Have you ever wondered when it makes sense to switch from earning hotel and airfare rewards to general travel or cashback rewards? If you have never asked yourself this question and you heavily pursue travel rewards, I think it’s an interesting and important question to contemplate because you could be missing out on a lot of savings.
There may be an easy way to track this in the future using a “smart” cheat sheet — keep reading below for more details.
Travel rewards versus cash savings
This is the way I see it.
Yes, one huge part of travel rewards is to allow you to experience unimaginable luxury and travel in ways you never would have thought possible. But I believe travel rewards — at their core — allow you to simply save money on travel expenses you otherwise would have purchased.
For example, each year Brad and I regularly avoid paying for lots of air travel and hotel expenses all because we earned points with various cards. Some years we net over $50,000 or even $100,000 in airfare and hotel value with rewards but that’s definitely not how much we’d spend in a given year on travel.
In reality, our real travel budget is much lower and so our “real savings” are also much lower than $50,000 or $100,000. Why is that? I’ll show you.
Let’s say that each year I would normally spend $5,000 total on airfare and hotels. But by taking advantage of good welcome bonuses and earning a lot of rewards via spend, I’m able to earn $7,000 worth of airline and hotel rewards. The $5,000 in travel savings is pretty clear, since I won’t have to spend the $5,000 that I normally would on travel.
But what about the extra $2,000? Let’s say that the rewards currency is in the form of United miles. At this point, it could be argued that the $2,000 does not represent any “true” savings — it’s just additional value that I can use towards travel in the form of United miles (let’s assume you don’t roll points over to the next year to keep things simple).
So wouldn’t it have been better to go a different route with my spend?
What if I structured my spending so that I earned $5,000 worth of airline and hotel points, but then I used some of the best cashback cards to earn an additional $2,000 dollars in the form of cashback? Then I could use that extra $2,000 and apply it to any type of expense (including general travel costs) and optimize my savings. Compare that to having $2,000 worth of United miles I have no need for.
The issue of when to use cashback versus travel is something that I think WalletFlo — the digital smart wallet that I am currently working on — could help with. Here are a few examples where people might switch from travel to cashback and how I think WalletFlo could help.
Hitting an annual travel budget
Some people like to set a travel budget and earn travel rewards up to that point. In this example, let’s assume that you were going to set aside $5,000 a year for hotels and airfare.
Let’s say you had the Chase Sapphire Reserve and you were redeeming your points toward travel at a rate of 1.5 cents per point, so you needed 333,333 Ultimate Rewards to cover your entire $5,000 hotel and airfare budget for the year.
Well, let’s say that you and your partner together earn 333,333 Ultimate Rewards. After that point, it might be beneficial to simply maximize cashback so that you can cover other expenses including random travel expenses.
WalletFlo would notify you when to do this and would be able to show you which cashback cards you are eligible to pursue so you could focus on getting the maximum level of cashback savings.
Hitting redemption goals
Maybe you’re more worried about redemption goals than the monetary value of the rewards.
Let’s say you needed 150,000 Membership Rewards (to transfer to Aeroplan) to fly EVA business class roundtrip and you needed 60,000 Hyatt points for a four night stay at the Grand Hyatt Taipei. So you hop on a couple of cards and earn all those points in a few months.
WalletFlo would notify you when you’ve hit your minimum needed points. Ideally, this could be done across your accounts, so it would factor in points earned between you and a partner. You’d then get notified about the need to switch to cashback at that point.
Some people like to put spend on whatever card earns the highest percentage of return. So they may be using travel rewards card for things like dining and travel but they may use a cashback card for grocery shopping. There’s nothing wrong with this approach, especially when you don’t have any real travel plans but you would like to have some points on deck for when you do.
WalletFlo would be able to help users do this using the feature below.
The “smart” cheat sheet
The smart cheat sheet will be a super helpful WalletFlo feature. It will automatically show you which of your cards in your wallet will give you the best % return for each major spend category and will update quarterly for cards like the Chase Freedom.
But it would also update when you need to switch to cash back based on your travel goals, so you’d instantly see which cards will maximize cashback in each category. Also, if you just wanted to maximize points for each category with a mixture of travel and cashback it could be set to that setting.
Next level tracking
I think it would be great if the application could track your spend on specific cards so that it could then update real-time after you have hit spend thresholds. For example, the Amex Blue Cash Preferred earns 6% back at grocery stores but only up to $6,000 in spend per year.
It would be pretty sweet for your cheat sheet to automatically update to the next best earning card for groceries after you hit $6,000 of spend so you don’t have to keep track of that yourself.
There are several cards that have these capped bonus earning rates so this could be done across many different types of cards. (And it would also be very helpful if the calculations factored in your annual fees as well, so you’d always know that paying your annual fee is worth it for a card.)
Again, I can’t make any promises about all of the features that will eventually be implemented. But these are the types of automations that I want to eventually implement with WalletFlo. The idea will be to create the ultimate organization and optimization system for your wallet so that you can save both time and money in a number of different ways.
So let me know below, do you use both cashback cards and travel rewards cards?
Daniel Gillaspia is the Founder of UponArriving.com and the credit card app, WalletFlo. He is a former attorney turned travel expert covering destinations along with TSA, airline, and hotel policies. Since 2014, his content has been featured in publications such as National Geographic, Smithsonian Magazine, and CNBC.