How to Decide When to Use Your Points

October 2020

Ideally, the answer is, “All the time, because I have millions of them.” But for those of us who haven’t crossed the 7-figure points mark, a little strategy is involved.

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 it becomes an emotional one, when in reality, the system that should guide our decision-making is actually quite algorithmic.

That is to say: I’ve found myself agonizing over whether I should burn the points on a certain trip or just use “real money,” even when it’s clearly 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.

Often times 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.

Acknowledging that it’s not always cut-and-dry (even when it technically should be), let’s talk through how you can decide whether or not you should pay with points or dollars.

When to pay with cash

The magic number you want to isolate here is redemption value. Luckily, all you need to find it is:

• A 4th grade understanding of long division

• The price in points

• The price in dollars

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

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

Let’s do an example, because I was never great in math class and making it “real” helps me understand:

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.

$200 ÷ 18,000 = 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. What would happen if you paid $200 for the flight?

Let’s say you could earn an incremental 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.

In this sense, you can treat those earned points almost like “money off” – $22.50 in points makes your $200 flight’s net cost $177.50.

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

In summary:

Pay with cash when the redemption value for the points significantly undermines the average value of a point (I always just Google it, but I’m thinking about developing my own calculations based on average redemption values and posting them here… stay tuned).

Of course, context matters, and if you’re sitting on 200,000 Rapid Rewards points, you’ll probably pay with points no matter what.

When to pay with points

Let’s switch gears and use a more agnostic example for this one. 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).

$266 ÷ 21,820 points = about 1.23 cents per point

Hmph. This isn’t great, especially for Ultimate Rewards points. Let’s try another one 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 a no-brainer for me. A lot of the value assigned to the “average” Ultimate Rewards points value comes from the fact that they can become ludicrously valuable when transferred (like a $1,300 flight or a $950 hotel room for 35,000 points), but in my experience, the value of a point in the Ultimate Rewards portal itself stays relatively consistent – it seems like they have a more-or-less set algorithm determining the dollars-to-points value.

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 2.5 cents each.

One thing to note here is that the Platinum’s Fine Hotels & Resorts Collection does make certain redemptions crazy valuable, since the booking comes with so many more perks (resort credits, free breakfasts, late checkout, etc. – I covered this more extensively here).

Where you’re more likely to see points values fluctuating is directly booking with the hotelier or airline – this is because the airlines and hotels offer peak and off-peak pricing models, in a lot of cases. Some are upfront about it and will share their reward charts (Bonvoy’s is included in my Bonvoy deep dive and Hyatt’s is included in my Hyatt transfer guide), while others (read: airlines) have mostly done away with these award charts that describe the floors and ceilings.

In other words, you know you’ll always be able to find a “Category 1” hotel for, say, 5,000 points, and that the most you’d ever spend is 90,000 points/night (hypothetically).

When an award chart is removed from the equation, a flight could cost as little (or as much) as the airline wants, for reasons we’ll never know, and it makes it less predictable (and usually, more expensive).

In summary

Your best bet is to use the equation every time and determine if the redemption value is good compared to what the geniuses of the internet say is the average – but honestly, the more I think about it, the more I feel like I want to come up with my own point valuations because sometimes I disagree with the powers that be. I’ll need extra coffee and free time to knock that one out, so thanks for your patience and grace as I invest more time and effort into cheating the system.