How do you know when to use points or cash?
Points are like money.
You don’t want to spend more than necessary.
Also, you don’t want to waste them for a redemption that was better with cash.
Like money, you want to use as few points as possible.
Although I love a free hotel or flight as much as the next person, sometimes it is actually better to use cash.
This may sound like a contradiction to everything I have said, but when you could get better value with cash, this is not true.
This is where all those other bloggers tell you to spend money.
They are right when you could waste your hard earned points.
Unless you just want to do a small amount of traveling, to travel completely free (or as close to it as possible) you will need to use other tactics.
I will talk about some of these tactics in other posts.
One tactic I use when cash is a better value is extra money I make from things like Swagbucks.
Many people use cash back credit cards too though.
In any case, it will need to be second nature to calculate the redemption value for your points to make sure you are getting a good deal.
Every time I am about to use points, whether partial (cash + points) or all points, I calculate the redemption value to make sure I am not wasting my hard earned points.
I hope it becomes second nature for you to easily calculate the redemption value too
Again, points are like money, you want to spend them wisely and use as few as possible.
What is redemption value?
I know this is one of those nerdy point’s words.
The redemption value is the amount your points or miles are worth per cent, calculated as CPM (cent per mile) or CPP (cent per point).
This number tells you if you are getting a good deal with your points or miles.
In one of my recent hotel redemptions, an IHG stay, my redemption value was .9 cents
IHG points are worth about .5 cents.
So, I got .9 cents per points which is higher than the .5 cents IHG points are worth again.
That was an ok deal.
As you can see calculating the redemption value involves knowing how much points are worth too.
I will discuss this later in the post.
How to calculate redemption value?
There is a simple formula to calculate the redemption value.
First, simply multiply the cash price (including taxes) times 100, then divide by the number of points.
(cash price x 100) /number of points
In my IHG hotel example, the cash price was $120.
To redeem points, I used 12,500 IHG points.
So $120 x 100/ 12,500=.9
Again, IHG points are worth .5 cents.
Again, to know if this number is good, you need to have the current valuation of the currency you are using.
Here are some valuations of some loyalty points:
- American Airlines 1.4
- Delta SkyMiles 1.2
- Hilton .6
- IHG .5
- Marriott .8
- Southwest 1.5
- United 1.3
- Hyatt 1.7
Here is a detailed post by The Points Guy again.
This is a formula.
You can use it how you want though.
If you are points rich and your redemption value is less than the value of the loyalty currency, then you may still want to use points.
It is up to you how you use your points.
You don’t want to waste your hard earned points.
Some redemption values are pretty obvious.
For example, during the pandemic the Fairfield New York Fifth Avenue can be gotten for $111 after taxes.
This requires a whopping 36,000 points far a $100 hotel though.
Under normal circumstances, this hotel may be a steal at 36,000 points when cash prices are usually $250+ taxes, but the pandemic has lowered the cash price.
After the math, that is .3 when points are worth .8.
This was probably obvious without math again.
This hotel is obviously better with cash.
Taking fees into consideration
To calculate redemption value, you will need to include fees.
Fees that are charged on both an award ticket as well as included in the cash price, need to be considered.
For instance, around $5 is charged in taxes on both flights and flight redemptions.
Resort fees are charged on both an award redemption and a paid hotel stay.
To do this, you subtract fees from the cash price.
Then, you decide by the number of points needed.
Finding the Redemption value with Cash + points
Likewise, you do the same on cash + points awards as ones that involve fees too.
Recently, I had a Hilton stay.
The hotel was $120 cash.
To redeem, I needed 17,000 points.
So the redemption value would be .7 cents.
Hilton points are worth .6.
I was low on Hilton points, so I used cash + points.
The cash price was around $30, but came to $50 after taxes.
I used 11,000 points and paid $50.
To calculate a cash + points redemption for this, you subtract the cash portion of your redemption from the cash price with taxes.
In my example, that was $120-$50=$70, then $70 x 100/11,000 points=
.63 points.
So, if I used all points, my redemption value would have been .7 cents.
To me, the cash + points redemption was not worth it and next time I would have been better off using 6000 more points.
Hilton points are easy to acquire.
Cash + points redemptions are different for each redemption, so that was just this case.
I was in a rush and just used my Swagbucks money.
Though the redemption value is a great guide, other personal decisions such as a longer flight, an inconvenient layover, or anything else can be taken into consideration.
Summary
Points are a currency like money.
You don’t want to waste them.
Later, I will talk about how I use other things like Swagbucks and other activities to cover these costs since I do not believe in spending a lot of money on travel.
Some people use cash back credit cards for things too.
In any case, calculating the redemption value should be second nature whether for flights, hotels, or other currencies.
Do you calculate the redemption value?
If you don’t yet, do you plan to start?
