Editor's note: This piece was written by The Points Guy, Brian Kelly, a rewards credit card expert.
In the world of frequent flier miles and hotel points, one of the ways travelers determine the value they are getting from their points earned on their travel rewards credit card is to calculate the cost per mile or cost per point.
When they go to redeem those miles or points, they use these formulas to figure out just how much they're getting per point to reap the biggest bang from those points or miles. So, how can the rest of us figure out this math?
Figuring cost per mile
|Flight from Los Angeles to New York round trip|
|Cost for flight:||$300|
|Cost per mile:||6 cents|
|Cost for flight:||$300|
|Miles needed for "free" flight:||25,000|
|Cost per mile:||1.2 cents|
What is cost per mile?
Cost per mile and cost per point are usually calculated in terms of travel -- you're basically dividing the cost of a ticket or hotel room by the number of points you earn on your travel rewards card from that flight or stay.
Take a quick example. Let's say you flew cross-country from Los Angeles to New York City round trip and paid $300 for your ticket. With most major U.S. carriers, you would earn one frequent flier mile per mile flown, so here you earn roughly 5,000 miles total. That would bring your cost per mile to 6 cents each.
Airline award charts vary, but a round-trip domestic coach redemption is usually around the 25,000-mile mark. So let's say that instead of paying for that ticket, which we know costs $300, instead you used frequent flier miles for an award seat. You'd be getting a value of 1.2 cents per mile.
Figuring hotel points per dollar
Cost per mile works the same in terms of hotels -- though hotel programs tend to calculate the number of points you earn on the money you spend. So for instance, you can earn 10 base Hilton HHonors points per dollar you spend at most Hilton properties, but with Starwood Hotels and Resorts, you only earn two Starpoints per dollar.
Those amounts go up depending on how often you stay in the hotel, or your elite status, and the credit card you use to pay for your stay. Many hotels (and airlines for that matter) offer spending bonuses when consumers use their cobranded travel rewards credit cards to pay for flights or stays.
On the redemption side, your calculation method should be the same when determining the value you're getting from each point. Take the rate you would be paying for the room you reserve and then divide it by the number of points you would need to redeem for a free night.
Figuring credit cards into the mix
The type of credit card you have will determine the kind of points and miles you earn and the rate at which you earn them. Many cards offer bonus earning opportunities with certain categories or with the cobranded airline or hotel. Those points and miles will give you varying values when you decide to redeem them.
Here are some examples on how to calculate the cost per mile with bonus features currently being offered by some large credit card companies. They're real incentives credit card issuers have offered for points or miles to use for travel. To get the cost per point or mile on your own offer, divide the dollar amount you spend by the number of points or miles you would earn.
Note that using cost per mile only works when you pay off your credit card bill each month. Keeping a balance, and having to pay interest, lessens the value you could get from these cards.
Note: Some credit cards offer even more points and dividends that can make your cost per point even better.
When determining your cost per mile, or cost per point, and specifically whether getting a travel credit card makes sense, you have to look at several distinct factors and crunch the numbers for yourself.
- Is the potential bonus lucrative enough to tempt you?
- Is the spending requirement to earn that bonus within reach?
- Will the award redemptions you're considering using your points or miles for make up for the cost of accruing them?
As always, whether a credit card offer is worth it depends on your specific situation and what you are hoping to redeem with those bonus points or miles. But with a little patience (and a calculator), determining the value you're getting from a credit card is relatively quick and easy, and it's the best way to make an informed decision about carrying a new product in your wallet.
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