for it. Revolutionary, right?

So here are the values I actually put on my miles and points, determined strictly by what I do, in fact, pay for them each month:

• 1.4 SkyMiles are worth about 2 cents. When buying cheap, PIN-enabled prepaid debit cards at unbonused merchants, I split my purchases between my American Express Delta SkyMiles Platinum Business card and my 2% and 2.105% cash back cards. My indifference between earning 1.4 SkyMiles and 2% cash back means I value SkyMiles at about 1.43 cents each.
• 6 Hilton HHonors points are worth up to 4 cents in airfare. I only have a single local grocery store that sells PIN-enabled prepaid debit cards, and I can choose between using my American Express Hilton HHonors Surpass card or my US Bank Flexperks Travel Rewards card. I use my Surpass card, valuing each HHonors point at up to 0.67 cents in paid airfare.
• 2 Ultimate Rewards points are worth slightly less than up to 4 cents in airfare. As above, I have a single local merchant that codes as a gas station and sells PIN-enabled prepaid debit cards. I could use either my Chase Ink Plus or my US Bank Flexperks Travel Rewards card for purchases there, but lean towards the Flexperks card, valuing an Ultimate Rewards point at slightly less than up to 2 cents in paid airfare.

Conclusion: my values aren't yours

My situation is unique, as is yours. I travel all the time, and am dedicated to keeping my rewards balances as low as possible, meaning I'm not stockpiling millions of any one currency. Instead, I'm redeeming miles and points roughly as quickly as I redeem them, giving me lots of "gut-check" opportunities to see whether I'm getting enough value from my rewards currencies to justify earning more of them.

For example, in January I had decided to cancel my American Express Delta SkyMiles Business Platinum card, when a health emergency in the family caused me to redeem most of my SkyMiles balance at a value of over 5 cents per SkyMile. With an empty SkyMiles account, and the possibility of future urgent travel, I decided it made more sense to keep the card and pay 1.43 cents per SkyMile again this year.

Likewise, just this week I redeemed 20,000 US Bank Flexpoints for a first class flight that otherwise would have cost $343. Alternatively, I could have redeemed 27,440 Ultimate Rewards points (at 1.25 cents each), making me feel fantastic about earning 2 Flexpoints per dollar instead of 2 Ultimate Rewards points per dollar at my local gas station.

Why I insist on pedantically comparing award redemptions to cash

In the comments to last Wednesday's post, reader Paul Wellington made a great comment, which read in part:

"this sort of redemption nerd logic makes me chuckle and misses the forest for the trees. You have zero interest in paying for it. So who cares what promotion they're running that nominally reduces the value of your redemption? Absolutely irrelevant. Your focus should be on 1) free 2) quality of amenity/experience. What do you care if the cash payers are getting a small break if you're still getting the same package of goods with points? Obviously, this is an elastic concept - at a certain price point, you'll happily pay cash instead of give up valuable points, but it's nowhere near that sweet spot."

I responded to Paul there, but I think he makes a couple very interesting points I want to address in slightly more depth.

There are (at least) three "costs" that matter when evaluating a redemption

There are two different ways to judge a redemption — and they may produce conflicting results:

• How much did the points cost to acquire? If you manufacture spend, you can add up all the fees you paid to earn the earn the required number of points, and end up will a total out-of-pocket cost. For example, if you buy $300 Visa gift cards from Staples, you may pay 0.59 cents per Ultimate Rewards point, so a 30,000-point Hyatt Gold Passport stay will cost $177 in out-of-pocket fees (although the correct point of comparison is the $300 in cash you could redeem the same 30,000 Ultimate Rewards points for).
• How much could you have earned manufacturing the same spend on a cashback-earning credit card? This value is what I call the "imputed redemption value" or opportunity cost of a redemption. If you buy PIN-enabled Visa gift cards at an unbonused merchant with a Marriott Rewards co-branded credit card, a 50,000-point redemption will cost you the $1,000 you could have earned manufacturing the same spend on a 2% cash back credit card.

Once you know those two costs, you can compare them to the retail cost of the award redemption or (my preferred metric) the cost of the hotel you'd stay in or ticket you'd buy if you didn't have access to loyalty currencies.

There are logically three places that price may fall:

• The hotel may be cheaper than the price you paid for the required points. A 50,000-point Marriott room night might be selling for $250. If you transferred in 50,000 Ultimate Rewards points, you're paying $250 more than you would if you just redeemed your Ultimate Rewards points for cash and booked a paid stay!
• The hotel may be more expensive than the price you pay for the required points, but cheaper than the imputed redemption value. Since I buy my HHonors points for about 0.22 cents each, but they have an imputed redemption value of 0.35 cents each, hotel redemptions falling in that range save me money compared to paying cash, but cost me money compared to manufacturing spend on a cashback-earning credit card instead of on my American Express Hilton HHonors Surpass card.
• The hotel may be more expensive than the imputed redemption value. This is what you should generally think of as a "good" redemption: you're earning more value manufacturing spend on your co-branded credit card than you would have putting the same spend on a cashback-earning credit card.

Direct your spend to the cards that generate the most consistent value

Now, Paul is exactly correct that I have zero interest in paying cash for my stays. Since the least valuable point is always the one you don't redeem, I'll happily, eagerly, ecstatically redeem points at a mediocre or bad value rather than pay cash.

But if, over time, one loyalty currency affords me less and less value compared to earning cash instead, I'll shift my earning away from that currency towards cash or another, more consistently-valuable one.

But it's only possible to make those longterm strategic calculations if you also make sure to conscientiously track the value you get when redeeming your miles and points! That can seem pedantic, but only because the conventional wisdom about the value of manufacturing spend on hotel co-branded credit cards is roughly correct (Starwood, Hilton, and Wyndham are pretty good, the others are very bad).

If hotel occupancy rates stay high, and programs continue to devalue, their currencies will edge closer and closer to the breakeven point, and even programs like Hyatt Gold Passport will stop generating consistently outsized value. If you don't know how to calculate the value you're getting from your points, you're at risk of being left behind as those shifts take place.

Points don't care how much you paid for them

There's been some interesting discussion lately of how much you should be willing to pay for miles and points. I got the conversation started on Twitter by asking how much people would be willing to pay for an Ultimate Rewards point. The Saverocity Observation Deck podcast continued the conversation, and Joe at As The Joe Flies shared his thoughts as well.

It's possible to track the cost of individual points, but you probably shouldn't

One thing that I think is sometimes lost in these conversations is that it shouldn't matter how much you pay for any individual mile or point.

It is possible to track the cost of each mile and point you earn throughout the course of a manufactured spend cycle:

• At the front end, you can see the fees you pay for each prepaid debit card you buy and each load fee you incur.
• At the back end, you can see the price you pay when liquidating your manufactured spend back to cash: money order fees, bill payment charges, over-the-counter cash disbursement fees, etc.

There's an obvious advantage to doing so: if every individual transaction is profitable from start to finish, then you can't accidentally slip up and pay too much for your miles and points.

But there's a disadvantage, too: it doesn't make any conceptual sense.

Your points don't care how much you paid for them

If you insisted on rigidly tracking your cost per point, you might conceive of the following system: rank all your credit cards from most-lucrative to least-lucrative, then rank all your liquidation techniques from most-expensive to least-expensive.

You could then match your most lucrative credit card with your most expensive liquidation technique, your second-most-lucrative card with your second-most-expensive technique, and so on.

But since your points don't care how much you paid for them, that's virtually guaranteed to be the wrong approach.

Purchase and liquidation should be conceptually distinct

All manufactured spend, no matter how cheap, should generate the most valuable balance of miles, points, or cash, as possible.

All manufactured spend, no matter how valuable, should be liquidated back to cash as cheaply as possible.

Within that framework, it doesn't matter which gift cards you liquidate at your most expensive and cheapest merchants. Paying $1.88 to make a Walmart bill payment with a prepaid debit card you purchased for $3.95 at an unbonused merchant may not make sense in strict isolation, but if that's just one of hundreds of prepaid debit cards you purchased over the course of the month, it doesn't make sense to "keep track" of which prepaid debit cards you purchased with more-lucrative and which with less-lucrative credit cards.

Once you've put a charge on your credit card, the earning side is complete. At that point, all your prepaid debit cards need to be turned back into cash with whatever tools you have at your disposal, whether free, cheap, or expensive.

Conclusion

Once you accept that the cost of acquisition shouldn't influence the price you're wiling to pay for liquidation, you may well discover it's remarkably liberating: it doesn't matter which Metabank-issued prepaid debit cards you buy at grocery stores and which you buy at shopping malls — those are the cheap ones to liquidate. It doesn't matter which Vanilla-branded prepaid debit cards you paid more or less for — those cost more to liquidate.

The only thing that matters is whether you're maximizing your overall value, and minimizing your overall costs, over the course of a month, quarter, or year of manufactured spend.

Thinking about buying HHonors points for 0.56 cents each? Read this first.

I couldn't help but notice as I recently skimmed my RSS subscriptions that Hilton HHonors is running a promotion offering an 80% bonus on purchased HHonors points until 11:59 pm, Eastern time, on February 8, 2016.

That means you can buy 80,000 HHonors points for the normal $800 purchase fee, while receiving an additional 64,000 bonus points (there doesn't seem to be an excise fee charged on these transactions, unlike airline mile purchases). That brings your total cost per point to 0.56 cents each.

There are two ways of looking at a purchase opportunity like this.

How much are HHonors points worth?

The first, and most conventional, way of judging a purchase opportunity like this is to judge the out-of-pocket cost of the points against their potential or actual redemption value. A randomly selected June night at the Conrad Maldives Rangali Island costs 95,000 HHonors points or $883.80 after taxes and fees. Purchasing the same 95,000 HHonors points for $528.20 during this promotion is, strictly speaking, a 40% discount off the retail price of the property.

Taking advantage of the fifth-night-free benefit for HHonors elites amplifies the discount further: 5 random nights at the Conrad Maldives Rangali Island in June cost 380,000 HHonors points, while the same 5 nights would cost $4,419 in cash. Getting 1.16 cents per point in value makes this purchase opportunity a full 52.2% discount off the retail cost of the same nights.

How much do HHonors points cost?

The problem with the elegant picture I've painted above is that it uses the price Hilton is willing to sell HHonors points at as a fixed input.

But in fact, HHonors points have a range of prices, and that range doesn't depend on Hilton at all — it depends on your own circumstances and the best alternatives you have to purchasing HHonors points outright.

That's because when you manufacture spend on a Hilton HHonors co-branded credit card, you're passing up the opportunity to manufacture the same spend on a cashback-earning credit card. If you pay more in foregone cash back than you would to Points.com directly, then you're overpaying for your stay. If Points.com is charging less than you would pay in foregone cash back, they're offering a true discount.

Unbonused spend

We have brothers and sisters out there who only have access to unbonused categories of manufactured spend. For those who don't have access to gas station or grocery store manufactured spend, a single HHonors point costs 0.66 or 0.7 cents each.

The logic here is simple: the best cash back credit cards for unbonused spend earn 2.105% or 2% in cash back, and Hilton HHonors co-branded credit cards earn just 3 HHonors points per dollar spent in unbonused spend categories. If the same dollar in manufactured spend can produce either 2.105 cents in cash or 3 HHonors points, you're paying 0.7 in foregone cents per HHonors point you manufacture.

If you have a high-value HHonors redemption in the works, and manufacturing spend on a HHonors co-branded credit card will cost you more than 0.56 cents per HHonors point, you'll be better off purchasing the points from Hilton during this promotion.

Bonused spend

Of course there's scant reason anyone would manufacture HHonors points in unbonused spend categories, which means the true tradeoff is between earning 6 HHonors points per dollar spent at gas stations and grocery stores and earning another bonused rewards currency.

What we really want to know is whether we're better off earning cash back or cash equivalents – and simply buying the points we need – or earning the HHonors points we need for a redemption directly through a co-branded Hilton HHonors credit card. 

Here's a rundown of 3 possible scenarios to illustrate the idea. Is it cheaper to manufacture cash and buy points, or manufacture points directly?

• 5% cash back (American Express "old" Blue Cash, capped at $50,000 in spend per cardmember year, or other time-limited promotional offers). Opportunity cost: 0.83 cents per HHonors point. Result: manufacture cash back and buy HHonors points.
• 4% cash back (US Bank Flexperks Travel Rewards card, points worth "up to" 2 cents each when redeemed for paid airfare). Opportunity cost: 0.67 cents per HHonors point. Result: manufacture spend for airfare, use cash savings to buy HHonors points.
• 3% cash back (US Bank Flexperks Travel Rewards card, points worth "up to" 1.5 cents each when redeemed for hotel stays). Opportunity cost: 0.5 cents per HHonors point. Result: manufacture HHonors points on co-branded credit card instead.

The inflection point between 3% and 4% cash back is the result of the fixed 0.56 cent per point price established by Hilton during the current promotion. Whenever manufacturing spend on a co-branded credit card costs you more than 0.56 cents per HHonors point, you should simply manufacture cash and buy the discounted points.

On the other hand, when the same dollar in manufactured spend could earn either 6 HHonors points or 3% cash back, you are buying HHonors points for just 0.5 cents each — even cheaper than Hilton is currently selling them.

Conclusion

The thrust of this post is simple: the price you should be willing to pay airline and hotel loyalty programs for their miles and points should not depend on their value. Instead, every purchase decision should depend on whether the total number of miles or points received is more cheaply earned through manufacturing cash back (used to purchase cheap miles or points) or through manufacturing those points directly.

The more lucrative your bonused gas station and grocery store manufactured spend is in cash back terms, the more willing you should be to simply buy miles and points where necessary, rather than forego lucrative cash back opportunities in favor of airline and hotel loyalty currencies.