Beginning To Earn Rewards

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Yesterday, I received an unusually good question:

“Hi,
Came a cross your site today it’s really great.
I currently have two credit cards a Chase Rewards Visa Signature (3% on gas 1% everything else) and as backup the American Express Cash Rebate Platinum (1%).

Our family of 5 wants to fly to Florida in February. My wife received an offer for the American Express Gold Rewards Plus for the first year free and a credit of 50,000 MR points if we spend 500 on the card by Jan 31. Those 50,000 would score us 2 tickets.

I was wondering if the following is doable : opening up four Amex Starwoods cards – 1 personal and 1 business each for myself and my wife. These cards would give a 10,000 point signup bonus for a total of 40,000. These 40,000 would transfer over as 50,000 in airline miles and score us two more tickets.

Besides for whether this is doable, how could opening up a whole bunch of credit cards affect my credit score and how could I close these accounts or consolidate them after I have my tickets without affecting our credit scores too much. The only card I may be interested in keeping is one Starwoods card.”

Why This Is Such A Good Question

I hate to be patronizing, but this question is good on so many levels. Let’s take it from the top:

First, I am a sucker for compliments! I also see that the reader is using some cash rewards cards, a great place to start earning rewards. He is using one card for gas, and another for most other purchases, a strategy that I practice. I use an Amex Platinum Small Business card that gets 5% on gas, mobile phone bills, and office supplies. Since no travel reward reliably beats 5% cash back, I always use it when the discount applies. The reader could fine tune his cash rewards by getting that card, or perhaps the Amex Blue Cash card, although Blue only works for larger amounts of annual spending.

Starting Travel Rewards Cards

Next, the reader mentions the goal of flying a family of 5 to Florida in February using rewards. Assuming he is talking about February of 2009, this is probably not a good idea. While the Starwood cards he is contemplating are a great deal, the fine print mentions that it may be 6-8 weeks before he receives his sign up bonuses. Even if he were to get them now, he would still be trying to book an award ticket to Florida in the winter only a couple months out, a very difficult task on most airlines.

Consider The Opportunity Costs

Now the reader didn’t mention where he lives, but lately airfares have plummeted with the collapse of world oil prices. I flew from Denver to Florida in July for over $500, while my ticket to visit this January cost me only $200. The standard domestic award on most airlines is 25,000 miles, and that is rarely available during peak travel times, like visiting Florida in the winter. Even if he were to find such an award, it would be a bad use of his miles to book a trip with a low ticket price. If the reader could find a ticket for $200, he would only be getting 1 cent per mile from the 20,000 Starwood points he redeemed for 25,000 miles. Under that scenario, he would have been better off using his cash back card where he could have had a better choice of airlines and travel dates, and have earned interest on his money in the mean time.

An even better use of his Starpoints might be to save them for his hotel room. Unless he is staying with family in Florida, as I often do, there are some great Starwood properties he might consider down there. The first time I redeemed Starpoints was a the Sheraton Safari in Orlando. You can book it online for $124, or redeem a room for only 3,000 Starpoints. This is a value of over 4 cents per Starpoint, a great hotel for kids as well.

On the other hand, if the reader is traveling a great distance from Florida, and the airfares are more expensive, it might be worth it to go for a frequent flier award ticket. You should really hope to get a value beyond 2 cents per mile for this to be worth your effort.

How To Get That First Ticket

Sign up bonuses are great, and I recently employed the same strategy of obtaining both a personal and business card for both my wife and I. I think it causes a short term drop in my otherwise excellent credit score. A home is the only thing that I ever borrow money for, and since I will not be purchasing a new house anytime soon, this is a fair trade off for my situation. If you have less than perfect credit or you will be financing something major soon, I do not recommend this strategy.

Be Realistic

You have to realize that frequent flier programs at most airlines have become unregulated lotteries. Your chances of scoring award tickets at reasonable redemption rates to a popular destination at a peak travel season are slim. Your odds diminish sharply as you get closer to the travel date. If you are willing to plan your vacation now for February 2010, you would have a lot easier task ahead of you. I will be extremely surprised if you manage to pull off this award for February 2009. I would find a discount ticket on carriers such as Southwest, Allegiant, Spirit, Airtran, or Frontier. Hotel rewards are much easier, especially with Starwood. If the bonus strategy works for your credit situation, you can save big money on hotels. With a family of 5, you will want to reserve 2 rooms for 5 nights each, at a rate of 3,000 Starpoints per room. Since Starwood gives you a fifth night free, you would only need a mere 24,000 Starpoints. At $124 a room per night, you would be saving $1,240, over 5 cents per Starpoint, an amazing deal!

Good luck, and enjoy sunny Florida this winter.

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One Response to “Beginning To Earn Rewards”

  1. zerbert Says:

    Thanks for the answer. I don’t think Amex has 5% cash back on gas anymore besides for the tiered Blue Cash card,
    I found a credit union card from penfed that gives 5% on gas 2% on groceries and 1.25 for everything else

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