Vacationing With Points: When to Redeem Points and When to Pay Cash

What Kinds of Points or Miles Do You Have?

The first thing you need to consider is what kind of points or miles you'd be using for your trip. There are four major types:

1. Airline miles: Everyone is probably familiar with frequent-flier miles that you can earn and redeem for flights with one particular airline or its partners. For example, you can earn and redeem American Airlines AAdvantage miles for flying with the airline or one of its many partners, including British Airways, Cathay Pacific and Qantas.
2. Hotel points: Like airlines, hotels have their own loyalty programs with points you can earn and redeem at a variety of brands. For example, Marriott comprises 30 brands such as Westin, Courtyard and Ritz-Carlton. Hilton's portfolio includes almost 20 brands including Embassy Suites, DoubleTree and Waldorf Astoria. So travelers could earn Marriott Bonvoy points staying at Westins and then redeem them at a Courtyard location, or earn Hilton Honors points staying at a DoubleTree and then use them for an award night at a Waldorf Astoria.
3. Cash back points or miles: Points or miles are generally worth a fixed value when redeeming them for travel—usually around 1 cent each. Cash back points are valuable because you don't have to worry about special awards opening up on flights or at hotels in order to redeem them. Cashing them in is basically just like paying with cash, so they give you a lot of flexibility when it comes time to use them.
4. Transferable points: Certain credit card issuers have their own loyalty programs where cardholders earn points that they can then transfer to a number of different airline or hotel partner programs.

Once you have sorted out the types of points or miles you have and can use, your next question will be: How much value should I get from them?

How Much Are Your Points Worth?

This is a tricky question because the value of points and miles—even the cash back kind—can vary depending on a lot of different factors. Pricing within the travel industry, including airfares and hotel rates, is also somewhat erratic for the time being due to COVID 19-related concerns and issues. So before redeeming any points or miles, be sure to price out your options to make sure you are getting enough value from them to make sense for your needs.

1. It depends on the charge. The value of your points might come down to the types of purchases for which you redeem them.
2. It depends on your credit card. Even points from the same loyalty program can have a different value based on which specific credit card you carry. Make sure you know the benefits of your particular product before redeeming any points you earn with it.
3. It depends on your destination. In terms of airline miles, your value can vary a lot depending on how you redeem them. For example, you might use 75,000 Delta SkyMiles for a one-way ticket from the U.S. to Europe that could cost upwards of $5,000, giving you a per-mile value of nearly 6.7 cents. On the other hand, your Delta SkyMiles would only be worth about 1.2 cents each if you redeemed 4,500 of them for a one-way flight between Los Angeles and San Francisco that would otherwise cost $53. So think about the ways you might want to use your miles and what redemptions are likely to reap the most value.
4. It depends on which hotels you book. Finally, the value of your hotel points will depend very much on the specific program in which you earn them. With World of Hyatt, for example, you can book award nights at many of the chain's high-end luxury hotels, such as the Park Hyatt New York, for 30,000 points each instead of paying rates that tend to run over $800. However, for a room at the Grand Wailea Maui, a Waldorf Astoria Resort, which is also often over $800 per night, you would need a whopping 95,000 Hilton Honors points (though reward rates can actually be much higher). So if you hope to use points with a specific hotel program, try making sample bookings and get a feel for how many points you will need for the destinations where you want to travel.

Once you get a sense of how many points or miles you're looking at redeeming for a specific trip, it's time to figure out whether doing so is worth it.

How to Calculate the Value You'll Get From Your Points

After you get a grasp of how much each point or mile you redeem is worth, you will need to do a little math to make sure you're getting at least that value back from your redemption. There is an easy way to do this. Basically, you take the dollar cost of your ticket, room rate or whatever else you are redeeming miles for, then you divide it by the total number of points or miles you would need to redeem for it.
For instance, let's say you want to book a round-trip economy flight from Boston to San Francisco. If a ticket paid in cash costs $300 and an award ticket costs 25,000 miles, you'd take $300 and divide it by 25,000 to get a per-mile value of 1.2 cents. Not bad.

How to Tell if You're Getting a Good Deal

Although it's difficult to generalize, there are a few guidelines to follow that should help you get a good value from your points and miles.

1. Airline miles: Your per-mile value can vary from airline to airline. In general, though, you should be getting at least 1 cent per mile in value that you redeem with a frequent-flier program. If it's less than that, you're better off paying cash.
2. Hotel points: This also varies a lot, but you should typically get at least half a cent per point in value from most of the major hotel programs, like Hilton, IHG Rewards and Marriott. With Hyatt, look for a value of around 1.5 cents per point.
3. Transferable and cash back points: This is a little easier to stick to since cash back points and transferable points you opt to redeem directly for travel tend to have an exact value. As mentioned above, Capital One Rewards Miles are worth 1 cent apiece for travel. Chase Ultimate Rewards points are worth between 1 cent and 1.5 cents each for travel depending on your credit card. As long as you are getting that, you should be good to go.

Time to Choose the Points or Miles You Use

But what happens if you have a choice of points or miles to use? Let's say you have both American Airlines miles and Chase Ultimate Rewards points to redeem for travel. How do you decide which type to cash in? You will just need to calculate the per-point value for the specific airline or hotel program versus the per-point value for your cash back program and see which one comes out on top. This usually works out in the following way:

• Cheap flights and nights: If your flights or hotel bookings are inexpensive, you will generally get a better value from your cash back points. For instance, let's say you booked a round-trip flight from Los Angeles to Seattle over the summer. Airfares on Alaska Airlines are around $117, or 20,000 Alaska miles. That works out to around 0.59 cents per mile in value.
• Expensive flights and nights: On the other hand, even though they require tens of thousands of miles or points, some very premium rewards including first-class flights and award nights at luxury hotels, usually yield a much better value than simply redeeming cash back points. To take one of the examples above, a $5,000 business-class ticket to Europe that would cost just 75,000 Delta SkyMiles plus under $100 in taxes and fees would require you to redeem an astounding 500,000 Capital One Rewards Miles. No thank you!

For the most part, try to redeem your airline miles and hotel points for otherwise expensive rewards, and save those cash back points for cheap flights and nights.

It Might Make Sense to Just Pay Cash

With all that said, there are still some times when it just makes sense to pay cash.

1. Cheap deals: For the most part, if you are getting a great deal on a flight, stay or package, it is usually easier just to pay for it rather than trying to redeem airline miles, hotel points, cash back or a combination of all three. Chances are, you won't get a lot of value per point or mile on such bookings anyway, so it's not worth the bother.
2. Awards aren't available: Sometimes, award flights and nights just do not open up, so your only option is to pay. This is more often the case for so-called "saver" awards that require the fewest miles or points, and which also represent a better value. Also watch out for "blackout dates" on the calendar when airlines and hotels do not open up these types of awards, and if they aren't available, paying as usual is always a good alternative.
3. Business travel: If you are traveling for business, it is also typically just worth paying since your trip will either be covered by your business, or you might be able to deduct the expense from taxes if paying yourself.
4. Elite status: Another instance where it makes sense to pay for travel is if you are hoping to achieve elite status with an airline or hotel chain. If you redeem airline miles, in particular, those flights generally do not count toward elite status. This is not always the case, but with carriers including American Airlines, Delta and United, it is. Some hotel award bookings also count toward elite status, but this will depend on your program.
5. Saving for a dream trip: Finally, if you're saving your points or miles for a big trip sometime in the future, it can make sense to avoid redeeming them in the short run in the hopes of getting a better value from them down the line. This is especially the case if your dream trip is somewhere exotic like the Maldives, where flights and hotels can be extremely expensive but mileage and point redemptions are available.

When it comes to travel, rewards points and miles can be a lifesaver. Redeeming them for flights, hotel stays and other travel expenses can save you a lot of money and make your trip that much more enjoyable. Before you go cashing in all your points, though, make sure you are getting a good value from them, redeeming them for expenses you might not otherwise be able to cover, and that you are not preventing yourself from taking an even more expensive trip in the future.