Mileage Earning Cards Vs. Cash Back Credit Cards

Developing a successful credit card strategy requires a deep look at your own preferences long before you start analyzing any specific credit card.

How people like to use their points isn’t always the most valuable, but that doesn’t matter.  What does matter is that you use the points in a way that fits your preferences.

For the ultra flexible traveler – tie

I subscribe to The Flight Deal newsletter.  Every day I get to see some great flight prices and rates.

On Feb 25th, 2013, there was a deal from San Francisco to Lima, Peru for $675.

If you had a card that gave 2% cash back, then you’d need to spend $33,750 in order to get enough points for that flight.

With American Airlines you could fly from anywhere in North America to Lima for 30,000 miles.  If you earned those points by getting 1 mile per dollar with the AAdvantage credit card, you’d need to spend $30,000 in order to earn enough points for that flight.  However, you’ll need to pay around $75 in taxes.

United would cost 40,000 miles plus about $75.  To get the miles on United (at one mile per dollar spent) would require a $40,000 spend.

Of course, this is just one illustration, but it serves to highlight that sometimes cash back could be better.

Other key considerations:

  • If you were earning United miles via something like the Chase Sapphire Preferred, you could earn 2 points per dollar on travel and dining out, so you might be able to earn miles faster.
  • Traveling with miles is more restrictive in terms of your dates.
  • Traveling with miles is less costly if you decide to cancel or change flights.
  • When you book with cash used from cash back you earn miles, but you don’t if you redeem frequent flyer miles.
  • You’ll have more flexibility for stops and open jaw flights with miles.
The inflexible traveler who hates to be inconvenienced – cash back cards
Some people consider it an injustice if they have to spend more than 10 minutes trying to find award availability.  If you only have 7 days off work and you have no flexibility in when you can take those seven days, you might find it extremely frustrating to find mileage availability when you need it.

Business class and first class travel – mileage cards 100%

Looking at the flights above from San Francisco to Lima, Peru it would cost me 40,000 miles in economy or $1,540.87 if booked at United.com.  However, for a business class flight it would cost me $10,242.78 but only 75,000 miles.

Clearly, it would be easier to get 75,000 miles than to get $10,242 in cash back (requires over $500,000 worth of spending).

One way travel – mileage cards

One way tickets are rarely 50% of the cost of a round trip ticket.  This is especially true of international travel.

If you were planning an itinerary with a lot of stops (i.e. A – B, B- C, C-A), you’re typically better off earning miles with a mileage-based program that allows one way travel.

Common Departure/Destination Airports – tie

If you have a habit of flying to/from expensive destinations, then mileage-based credit cards may be best for you.

With parents who live in Toronto, I’ve found that I can always find better value using miles than paying for tickets.

Also, since I live near Denver, I can fly round trip to DFW for 9,000 Avios.

However, if you typically fly out of an airport that’s known for its low rates, then a cash back card might be better for you.

Complicated travel itineraries – mileage cards

When you’re going to be visiting several destinations on a trip, you’ll likely be better off using miles.  This is especially true of an airline that allows open jaw flights and stopovers.

At the end of the day, I’m a fan of mileage based credit cards.  It fits my travel patterns better.

I know that with a mileage card I can find a way to get more than a two cent value out of each mile I earn.   That’s part of the fun of collecting frequent flyer miles.

Sign up bonuses – mileage cards

Cash back cards typically have weak sign up bonuses.  This is an area where mileage based cards shine.  I’d much rather get 50,000 miles or points for signing up for a card then trying to spend $50,000 to earn those points.

What about you?  Do you prefer mileage based cards or cash back cards?

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