When to pay with cash

The magic number you want to isolate to make this decision is called the redemption value. Luckily, all you need is:

• A 4th grade understanding of long division

• The price in points

• The price in dollars

Once you’ve got that, you want to run the following equation:

[the cost of the flight or hotel in dollars] ÷ [the cost of the flight or hotel in points] * 100 = the value of each point for this transaction in cents, which tells you whether or not it’s a good time to use your points.

Let’s pretend you’re debating between spending $200 on a flight or spending 18,000 points on Southwest, where Rapid Rewards points are valued—on average—at about 1.5 cents apiece.

$200 ÷ 18,000 * 100 = 1.111111, which means your 18,000 points are worth 1.1 cents/each.

So what do you do? 1.1 cents per point isn’t a great redemption value—remember, the average value is about 1.5 cents.

Now, what would happen if you paid $200 for the flight?

You could earn an additional 1,500 points by buying the flight with cash, which would (on average) be worth about $22.50 in the future when you redeem them (1,500 points * 1.5 cents average = $22.50).

If it’s really close and you’re torn, you can treat those earned points almost like “money off”: $22.50 in points makes your $200 flight’s net cost $177.50. In that way, it’s like you’re comparing spending 18,000 points vs. $177.50.

In situations like these, it really could go either way—if you have tons of points (and a Southwest Companion Pass), it’s probably not a big deal. But if you have, say, 20,000 points total, this might not be the most worthwhile flight to spend them on.

Here’s the average value per point for the major loyalty programs we covered on the show this week

• Chase Ultimate Rewards: 2.05 cents per point

• American Express Membership Rewards: 2 cents per point

• Southwest Airlines Rapid Rewards: 1.5 cents per point

• United MileagePlus: 1.21 cents per mile

• Marriott Bonvoy: 0.84 cents per point

But there’s another factor to consider: While it’s not a hard and fast rule, generally speaking, you’ll achieve much higher redemption values by transferring points from Chase Ultimate Rewards or American Express Membership Rewards to a partner hotel or airline than you will booking travel directly in the credit card rewards portal.

You’d think the numbers would be similar, but they can actually vary substantially: A Delta flight might cost 30,000 Membership Rewards points in the American Express travel portal, but only 18,000 Delta points. Transferring your points to Delta (rather than booking directly in the portal) can change the calculus of whether or not the redemption is “good.”

When to pay with points

Let’s say you’re perusing the Chase Ultimate Rewards portal for a hotel room and you stumble across a room that costs either $266 or 21,820 points (I pulled this example for the Residence Inn by Marriott in Big Sky, Montana, because I’m trying to drop hints to the universe that I really want to go).

Using our earlier formula: $266 ÷ 21,820 points = about 1.22 cents per point

Hmph. This isn’t great, especially for Ultimate Rewards points.

Let’s try another hotel from the same list: $354 ÷ 25,512 points = about 1.4 cents per point

That’s a little better! Anything encroaching on 1.5 cents per point is usually fine by me. As we’ve already hinted, a lot of the value assigned to the “average” Ultimate Rewards points value comes from the fact that they can become ludicrously valuable when you transfer them (like to a partner airline for a flight worth $1,400 for 35,000 points, making the flight redemption value worth a whopping 3.7 cents per point).

Where you’ll probably find the most extreme discrepancies between points & dollars

The American Express Membership Rewards and Chase Ultimate Rewards portals will usually have (relatively) consistent ratios. In other words, you probably won’t often find situations in which the points are worth a lot more than the standard two cents each.

One thing to note: The AmEx Platinum Card’s Fine Hotels & Resorts Collection does make certain redemptions extra valuable, since the booking comes with so many more perks (resort credits, free breakfasts, late checkout, etc.).

Where you’re more likely to see point values fluctuating is when you directly book with the hotelier or airline. This is because the airlines and hotels offer peak and off-peak pricing models, in a lot of cases.

In other words, if you’re looking at Hyatt, you know you’ll always be able to find a “Category 1” hotel for, say, 5,000 points per night, and that the most you’d ever spend for a “Category 4” hotel is 90,000 points/night.

Without standard award charts like the example above, a flight or stay could cost as little (or as much) as the vendor wants for reasons we’ll never know, which makes it less predictable (and usually, more expensive).

Making sense of the complicated algorithms that determine what things “cost” in Points & Miles Land

The weird thing about this dilemma—when to pay with points and when to pay with cash so you can earn more points—is that while we can usually analyze these decisions in a pretty straightforward way, it can be a little…emotional.

I’ve found myself agonizing over whether I should burn the points on a certain trip or just use “real money,” even when I’m looking at a good redemption value, just like I’ve found myself burning points like they’re Monopoly money when I knew the redemption value wasn’t all that great.

Oftentimes the financial context of our life from month to month can impact this decision. If you’re already over budget, it can be painful to tally another few hundred bucks in the Travel category when your points bank is sitting there staring at you from Loophole Central. It’s not always cut and dried (even when it technically should be).

In summary

Your best bet is to use the “dollars divided by points” equation every time and determine if the redemption value is strong compared to what the geniuses of the internet say is the average.

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Editorial Disclosure: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. 

Evidently, my hardly existent business was also too “new.” Interesting. I could work with that.

I took my laptop and phone out to the pool, so as not to disturb my roommate (or embarrass myself whilst pleading my case) and dialed the number, exhaling sharply when the automated voice politely invited me to enter my 12-digit reference number.

So far so good, I thought.

“We’re sorry,” she retorted, as soon as I had finished. “That reference number cannot be found.”

“What?!” I shrieked. I hung up and tried again. Three times.

Still no dice.

I did what any good nascent Karen would do and turned to Twitter customer service instead. A few hours passed, and they finally replied to let me know they couldn’t handle this over social media and I’d have to call.

“I’m happy to call,” I responded hastily, “But I’m hitting a roadblock because my reference number won’t work. Can you please provide a different number so I can talk to an agent?”

They gave me a number for “card lending services,” at 888-609-7805. I strapped in, ready for a long wait.

The same prompt for the reference number replayed, and I obliged, half-expecting it to kick it back to me. After a few moments, a real human named Francisco was on the line with me. Showtime.

I explained I was hoping for reconsideration on my recent card application and that I’d be happy to answer any questions. He pulled up my application and re-explained their reasons for rejecting it, then said he could review it again. I asked him if I could explain.

What did I say on the call with the rejection appeal line?

This is an exact script. I literally read this from my computer screen to Francisco, because I planned it ahead of time. That’s the confidence with which you want to enter a reconsideration call (not that it mattered, since I was declined again, but I still think I did a bang-up job otherwise).

My business is a travel blog that I operate out of my home, and I’ve been doing it for a while, but I really doubled down on it in April – which is why I put April 2020 as the official business launch despite the fact I’ve been doing it for years. I work for Southwest Airlines full-time, but I’m ready to invest more in the site as a small business. The primary source of income will be affiliate revenue, but I know I’ll need to spend time and money in order to grow it to that point.

I love my Sapphire Preferred card, but it’s 2x points on travel, and I’d love to get 3x with the Ink. Because I’m starting to see some traction with the site and investing more in it with advertising on social media and in Google, I would really like to put that spend on a proper Business Card and get 3x points for those purchases as well. Same with paying for my Internet at home.

I understand that you may be hesitant to extend me another new line of credit, and I’d be willing to shift some of my credit from my Sapphire, Bonvoy, and Southwest cards to the Ink Business Preferred if you’re willing to reconsider.

I practically bowed as I finished.

“Well, ma’am,” he replied, unimpressed, “Since this is a business card and those are personal cards, I can’t transfer any of the credit.”

Damn it. I figured that would be my golden (blue plastic) ticket.

He asked if he could have 3 to 4 minutes to review my application, and I nervously browsed the internet without actually reading anything I was looking at. He came back and asked a few more questions.

• “You stated you began blogging before April. When did you first blogging?” I told him 2015, which is true.

• “How much do you anticipate you’ll make over the next year from your business?” This one induced panic and I told him I wasn’t really sure. “A few thousand?” I asked.

He requested 3 to 4 more minutes.

Finally, after an eternity of insecure pacing, he returned to tell me the application was declined again for two primary reasons:

1. Evidently, they’re using some credit reporting service that would only return a result for businesses that officially file taxes, it appears.*

   1. Update from Future Katie: I believe the real reason this request was denied was because Money with Katie was not yet a registered LLC with an EIN, which is all but necessary for being approved for business cards these days. I used Stripe Atlas to register mine and handle all the paperwork for about $500.

2. I have too much available credit with their bank already and I’m not using enough of it every month (this is where a shift of credit to a new card would’ve been ideal, but I guess you can’t mix business with pleasure) #SAD.

Why did I get rejected for a premium credit card?

I had heard and read for years that the Ink Business Preferred was given away like a free carwash coupon for anyone with the audacity to operate a lemonade stand. I couldn’t believe the scrutiny that my (somewhat legitimate but mostly not) “business” was undergoing, especially since nothing I said was really even a lie – I do want to grow my site, and I do intend to spend more on it.

After a little more research, this is what I found:

Credit lenders are tightening the purse strings right now because the economy is in a recession and credit risk is much harder to assess with so much unpredictable unemployment. The credit score reported on my rejection letter was 800+, so I know my score had nothing to do with it.

TL;DR: It’s way harder to get approved for credit cards than it usually is right now, especially business cards, because banks are being more stringent with their qualifications.

From this point, I could call again and hope to speak to a different representative, but I don’t think the outcome would change since they’re evidently using a particular credit reporting feature that doesn’t have anything on record for the illustrious www.moneywithkatie.com brand.

How you can appeal rejections for personal cards

All that said, don’t let this dissuade you from applying for credit cards right now – especially personal cards. The worst that can happen is a “no.” If you experience rejections for personal cards over the next few months, I think you’ll have a much easier time of pushing back than I did.

One thing to note: Applying for a lot of new credit over a short amount of time (within a couple years), especially with Chase (who has the best array of travel rewards options, in this reporter’s opinion, but is quick to cut you off from the sweet teat of free travel), will raise red flags. This is where offering to move credit from another card is a helpful tool to employ, if you’re comfortable with it. This basically means if you have three cards with a $12,000 limit each, you’d take, say, $3,000 from each (dropping all three to $9,000) and putting $9,000 on a new one. That way, Chase is still lending you $36,000, but you’re spreading it across four cards instead of three.

However, if they ask you to close a card, I’d be hesitant unless it’s truly one that you don’t use very often. Remember, closing a card isn’t good for your credit score, and it can hurt your average age of credit if it’s a card you’ve had for awhile.

Reasons you might still be rejected for a premium card

So let’s say you’re interested in one of my favorite and most-used cards, the American Express® Gold Card, a premium card I love because it allows me to earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide up to $50,000 in purchases per calendar year, then 1x points, and at US supermarkets, up to $25,000 in purchases per calendar year, then 1x points. (You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $8,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount–all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.)

There are a few reasons you may be rejected, most commonly that you’ve applied for too much new credit recently or have a credit score below the “Good” or “Excellent” FICO range.

This becomes more explicitly troublesome with Chase cards. If you’ve applied for five credit cards in the past 24 months (with any bank), you’re officially in violation of the Chase 5/24 rule that says it won’t approve a sixth line of credit in two years. The 5/24 rule was instituted in 2015, I believe, to alleviate credit card churners from pillaging the sign-up bonuses and canceling the cards then repeating the process.

I’ve heard of some workarounds (like applying through the pre-approved “Just for you!” offers), but even those are becoming increasingly difficult to swing as the economy plunges deeper and deeper into a black hole.

Obviously, a credit score under 700 will also make it more difficult #InThisEconomy, but unless you’re below a hard cutoff, it doesn’t hurt to call and plead your case.

A few things to mention (assuming they’re true) on a reconsideration call for a personal card:

• Note if you’ve never made a late payment

• Note how long you’ve been with the bank (a lot of people have Chase bank accounts; you can say you’ve been a customer for X years and use the checking & savings products as your primary accounts)

• Note if you pay your bill in full every month

• Note if you intend to do a lot of traveling soon and you want to get 2x (or 3x, or 6x, whatever the case may be) points on your purchases at a certain airline, hotel, or both

The Chase 5/24 rule is the reason you should apply for Chase cards first (with the exception of the Platinum, in my opinion) before you switch to other banks (like the Citi American Airlines card, for example). If you stock your wallet with 5 Chase cards first, you can then move onto other lenders without incident (assuming you’re doing so with 3 or so months in-between acquisitions).

Final conclusion

Try anyway. Apply for the cards you want. If you get rejected, implement some of the tricks above, and if you still get rejected, you’re in good company.

When the economy turns around in a few years, maybe I’ll try again… assuming there’s a fragment of society left in which to travel.

*Update from the Great Beyond: I reapplied for the card several months later after I had registered Money with Katie as an official business with an EIN (the equivalent of a business Social Security number). Good things come to those who wait…and register with the IRS.

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Editorial Disclosure: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post. 

Month 4

(Months 2 and 3 were spent earning the sign-up bonus by chipping away at the spend thresholds. It goes without saying that spending a bunch of money you wouldn’t normally spend defeats the purpose of travel rewards, so… don’t do that.)

Now, in Month 4, we experience the #magic for the first time: Katie would refer Thomas to the Preferred card and Thomas would refer Katie to the Priority card (i.e., they’re referring one another to the cards they just got).

Now, Katie will earn 15,000 more points for referring Thomas, and he’ll earn 75,000 points for signing up, and Thomas will earn 20,000 more Rapid Rewards points for referring Katie to the Priority card, who will earn 50,000 points for signing up.

That nets them, as a couple:

165,000 Chase Ultimate Rewards points

120,000 Southwest Rapid Rewards points

Of course, these are spread across two accounts, but in some cases (Southwest, Marriott, etc.) you’re allowed to transfer your points to someone else. This means if you wanted to bank all your points for one particular co-branded card in one person’s account, you could just transfer them, making the other member of the couple the proxy line of credit.

If you’re married, or “members of the same household,” you can transfer Ultimate Rewards points, too.

So now, months 5 & 6 will be eaten up earning the next round of bonuses. We’ll check back in with them Month 7.

Month 7

With the Sapphire Preferred and Southwest cards out of the way, we’ll move on to hotels and premium cards.

This gets a little hairier with more personal preference, so strap in.

Katie will get the Marriott Bonvoy Boundless card for a welcome bonus of 125,000 bonus points and 1 free night, and Thomas will get the Platinum card for the welcome bonus of as high as 175,000 Membership Rewards points.

Months 8 and 9 will involve them hitting their individual spend thresholds, so you know the drill.

Month 10

Referral party, and you’re invited! Katie invites Thomas to the Bonvoy card and earns 40,000 bonus points. The Bonvoy welcome bonus for Thomas is the same; 125,000 bonus points and 1 free night.

Here’s where the personal preference comes in with the premium cards – some couples (especially those who really only travel together) don’t see the need in getting two premium cards with high annual fees like the Platinum, because a lot of the benefits of the Platinum card extend to cover the entire couple while traveling (e.g., elite status at hotels, airport lounge access, the Fine Hotels & Resorts Collection, etc.).

This is totally dependent upon your threshold for acceptable annual fees. Let’s say Thomas refers Katie to the American Express Platinum card.

Thomas earns 20,000 points for referring her, and she earns her welcome bonus of as high as 175,000 Membership Rewards points.

With this next set of cards, they’ve collectively netted:

370,000 American Express Membership Rewards points

290,000 Marriott Bonvoy points

Are you keeping track? That’s…

165,000 Chase Ultimate Rewards points ($2,475 in travel*)

*An Ultimate Rewards point is valued at approximately 1.5 cents per point.

120,000 Southwest Rapid Rewards points ($1,680 in travel*)

*A Rapid Rewards point is valued at approximately 1.4 cents per point.

370,000 American Express Membership Rewards points ($3,700 in travel*)

*A Membership Rewards point is valued at approximately 1 cent per point.

290,000 Marriott Bonvoy points ($2,320 in travel*)

*A Bonvoy point is valued at approximately 0.8 cents per point.

For a total of…

945,000 points to share between them worth approximately $10,175 in travel.

…and $2,468 in annual fees, or $1,234 per person.

Effectively, you share the benefits and split the cost. The beauty of this, though, is that all the cards recommended here have enough annual repeating benefits to more than offset the annual fees.

The tip of the loophole iceberg

The TL;DR version of this post is simply: You refer one another to cards so you can add referral bonuses to your acquisition bonuses, and traveling with one other person means you can reap the mutual benefits of each other’s points while only paying for your own.

But the biggest benefit to traveling as a couple is Southwest Companion Pass, and we haven’t even scratched the surface with Companion Pass yet. The Companion Pass strategy still works with the strategy above, but remember how I said the timing matters?

You’ll want to hit the spend threshold for the Southwest card early in the calendar year because the clock starts ticking on January 1 – you have one year to earn 125,000 points, and if you do, you can designate your partner as your Companion to fly free with you every time you do, paying only the taxes and fees ($5.60 each way). This is an incredibly lucrative benefit and the importance of getting it for your points strategy is hard to overstate since it effectively makes your points twice as valuable.

The referral bonuses count toward Companion Pass, so in the example above, Thomas would be the member of the couple who’s going for Companion Pass (funny, because in real life it’s the other way around and Thomas is the reluctant participant in my schemes) and he’d have 65,000 points from signing up and 10,000 points from referring Katie.

This is why going for Companion Pass when the sign-up bonus is high helps a lot – a 65,000-point sign-up bonus + 10,000 referral points gets you to 75,000 right off the bat, leaving only 50,000 to go. Unfortunately, transferring Rapid Rewards points to one another doesn’t count toward Companion Pass, otherwise we’d really be in business.

In the meantime… start firing off your first round of applications and rope your spouse into it.

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Editorial Disclosure: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.