Have you ever taken the time to calculate how much you have to spend to earn a mile or a point in the loyalty rewards programs you’re a part of? It's really simple.
Most loyalty program points/miles are worth about a penny which means the reality of a rewards program will often cost you $50 to get a $5 coffee at Starbucks or tens of thousands of dollars to get a flight that would otherwise cost you $700.
Loyalty programs continue to get even more expensive. For example, United Airlines just increased its requirements, with a one-way saver transatlantic award starting at 40,000 miles where it used to take only 30,000.
And they’re also becoming loaded with gamification because the bigger sticks and carrots they can get a consumer to chase bring in more revenue. Sorry, but offering actual value to a customer enrolled in those programs just doesn’t exist anymore.
How does one play the loyalty game and win? Good question. ConsumerAffairs asked loyalty program gurus – the people who play this game like it’s a real job – how someone can get the most out of their credit card loyalty programs. What they came back with was pretty insightful. Involved, too, so be ready to jump through some hoops.
First off, don’t be delusional
To woo consumers, companies are smart enough to know that there’s no upside in divulging the true value of points or the hoops and fine print that someone has to eventually face in cashing those in.
So companies throw lots of sign-up bonuses at us. “25,000 miles to sign up, no fee for the first year” come-ons costs the company nothing, but if they can get a consumer to bite, then the cha-chings start to roll.
But, a big problem with loyalty programs is that most people don't really know – or investigate – what they're signing up for.
“People keep signing up for these programs because they think they'll get lots of perks, even if they have to spend a bunch to get them,” Michael Lisovetsky, co-founder of the banking platform Zurp, told ConsumerAffairs. “There is an illusion that their entire travel experience will change for the better, but many are designed for frequent or high-spending travelers,” not the couple who flies to Sarasota once a year to see their grandkids.
Don’t be greedy, either. RatePunk CEO Justin Albertynas told us that “Applying for multiple credit cards within a short period can have a negative impact on your credit score. It's advisable to be strategic when considering joining more loyalty programs.”
How to better reap what you sow
When ConsumerAffairs put this question to the experts, the floodgates opened with input. It’s a safe bet that at least one of these will get an "a-ha" from anyone who’s part of a loyalty program.
Weigh the value of rewards vs. cash back. “Not everyone is a great candidate for a travel rewards credit card,” says Nick Ewen at ThePointsGuy. “There are a number of no-annual-fee, cash-back credit cards out there that award 2% back on every single purchase you make. If you don’t want to worry about earning miles or points to cover an entire flight, cashback gives you the flexibility to put money back in your pocket whenever it suits you, since you’re not limited to travel.”
Be flexible and only travel in the low season.RatePunk CEO Justin Albertynas said the deals are better when strict dates don’t limit your choices and when the destinations aren’t overcrowded with tourists during the most popular time of visiting. “It will help you get the best deals and save your travel rewards,” he suggested.
Only use the card where and when it’s worth it. Brendan Miller, CMO of Runa, agreed, saying that wise consumers will look for cards that give the best bang for the buck they spend in certain spending categories, such as gas or food. “Consider the types of rewards offered, redemption options, frequency of usage, and the points earning rates. Spreading your points - and interest levels - too thinly across a broad range of businesses risks minimizes the value-add from your hard-earned loyalty bonuses.”
Look at the route network before committing. An airline may offer you 100,000 miles to sign up, but that doesn’t mean squat if you have no interest in flying to the places it goes to or you don’t even like the airline, David Doughty, the CEO of Admiral Jet told us. “If someone’s preferred airline offers extensive coverage to the destinations they frequently visit or partnerships with other carriers that suit their travel needs, it’s worthwhile to accumulate miles and maintain their loyalty status even if the rewards are minor.” Otherwise, it could be a complete waste of time.
Use your card for big purchases. One of the hot stick-and-carrot angles is for a credit card to reward a consumer with an unbelievable number of miles if they spend a certain amount of money in a short period of time (like $3,000 in 3 months). In her review of travel cards, ConsumerAffairs’ Kathryn Parkman says the best use of those type cards is when you’re going to make a major purchase. “That way, you can be sure to hit the sign-up bonus and maximize the amount of points you gain right off the bat,” she said.
However, you need to be careful with these types of bonus offers. You may get 75,000 miles for spending $4,000 in three months on a credit card, but if it’s going to cost you 80,000 miles to fly to London and back, that means you have to spend even more money to get that award flight; and if you don’t use the miles but stick with the card for another year, the membership fee could be as much as $395.
Churning. Murtaza Khanbhai, the founder of Reward Flight, told ConsumerAffairs about a community of consumers – called “churners” – who are dedicated to getting the most value out of these programs. It’s kind of like playing the stock market, but for those readers who like that kind of excitement, here goes: “They sign up for these credit cards for large signup bonuses and then cancel them,” he said. “When done properly you can fly in business and first class for a fraction of the regular price. For those not interested in traveling you can also redeem them for cashback offers, often upwards of $500.” Where are these communities, pray tell? Khanbhai said there’s a group on both Reddit and FlyerTalk.
What are the “extra” perks? On top of the welcome bonus, Ewen says consumers should consider what, if anything, they’ll get past that stage.
One of his favorite perks is waived checked bag fees. “If you live in an airline’s hub (e.g. Charlotte for American, Atlanta for Delta) and you take at least a couple of flights per year, an airline credit card can be a major money saver,” Ewen told ConsumerAffairs. He said that most of those allow the primary cardholder to check a bag for free on all domestic flights, and many times that perk also extends to multiple companions on the same reservation.
“Let’s say you live in Atlanta, and you and your spouse check a bag on just one round-trip domestic flight every year. You’d have to pay $120 ($30 per person each way) for this privilege. However, if you have the Gold Delta American Express card and pay a $95 annual fee, those baggage fees are automatically waived for you and up to eight travelers on your reservation.”
However, he throws out a caution flag on that suggestion, saying that some companies make perks unnecessarily difficult to utilize, so read the fine print before you sign on the dotted line.