The Deal Mommy at Saverocity posted something with which I categorically disagree. She writes about a commenter that implored her to consider that miles are worth less than a cash back card would provide and while in some isolated cases that is true, proper redemption is often a far greater value than 2% cash back.
Here is the principle she was basing her ideal on, the “Bonnie” rule:
“When I first started blogging I fell into the “points are free” trap until I had a reader, Bonnie, ask me point blank what I could have gotten had I used a cash back card instead. I realized she had a point.”
She values points at just 1¢/point as a result (which seems odd to me as most cash back cards are now at 2%). She states openly in her comments that you can certainly gain value above the 1¢/point, 90% of readers won’t stay at aspirational properties (Park Hyatt Paris Vendome) or fly Lufthansa First Class.
If you find yourself as one of those that will never book awards for premium cabins. For everyone else, here are three examples that took me about as many minutes to demonstrate that prove her theory completely wrong.
British Airways Avios for short expensive flights like Pittsburgh to Philadelphia for $281 on a random Thursday.
In order to pay with a 2% cash back card with credit card spending and still fly for $276 ($281 – $5 taxes you would pay on the award) you would need to spend $14,000 on your cash back credit card. Or you could spend $4500 on an American Express card for example (assuming no bonuses for either purchase).
Sherpa 1, Bonnie 0
Oh Bonnie, as soon as we get to Business Class you don’t stand a chance. Bonnie needs to spend $166,000 on her card to offset the costs of that same trip, with an American Airlines credit card you would need to spend $110,000 – still staggering amount (except not because of bonuses) but I will address that shortly.
Sherpa 2, Bonnie 0
You can do math, enough said.
Sherpa 3, Bonnie 0
The Missing Link
The key missing factor for this entire process is that cash back cards don’t give you the head start that a mileage card would give you. I do not have any credit card affiliate links – this is not a post about encouraging your to sign up for a particular card but rather about the merits of mileage earning credit cards.
The Citi American Airlines Executive card gives a 75,000 miles head start for example. In the business class example to Beijing where a cash back card would require you to spend a staggering $166,000 on a cash back card, the Citi Exec would require $40,000 which is reasonable to do within a year and a half for most cities.
If you signed up for an American Express card you would crush that 4500 Avios requirement for the short but expensive flight from Pittsburgh to Philly with even a small 25,000 point bonus (there are 100,000 point bonuses currently available).
As for the Alaska flights to Puerto Vallarta, that would require just $10,000 in spending after the 25,000 point bonus as opposed to 17,500 with a cash back offer.
But Wait There’s More
These comparisons do not account for any of the other ways you might earn miles or points, like buying through shopping portals which award far more value in miles than in cash back. What about earning miles when you actually fly? Even a moderate flyer will accrue 10-15,000 miles per year, good luck doing the same with cash back.
What I find particularly annoying about this is the lack of evidence and the blanket statement:
No wonder so few people actually collect miles and points: the media is lying to them! People know when they’re being played, and it’s a fallacy that travel is free. I wish a more balanced picture were presented. How about something like “by strategic planning, careful budgeting, and leveraging promotions you can travel for less than half of what it would normally cost”?
If the media is filled with half truths what about the assumption that reward credit cards don’t come with substantial sign up bonuses that far outweigh those of cash back cards (if any).
My point isn’t to beat up on The Deal Mommy or her reader Bonnie – in truth, there are some times where 2% cards are a better choice (like if you fly Delta). Earning 2% rebates and using the rebates to offset travel costs instead of miles would earn status and miles for the flights, so in that regard cash back could be better.
What I resent is the crusade to fight the miles and points half truths by returning fire with cash back half truths. What works best for you may be a combination of both cash back cards and miles and points cards.