Stop wasting your points

Controversial opinion: 

You might be wasting your points and miles by redeeming them for flights. 

Let me explain. 

You might think paying for your flights with points is always a better deal than paying with cash.

A lot of people think that, and for good reason: Paying with points means fewer dollars are leaving your bank account to travel. 

But just because you’re paying fewer dollars in cash does not mean that you are getting the most value out of your points. You have to check what your points are worth in a redemption.

Points are a currency 

You might say, “Free is free.” (Or free plus tax.) “Why should I care what value I get out of my points?” 

You’re not alone. A bunch of fancy schmancy business school research shows how people are less price sensitive when paying with points. The logic is that it’s “free,” so the “cost” is nothing.

But you don’t need to have an MBA to understand that logic this is behavioral economics 101. If you see points as not cash, then you’re less concerned about how many points it costs to redeem. 

This is especially true when you really want to go somewhere, but you want to spend as little money as possible. 

But the reality is, points are a type of currency. And like any currency, they have a value and rules about how they can be used. 

Lawyers sometimes call points “nonliquid assets” because you can’t transfer them to others the way you could Venmo money to a friend. And you can’t sell points like furniture or a house. (Points also not taxable in most cases, but that’s a story for another day.)

So, before you spend that hard-earned signup bonus from a new card, how do you determine the value of points? 

How to find what your points are worth 

To find the value of your points, we need to calculate something called “Cents per point.” 

It sounds wonky, but it’s really just a number that represents the cash value of your points for a specific award redemption. 

To figure that out, we need to go back to algebra class and do a little math. Here’s the formula for cents per point:

‍Cents per point = [(Cash price of the flight – the taxes and fees to be paid in cash for an award booking) / the cost of points or miles] x 100

This is hotly debated, but in my opinion, you’ll want to aim for redemptions of 2 cents or greater. 

That is because points and miles geeks estimate each credit card point to be worth about two cents, so you’d want your redemptions to be worth at least that much, if not even more.

Here are some examples of cents per point on different flights, including when to and not to redeem.