Sunday, March 23, 2014

10 Lessons Learned While Racking up 1,000,000 Points & Miles

Points & miles has been an area of interest I've been exploring the past couple years. I'd estimate that you can make roughly 10-20%+ of your annual income in deeply discounted travel by navigating this space. And it's one of those things where you can get 80% of the benefit with 20% of the work so it's worth learning about even if you don't make it a hobby.

I'm naturally predisposed to playing this game. I'm open to considering any deal - just tell me the terms and I'll let you know if I think it's a good deal. I also think I'm genetically predisposed to it. My 99 year old grandmother has an upright electric organ in her living room. Over the years every one of her children and great-grandchildren have enjoyed playing on that thing. And she got it by, you guessed it: Signing up for a checking account.

In the past year I've leveraged a variety of techniques to earn 1,000,000+ points and miles. I wouldn't say it's "easy" but I will say that anyone who is interested in this game can do it. As long as you're 18, have a job, and a good credit score (more here on whether signing up for credit cards hurts your credit score) you can start playing this game. Just start slow, read a lot, and do what you're comfortable with.

See also: 10 Reasons why the Chase Sapphire Preferred is my favorite travel credit card

Here are 10 lessons I learned on the way to 1,000,000+ points & miles...

1. Credit card signup bonuses are where it's at (and there is more leverage in points & miles than cashback)

Say you spend $3,000/month on credit cards. If you get 2% back on all your purchases that's $720 a year - hardly enough to fly a family of four on a single vacation.

A better use of your credit card spending is towards meeting minimum spending requirements on new credit cards. The signup bonuses are more lucrative for travel rewards cards than cashback cards and there are more of them. Plus, when it comes time to redeem points & miles there is potentially more leverage in points & miles than cashback. Cash is king but it takes a lot of cash to fly internationally - especially in premium cabins. Points & miles make these things possible so there's more leverage in points & miles than cashback.

That said, there's nothing wrong with working some cashback into the mix if you have a card that earns 5% cashback buying cash equivalents. You can then take that cashback and either buy travel if the price is right or buy points & miles if award availability is favorable. More on this approach here.

2. The path to what you want is often counter-intuitive

If you're in the market for a rewards credit card, you'd think it would make sense to get co-branded credit cards from companies you enjoy doing business with. Say for example you enjoy going to Disney and flying JetBlue - you'd think it would make sense to get a Chase Disney card and the JetBlue AmEx. That's actually a rather poor approach.

It's not that the cards themselves are so terrible (trust me I've had them both). It's more a mater of there being better options out there. And each credit card you apply for takes up a "slot" from each issuing bank. And each credit card you apply for requires a hard credit pull which temporarily diminishes your credit score.

When I first started out in this game I didn't want to rack up a bunch of United miles to fly in the grey cramped seats on the back of their airplanes for vacation. But I found I could United miles to fly in premium cabins to Europe on Lufthansa. Great deal!

Conversely I could use Lufthansa miles (obtained by signing up for a Barclays Lufthansa Miles & More credit card and transferred from the American Express Starwood Preferred Guest program) to fly on United domestically in First Class for just 17k miles each way (a much better deal than 25k each way United charges). Similarly I could transfer American Express Membership Rewards to Singapore Airlines for 40k roundtrip domestically on United in First Class.

Or I could use British Airways Avios to pay for short haul domestic flights on American Airlines. Or Avianca Miles to fly on Star Alliance partners. Or credit Star Alliance flights to Aegean Airlines for Gold status. The list is goes on and on.

More than anything, it baffles me when a company has a credit card that isn't even the best option to use when spending money with that company. For example, it's better to use a Starwood Business card to pay for a Hyatt stay than a Chase Hyatt card. Bizarre. Co-branded card really should be the best way to pay for transaction with the company.

As a consumer, it pays to figure out the most common angles for high value redemptions for the travel you want to enjoy.

3. Getting a feel for historical signup bonuses is important (so you know when to pounce!)

If you sign up for a credit card for a 40k bonus and the next day you see an offer for the card for 100k you'd be mad you only got 40k. Some credit card companies will retroactively give you the heightened signup bonus within a reasonable timeframe (Chase) but many (like American Express) do not. So it's important to catch a signup bonus at a historical high.

Furthermore, some credit card companies will only give you a signup bonus for a given credit card once per person lifetime. Credit card companies frequently create new "products" (and sometimes a Visa or Mastercard variation of a card constitutes a new product) but still - there are only so many cards out there so when you do sign up for a card you'll want to make sure you caught it at a high point.

I don't know of a good resource out there that tracks these things over time. I think a site that charted standard and targeted signup bonuses of the most popular cards would be tremendously useful. But I bet credit card companies disallow that in their affiliate terms so the most likely people to do this can't without losing their lucrative affiliate relationships with banks.

One way I've tried figuring out if a given credit card has ever been offered with a higher signup bonus than what's currently available is to perform Google searches for logical increments above what's now available. Say for example the Chase Sapphre Preferred (great card) is available with a 40k signup bonus. I'd do a Google search for "chase sapphire 50k" or "chase sapphire 100,000" (dare to dream!). Often these searches will turn up now expired offers. But if they weren't too long ago I'd get the feeling the heightened bonus might come back.

For now, the best way to get a feel for historical signup bonuses and stay informed of heightened bonuses is to follow the Boarding Area blogs (and a few of your other favorites) and read FlyerTalk. Especially this thread. It would be hard for something to sneak past if you follow those two.

4. Get to know the easiest, most reliable ways to manufacture spend

"Manufacturing" spend is buying things on your credit card that can easily be converted to cash. One of the greatest manufactured spend schemes of all time was when the US Mint sold dollar coins with free shipping and allowed them to be purchased fee-free with credit cards. You could buy them and deposit them at your local bank again and again, racking up as many miles as your credit limit, back, and patience would allow.

Manufactured spend is most useful when applied towards meeting minimum spending requirements on new credit cards without spending more than you otherwise would. For big spenders or those with high levels of reimbursed spending they can put on their personal credit card manufacturing spend isn't needed. But credit card issuers have been increasing the minimum spending requirements of their most lucrative cards. For situations like this, manufacturing spend can be handy.

There's an entire FlyerTalk forum devoted to Manufactured Spend. Vanilla Reloads purchased at CVS and liquidated through Bluebird is a current favorite. Amazon Payments is probably right behind that. And there are many many more ways to manufacture spend for those interested in making this an ongoing hobby.

Learning how to manufacture spend isn't necessary. But it sure beats spending more than you otherwise would to rack up points & miles.

5. You never know how plans might change (so diversity and flexibility is key)

When I first started collecting points & miles it was with the intention of getting the family from Boston to Munich for European Delivery. You can save quite a bit on a new car this way but if you spend $6k to fly 4 people the savings goes out the window. Since I wanted to use points & miles to get us there I started to focus on racking up United miles so I could fly on their Star Alliance partner airline Lufthansa. I'd need 60k x 4 miles (240k) to get there.

But while working on earning those miles I noticed a lot of other heightened credit card signup bonuses. I went for them, and things have turned out great for the most part. Especially ones with flexible redemption options like Chase Ultimate Rewards, AmEx Membership Rewards, and Starwood Preferred Guest (which can be transfered 20k to 25k airline miles through a ton of partners).

Worst case, Ultimate Rewards and Membership Rewards can be converted to cashback or gift cards worth around $0.01 a point. But the highest leverage redemptions come from transferring flexible points to airline partners for premium cabins awards. So these programs provide the best of both worlds: A floor value of a penny a point and upside beyond that if you can find a great reward redemption.

It may be possible to spread things around too much if you have just a few points & miles in a bunch of different programs. But as long as you have enough critical mass to get a reward ticket I don't see any harm in diversifying. The majority of the trips we've taken the past two years weren't on my radar screen two years ago. Especially since points & miles have enabled trips I wouldn't have otherwise been able to justify in my mind.

6. Award charts can change at any time, and they represent a best case scenario

In the past couple years almost every airline and hotel program has devalued their loyalty program in some way. People hem and haw about it when this happens, suggesting the airlines need to make it easier to earn points if they're going to increase award costs. I'm thinking to myself: I can get signup bonuses for a Chase United card, a Chase Sapphire Preferred, a Chase Freedom, a Chase United business card, and multiple Chase Ink business cards that all transfer to United - and someone wants United to make it easier to earn miles? You can fly your entire family to Europe or Asia on credit card signup bonuses alone and consumers are arguing for more? I don't get it but I understand it: When a loyalty program changes beneath you while you're working towards a reward it stinks.

Yes, United devalued their premium cabin redemptions on partner airlines. But they're still a good value. High quality partners, above average award availability, and tons of ways to earn miles without stepping on a plane. We're still in a golden age for credit card signup bonuses.

But finding award availability can be challenging. And this is the part that can still drives me bonkers. I feel like if I rack up enough points & miles for a certain reward and I've got a reasonable amount of foresight and flexibility I should be able to get the reward. For example, if I'm willing to rack up 300k AA or UA miles to fly from Boston to Hawaii in Business/First class some time during my kids' school break (plus or minus a few days) a year ahead of time I should be able to find that award. And sometimes, even looking very far out and having date flexibility certain awards aren't available.

Some airlines are better than others. This chart does a fair job of comparing award availability at saver levels on various carriers. For the most part - I think they get it right. Keep this in mind when considering which miles to collect.

7. Your points balance may outpace your available vacation (if so, go for the premium cabin redemptions)

One of my favorite things about points & miles is how it enables travelling in Business or First Class. For some reason, most airlines charge a lot more for Business/First when paying with money. When paying with miles premium cabins aren't nearly as much of a premium. And award availability is often better in Business/First which makes justifying the splurge easier. This is a rather irrational thing to "like" about points & miles - I admit it - but who doesn't want premium service at a deep discount?

Now, some might say Business/First isn't worth it. That they'd rather have two vacations instead of one. I see their point. But since time off work and school is limited for us, and I figure I'd rather burn miles I have now than hoard them while they devalue beneath me I figure I might as well earn 'em and burn 'em. I can always earn more miles later. Or if this gravy train stops I can pay cash or take different vacations that don't involve long distance flights.

8. Strategies when feeding a family

It's hard to rack up enough points & miles to fly a family on multiple vacations each year, especially when travelling at peak school vacation times.

The good news is each adult can separately apply for the same credit cards and both can receive the bonuses. Even if someone is an authorized user on a given credit card they can apply for the card on their own and qualify for the bonus. So any sign-up bonus discovered can be taken advantage of twice as many times as it otherwise would which makes times spent reading about this stuff more efficient.

Typically, one person is more interested in playing this game than the other. In cases like this I find it convenient to sign up the less interested partner for cards with lower spending requirements and fewer cards in general. And I'll limit the number of cards my less interested partner has at any given time to 2. For example: "Use this for gas and groceries, and the other for everything else." Then swap them out when new cards come in.

I'll add myself as an authorized user to help meet high minimum spends, but a word of caution before you add yourself as an authorized user on all of your spouse's cards: The balance on the card will show up on your credit report so when you're ramping balances to meet minimum spend it could negatively impact your credit score at an inopportune time! To avoid this problem, only add yourself as an authorized user when absolutely necessary and pay the card off a few days before the statement closes.

9. Set dollar and time thresholds

A long time ago I created a "$20 rule". I wouldn't stress myself out about any transactions that were less than $20. For example, if I bought something at an out of the way store and was overcharged $5 for the item, I wouldn't invest a lot of time or effort to rectify the situation. If I could just submit a claim online or send an email - fine - but I wouldn't get in a car and make a special trip for something unless it was worth more than $20. It just isn't worth the time.

As it comes to chasing points & miles I think about things like this at well. It's super easy to stop at a CVS as part of my normal activities and takes less than 5 minutes to grab a few Vanilla Reloads a few times a month. So I gladly do it. But schemes involving trips to Wal-Mart and the Post Office and interacting with people who look at you like you're doing something shady are non-starters for me. I just won't go there.

My point is that you should set a dollar threshold beneath which you won't sweat a transaction that's gone awry. Or perform a point-earning activity that takes too much time relative to what it pays. Milenomics has done a great job expanding on this and more.

10. Consider: Where would you go if travel was nearly free?

One of my favorite things about playing the points & miles game is it gives me a chance to constantly be planning (and dreaming about) awesome family vacations. Once you take away the financial restrictions associated with paying for air travel and hotels it enables a whole new level of vacationing.

But it's kind of like saying you wish you could write the next great novel if only you had the time. The thing that's hard about writing a great novel isn't time off work: It's really hard to write a great novel. Similarly with travel - I found I was planning many of our vacations assuming airfare cost a certain fixed amount. Once that gets paid for, and I can viably consider literally the entire world it opens up some incredible possibilities. Now I'm more concerned with flights being too long (rather than costing too much) or subjecting the family to a locale that's too foreign or exotic as to induce travel anxiety.

But if you (and your family) can reasonably travel to anywhere you want in the world at deep discount, where would you go? It's a really fun question to consider.

And for now, credit card companies are willing to pay to fly the world in premium cabins if we're willing to sign up for their cards and meet the minimum spends. It's probably not going to last forever but for now I'm enjoying the ride.

Continue reading: "Lessons learned while (trying to) redeem 1,000,000 points & miles".

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Questions or comments? Drop me an email or ping me on Twitter: @RobertDwyer

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