Earning Miles with Credit Cards

A step back to a few basics, from all the various deals that have been posted lately.  In this post, I want to go more in-depth into one of the best tools at your disposal for accumulating miles quickly.  Credit cards and their signup bonuses.   We’ve previous covered some of the basics of credit card churning, but I’d like to go into more detail.  Most of you have probably encountered airline specific credit cards.  They usually come with an annual fee between $60-$100, and typically net you 1 mile per dollar on most purchases, and bonus miles on purchases with the airline.  While this is a way to build up airline miles, I don’t think it’s necessarily the best way.

In my previous post, I discussed rough valuations of miles based on what type of flights you take.  Let’s say you value your miles at 1-2 cents apiece. If you are earning one miles per dollar on say, the United Mileage Plus Explorer card, you’re getting roughly a 1-2% return on your card.  But to have this card, you pay an annual fee of $90 (check?).  While it’s nice that you’re getting miles and traveling for free, you could honestly find a cash back card that gives you better values.  Most cash back cards offer 1% on general purchase, but have categories where you could be earning 3-5% cash back per dollar, with no annual fee.

However, the United Mileage Plus Explorer card comes with a bonus of 40,000 (or 60,000 miles, if you are a Mileage Plus elite member (see end of post) ).  If you take that account, you are earning miles for as low as fractions of a cent.  At that rate, it is definitely worth getting the card, AND paying the annual fee (if it isn’t waived the first year, which a lot of cards do).

I would like to digress a moment, regarding credit card annual fees.  Yes, I agree that annual fees are terrible, a seemingly unnecessary expense, and if you get a card with an annual fee purely for the signup bonus, you have to somehow remember to cancel your card before the fee comes up again or else you’ll get charged again.

However, consider what you’re getting out of the annual fee…at least one free domestic trip that is generally worth much more than the annual fee (maybe even the annual fee twice over).  It’s hard to dispute the value there.  Yes you will have to remember to cancel the card if you don’t want to pay the annual feed again, but I think with today’s technology, you can set your self email, calendar reminders, etc., there’s really no excuse.  Personally, I keep a spreadsheet where I keep track of all the cards I’ve applied for, the dates I applied for each, the amount I’ve spent on each, and a few other things (if there is enough demand, I’d be willing to post a blank version of that for people to use themselves).

Another point on canceling cards with annual fees, despite how easy it makes things to just cancel the card after the bonus miles post, you should avoid doing this.  It does not look good to the bank issuing your credit card if it looks like you just opened a card for the bonus, particularly if you develop a pattern of this.  Banks may blacklist you if you do that too much.  In fact, some cards or banks explicitly prohibit doing this in the terms of their condition.  Generally, it’s best to keep a card open for at least 6 months before canceling, and when you do call to cancel, it’s not uncommon for the bank to offer you retention bonuses to keep you as a customer (sometimes including thousands of bonus miles on the spot).

So whether or not using a card such as the United Explorer card is worth it in your situation, there are several programs out there that allow you to earn points that are transferable to a wide variety of programs that are much better options than confining yourself to a single mileage or hotel program.  These programs are the Starwood Preferred Guest (SPG) program, the American Express (AMEX) Membership Rewards (MR) program, and the Chase Ultimate Rewards (UR) program (covered by Mommy Points).  Stay tuned for upcoming posts on all of these programs!  That’s all for now….

-ffc