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The Five Basics of Credit Card Points and Airline Miles

There are three things everyone should know about credit card points and airline miles:

  1. This isn’t “free” travel
  2. It can take a lot of work and organization
  3. Everything changes often

I’m going to attempt to cover the basics here, which means I’m not going to get into the specifics of how to best play this game. If you read this and want to know more, let me know and I’d be happy to discuss what best fits your situation.

The good news is that everything I’m saying here scales: if you just want to open one credit card per year, collect your 50,000 points, and get two roundtrip domestic coach tickets: cool. If you want to fly first class to the Maldives and stay in an overwater bungalow: equally cool (but get ready to put the hours in).

Before we get started, remember that we’re dealing with financial tools here that if used inappropriately, can literally ruin your life. No trip is worth destroying your credit or going into debt. If you’re currently in debt, focus on getting out before starting this. The amount of money you save from getting out of debt is tenfold what you’ll earn from points and miles. In short: only start this if you 1) are not in debt and 2) know the risks associated with it.

A lot of how you collect points and miles depends on what you’re looking to do: if you’re keeping it small, your strategy is different than if you’re going big. But no matter what you do, you’re going to need to know the basics.

###Basics 1: Chase, American Express, and Citi: the Big Three Credit Card Issuers A big misconception is that the bulk of accrued airline miles come from flying. The truth is that the vast majority of your points and miles will come from credit card spending and sign-up bonuses. While there are other issuers, the three you need to be familiar with are Chase, American Express, and Citi.

Each one of these banks issue several different credit cards that all accrue either airline miles or credit card points at rates ranging from one point per dollar spent to five points per dollar spent. Most of the credit cards that these banks issue also come with sign-up bonuses ranging from 10,000 points to 100,000 points after spending a certain amount of money over a certain period of time (the default is spending $3,000 in three months).

###Basics 2: What’s the difference between credit card points and airline miles? Now that you know the three major credit card issuers and how that the bulk of points and miles come from credit cards, let’s talk about the difference between credit card points and airline miles.

Airline miles are straightforward: these are miles earned by flying or from spending on an airline-branded credit card that are deposited directly into the airline’s mileage balance. So if you fly an American Airlines flight, you’re going to earn American Airlines miles. If you spend money on an American Airlines credit card, you’re going to earn American Airlines miles.

Credit Card points are a bit trickier to understand. Each of the three big credit card issuers all have their own system of credit card points: Chase has Ultimate Rewards, American Express has Membership Rewards, and Citi has Thank You points. These credit card points are valuable because they can be redeemed in two different ways:

Redemption 1: Directly for travel. Generally at redemption rates ranging from 1¢-1.5¢ per point, you can book anything related to travel: flights, hotels, rental cars, cruises. etc. So if you have a redemption rate of 1¢ per point, a $500 flight would cost you 50,000 points. If you have a redemption rate of 1.5¢ per point, a $750 flight would cost you 50,000 points.

Redemption 2: Transfer to airline miles. Generally at a rate of 1:1, you can transfer credit card points for airline miles (or hotel points). 30,000 Chase Ultimate Reward points can be transferred to 30,000 Southwest miles. 50,000 American Express Membership Rewards can be transferred to 50,000 Delta miles.

The catch on Redemption 2 is that not every credit card issuer can transfer to every airline. For example, American Express Membership rewards cannot transfer to Southwest. Similarly, Chase Ultimate Rewards cannot transfer to Delta. For the three major credit card issuers, here are the main transfer partners:

  • Chase Ultimate Rewards: Southwest, United, Singapore Airlines, British Airways
  • American Express Membership Rewards: Delta, Singapore Airlines, British Airways
  • Citi Thank You: Singapore Airlines, British Airways

###Basics 3: The best credit cards for earning airline miles or credit card points

Let’s get this out of the way first: American Airlines is a popular airline. But while Citi issues an American Airlines credit card, no credit card points from the big three credit card issuers (Chase, American Express, Citi) are able to be transferred to American Airlines. (This isn’t strictly true–but to keep things simple, we’re going to say it is) So if you want to earn American Airlines miles, you need to get an American Airlines card.

I value credit card points much more than airline miles. Mainly because credit card points can be used like cash (Redemption 1) or turned into airline miles (Redemption 2). So since we’re keeping this basic, let’s focus on the best credit cards for earning credit card points from Chase, American Express, and Citi. These are in roughly the order that I value the points:

[As a quick side note, some of these links I get extra points if you apply through]

####Chase Ultimate Rewards

Chase Freedom and Chase Freedom Unlimited (No Annual Fees, 15,000 Point Sign-Up Bonuses)

One of these two (or preferably both!) should be in your wallet. The Chase Freedom has rotating categories every quarter to where you earn 5x the points on all purchases in the category (for October-December it was Wal-Mart, for January-March it’s Gas and Internet/Cable bills). The Chase Freedom Unlimited earns a flat 1.5 points/dollar on every purchase. Which speaking most cards that have annual fee earn only 1 point/dollar on every purchase, it’s kind of crazy this card is free.

The catch (and there’s always a catch!) is that unless you have one of Chase’s Premium Cards (Chase Sapphire Preferred or Chase Sapphire Reserve), you can only redeem these points for cash at a rate of 1¢ per point. Which, let’s be honest, isn’t the worst thing in the world. But if you do want to take it a step further…

Chase Sapphire Preferred ($95 Annual Fee, 50,000 point sign-up bonus) and Chase Sapphire Reserve ($450 Annual Fee, 50,000 point sign-up bonus)

… then the Sapphire line of cards is where to go. Both of these allow you to either redeem the points for travel (1.25¢/point for the Preferred, 1.5¢/point for the Reserve) or transfer to airlines and hotels for miles. If you have the Freedom and/or the Freedom Unlimited and the Chase Sapphire Preferred and/or Reserve, points earned on the Freedom cards can also be transferred to airline miles or redeemed at the rate of the highest card you have (e.g. if you have the Sapphire Reserve, you can redeem points earned on the Freedom Unlimited for airline miles or 1.5¢/point directly for travel).

Both of these earn one point per dollar spent on every purchase, but earn bonus points for restaurant and travel purchases (2x the points on the Preferred, 3x the points on the Reserve).

You may be looking incredulously at that $450 annual fee for the Sapphire Reserve (and you should!). But know in addition to everything mentioned above, the Sapphire Reserve also gives you $300 off travel purchases every year (so if you bought a $400 flight–or two $200 flights– on the card, $300 would be refunded to you) and gives you lounge access at 1000+ airports, as well as a host of other benefits. As long as you actually make $300 worth of travel purchases a year, the annual fee for the Chase Sapphire Reserve card is effectively $150.

####American Express Membership Rewards

The American Express cards are the ones I haven’t had in years as that they have pretty strict application rules, their sign-up bonuses aren’t great, I don’t really fly Delta, and worst of all (and most applicable to me): you can only get the sign-up bonus once (like once ever– one sign-up bonus in your lifetime). But if you’re flying Delta, then this is your only choice.

AmEx Everyday (No Annual Fee, 10,000 point sign up bonus) and AmEx Everyday Preferred ($95 Annual Fee and 15,000 point sign up bonus)

The Everyday gets 2x the points at grocery stores and 2x the points on travel purchases. The Everyday Preferred gets 3x in those categories. The main benefit here is that when you make 30 purchases per month, you actually get a multiplier on the points you earned for that month (30% for the Everyday and 50% on the Everyday Preferred). The other leg up it has over Chase is that even if you just have the no-annual-fee AmEx Everyday, you can transfer those points to airlines for miles.

AmEx Premier Rewards Gold ($195 Annual Fee, 25,000 point sign-up bonus) and AmEx Platinum ($550 annual fee, 60,000 point sign-up bonus)

These are the premium AmEx cards. The gold has a $195 annual fee, but you get a $100 airline credit (more restrictive than the Chase Sapphire Reserve $300 credit which is applicable to any travel), plus you get 3x on travel and 2x on restaurants, gas, and groceries.

The Platinum card isn’t one I really recommend strictly for points earning. There’s some great benefits (it’s got the best signup bonus, $30 in Uber credit every month, $250 airline credit, lounge access, other premium benefits), but with the exception of 5x the points on airfare booked with AmEx, you only earn one point per dollar everywhere else.

####Citi Thank You Points This used to be where I earned the bulk of my points, but they’ve really restricted applications and they only offer sign up bonuses every now and then. In addition, these points don’t transfer to airlines that fly domestically, so you have to be pretty knowledgeable about how to book domestic flights with miles from international carriers. It’s pretty easy to understand, but there is a learning curve on this.

Thank You Preferred (No Annual Fee, No sign-up bonus)

This is a basic card, but it’s free and you get 2x the points on restaurants and entertainment (movie theaters, sports tickets, etc.)

Thank You Premier ($95 Annual Fee, no sign-up bonus, though sometimes there’s a 50,000 bonus) and Thank You Prestige ($450 annual fee, no sign up bonus, though sometimes there’s a 50,000 point bonus)

Both of these cards earn 3x the points on flights and gas and 2x the points on restaurants and entertainment. With the Prestige you get a cool offer of the fourth night free at any hotel you book, plus $250 in travel fees reimbursed every year, as well as lounge access (similar to the Chase Sapphire Reserve). If you have the Premier or Prestige, these points are worth 1.25¢ per point to directly book travel. Also similar to Chase, you must hold one of these cards to transfer Thank You points to an airline.

###Basics 4: What are the limits for signing up for these cards and getting a sign-up bonus? There used to be a time when you could pretty much sign up for any of these cards at any time and get the signup bonus. That time has passed. In general here are the current rules:

Chase: you’ll only get approved if you have opened fewer than five credit cards from any bank in the past two years

American Express: only one sign-up bonus ever

Citi: one sign-up bonus for all cards every two years (when–ya know– they’re actually offering signup bonuses)

###Basics 5: If I’m just starting out, what do you generally recommend? If you’ve got something specific you want to do, talk to me.

If you’re just generally looking to get into this and not as worried about maximizing, here’s what I’d do:

If you’re just starting out (i.e. you’ve applied for one or zero cards in the past two years), my recommendation would be to get the Chase cards you want before moving onto the others. You can apply for two Chase cards every 30 days.

If you want more points and Citi is actually offering a signup bonus, move on to the Citi Thank You Premier.

The AmEx cards are a bit trickier to generally recommend when to get them. Since you only get one sign up bonus ever, you want to make sure it counts. I’d recommend only applying for these when you have a specific use for them.

My general strategy is to maximize Chase points. Not only are they the easiest to earn on spending (they have the best signup bonuses and the best bonus categories) they also transfer to the airline I fly the most (Southwest) and with the Sapphire Reserve I can redeem the points for 1.5¢ per mile if I want to go that route.

The one thing I want to emphasize here is that the more cards you get, the more work this takes to manage. If you know that you’re not going to keep up with all that it takes to manage several lines of credit open to you, just apply for one of these cards (probably the Sapphire Preferred) and then two years later cancel it and apply for it again. But if you’re willing to put in the time, effort, and attention needed to do this appropriately, you’re going to be able to see and do things you never thought was possible.