The Cure for the Common Devaluation

By now I presume my readers have heard about the devaluation to the Hyatt Gold Passport program, adding a 7th hotel redemption category, making room upgrades many times more expensive, and increasing the cost of redemptions in the existing award categories.

Devaluations suck, especially when – together with United – they affect some of the most historically lucrative transfer partners of Chase's flexible Ultimate Rewards points.

That's one reason why I don't stockpile miles and points, and neither should you. I never get tired of telling people that the least valuable point is the one you don't redeem. While you can insulate yourself from inflation somewhat by focusing on flexible points currencies that you can deploy strategically, as a hard and fast rule your points will never be more valuable than they are today. Even supposedly "premium" cards like the Citi ThankYou Premier recently underwent a 7% devaluation when they reduced the value of ThankYou points from 1.33 to 1.25 cents each when used for paid reservations.

Besides redeeming your miles and points whenever and wherever you can, there are still three ways you can fight devaluation while you're designing your travel hacking strategy.

Bonus Categories

Bonus categories are designed by credit card companies not to make money hand over fist, but to incentivize use: to make sure their card is "front of wallet." We take advantage of these bonus categories by manufacturing spend as cheaply as possible and redeeming our points as lucratively as possible.

If you carry cards with rotating 5% cash back categories, be aware of those categories, and max out your manufactured spending in those categories whenever possible. This year alone, one person carrying the Chase Freedom, Discover it, and Citi Dividend Platinum Select could pocket $525 in cash at a cost of $82.95 taking advantage of just drug store and gas station bonus categories. That may not sound like travel hacking, but having an extra $442.05 in cash lying around is enough to buy a roundtrip ticket or two in many domestic markets.

If you have a little more liquidity, then take advantage of unlimited 3% cash back or 6% in paid airfare by making Kiva loans using a US Bank Flexperks Travel Signature Visa, or 5% cash back (capped at $2,000 in spend quarterly) with the US Bank Cash+ card.

Gas stations (like 7-11) that continue to sell Vanilla Reload Network reload cards, PayPal My Cash cards, and PIN-enabled Visa and MasterCard gift cards will let you earn lucrative points faster: the Chase Ink line of cards and the Chase United Business Explorer card both earn 2 points per dollar spent at store locations coded as gas stations.

Grocery stores are one of the remaining common bonus categories that is easily hackable, if your local grocery stores sell PIN-enabled Visa or MasterCard gift cards. Those cards can be used to load Bluebird or Gobank accounts for free at Walmart, or used to purchase money orders or make Walmart bill payments.

Signup Bonuses

The principle that your points will never be more valuable than they are today applies equally well to signup bonuses. If you aren't working on lucrative bonus categories, start thinking about what upcoming trips you'd like to take, how you might want to get there and where you might want to stay.

For example, back in April I applied for the Marriott Rewards Premier Visa because I was planning to visit Portland for 3 nights before my brother's wedding. I would never apply for that card speculatively, but I knew that I was getting precisely $684 in value from the signup bonus (since I wanted to stay in downtown Portland), which made it a no-brainer.

Likewise, I just advised a colleague to take advantage of the Chase United Explorer personal card, since there's an available offer for 55,000 United Miles after adding an authorized user and meeting a very reasonable minimum spending requirement. He travels to Poland every year and spends upwards of $1,000 on paid tickets; a few Vanilla Reload Network reload cards later, he took care of his coach ticket for the year.

My travel hacking strategy is skewed heavily towards taking advantage of the cards I already have: the American Express Delta Business Platinum card for its bonused spending thresholds, the Barclaycard Arrival World MasterCard for 2.2% cash back (on travel redemptions), the US Bank Club Carlson Business card for 5 Club Carlson points per dollar (and last night free on award redemptions), my Citi ThankYou Preferred card with 5 points per dollar at drug stores (for 2 more months!), and my US Bank Flexperks Travel Signature Visa with 2x at gas stations or grocery stores each month.

But that doesn't mean I won't take advantage of a lucrative signup bonus, if I see immediate or near-term use for it.

Cash

The ultimate hedge against award chart devaluation is cash. It's the first chapter of my book, and I personally have an overall cash-heavy earning strategy. Besides the 2.2% cash back Barclaycard Arrival World MasterCard I mentioned above, I also manufacture spend on my 2% cash back Fidelity Investment Rewards American Express card.

For mid-tier and lower hotel redemptions, cash back is strictly superior to using the co-branded credit card of any hotel chain besides Club Carlson (where mid-tier hotel redemptions – for 2 nights! – require just $6,600 in spend).

Even for award nights at top-tier properties, the calculus cuts towards cash back: to manufacture a free night at a top-tier Marriott property using the Marriott Rewards credit cards, you'd need to spend $45,000. At an average cost of 0.75 cents per dollar in manufactured spend, you could net $562.50 in cash for the same amount of spend on a 2% cash back card. There aren't many places in the world where you'll spend more than that on a single hotel night!

Co-branded airline credit cards pose a slightly more nuanced problem. If you are able to consistently redeem your miles for domestic flights at the 25,000 mile level, then a fixed $187.50 for domestic roundtrips (at 0.75 cents per dollar in manufactured spend) may be a decent tradeoff for $312.50 in cash (on a 2% cash back card), especially if you live in a relatively expensive market.

On the other hand, if you chose to manufacture cash instead, you might find that you were willing to pay slightly more for flights at more convenient times, on your choice of airline. Plus, those flights would themselves earn frequent flyer miles, giving you a rebate against the total cash cost of your flight.

Finally, your co-branded airline card's annual fee further decreases your net value from manufacturing spend on that card instead of a free, 2% cash back card.

In short, lots of bloggers will tell you to earn and burn, but I am here to tell you don't earn unless you intend to burn.

Further Reading

Unsurprisingly, I'm not the first blogger to touch on these topics. Here's my roundup of the best hits from around the web (caution: most of these blogs mercilessly shill credit cards):