Thinking about ethics in travel hacking

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I spent this past weekend in Austin hanging out with a friend who's heavily involved in travel hacking, and he mentioned a few techniques that he had used to manufacture spend, about which he was embarrassed since they seemed unethical to him.

Everyone has different things they’re wiling and unwilling to do, so I don’t blame him for observing different ethical lines than I do. But I also think it’s useful to interrogate why certain activities seem more or less ethical to different people.

Breaking the law is illegal

The clearest cases are when a technique is illegal. With the exception of laws that are themselves unethical, I believe most people, most of the time, in democracies have an duty to obey the law, and in exchange receive the protection of the law.

For example, since structuring transactions to avoid reporting requirements is illegal, and the law against it is basically reasonable, you shouldn’t structure transactions.

Program rules are often written elliptically

Here’s a thought experiment. Delta SkyMiles can be redeemed for passengers besides the account holder. So let’s say your grandfather redeems his SkyMiles for an award ticket for you, then passes away. The ticket is still valid, and I think virtually anyone would have a clear conscience flying on the ticket that had been “purchased” with their living (since deceased) grandfather’s SkyMiles.

But if the account has been closed, I don’t believe it would allow any changes to be made to the award ticket, since Delta’s system treats award changes as first a redeposit of the miles, then a new redemption. Just in case you need to make changes to the ticket, I would find it reasonable to delay notifying Delta that your grandfather had passed. After all, the ticket was purchased prior to your grandfather’s death, so we’ve already established that these are “guilt-free” miles — why shouldn’t you be allowed to use them?

But if you’re willing to keep your grandfather’s account open until your existing reservations have been completed, it’s a short hop to keeping the account open until his existing SkyMiles have all been redeemed for new reservations. If he earned the miles in good faith and gave you access to his SkyMiles account, then what could be unethical about using the miles he accumulated?

Why should you ever notify Delta that your grandfather is no longer with us?

Here's the relevant rule from Delta's online membership guide:

"Under the SkyMiles Mileage Expiration policy, miles do not expire. Delta reserves the right to deactivate or close an account under the following circumstances:

  • A member is deceased"

In other words, it's up to Delta to cancel your grandfather's SkyMiles account. This is sometimes sloppily referred to as miles "expiring when you do," but that's overstating the case. According to the published rules, miles don't expire. However, Delta reserves the right to deactivate or close dead members' accounts.

Whose responsibility?

The terms and conditions of every credit card I know of states that the purchase of cash equivalents is not eligible rewards-earning activity (although FIA Card Services recently send me a letter telling me I could buy lottery tickets with my Fidelity Investment Rewards American Express). And yet almost all cash equivalent purchases do, in fact, earn rewards. Is earning rewards in that manner unethical?

The key question for me is who carries the responsibility for the enforcement of the agreement. Remember that the credit card contracts you agreed to don’t prohibit the purchase of cash equivalents — they simply say that such purchases won’t earn rewards. Since the credit card companies are the ones running the rewards program, they are also perfectly situated to enforce that clause of the agreement.

In the thought experiment above, Delta can’t be expected to know whether its SkyMiles members are alive or dead. But in the case of the purchase of cash equivalents, the purchase is being run on the credit card’s payment network, being processed by the credit card company, and then being deemed eligible for rewards by the credit card’s rewards program. The customer is making a purchase that is not forbidden by the credit card agreement’s terms.

In other words, if it’s ethical to buy cash equivalents, I don't see how you can have an affirmative duty to notify your credit card company each time they erroneously grant rewards for the purchases.

Conclusion: find the right shade of gray for you

Unfortunately, the vast majority of the techniques we use fall into the vast gray area between the flagrantly illegal and the uncontroversial. If you make a purchase with a credit card, then return the goods for cash, is that ethical or unethical? Does it make a difference if you did so intentionally? How much of a difference? If you return something purchased through a shopping portal and are allowed to keep the points, is that ethical or unethical? If you do so intentionally, on a large scale, after being warned not to, you may end up with date with a US Attorney in Seattle.

Fortunately, man is a morally calculating animal, so the answers to those questions (and more!) are available to anyone willing to think about them.

On the other hand, there’s no guarantee we’ll arrive at the same conclusion!

That’s why the decision of what techniques to use is an essentially personal one. We can try to reason our way through these questions, separately and together, but at the end of the day the only advice that matters is not to do anything that you consider unethical, and try to give everyone else the benefit of the doubt that they’re doing their best to behave ethically as well.

Manufacture spend furiously

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Yesterday Miles Per Day reported that US Bank Visa Buxx cards, which have been closed to new applicants for many months but have continued to work in the interim for existing cardholders, will no longer be loadable with new funds after October 24, 2015.

These cards are terrific, especially if you have access to US Bank ATM's, which allow free withdrawals of the $2,000 that can be loaded monthly to each card at a total cost of $10. If you used a card like the Barclaycard Arrival+ MasterCard, you could earn $40 in statement credits, per card, against travel purchases each month.

In other words, each US Bank Visa Buxx card you carried allowed you to purchase $480 in annual travel at a 75% discount.

I like small, isolated techniques

On the one hand, $480 in annual travel reimbursements is small fry compared to many other available techniques. But what I like about US Bank Visa Buxx cards is that the tool is isolated from all my other manufactured spend techniques: if you have access to US Bank ATM's, you don't need to cannibalize the liquidation bandwidth you're using with any other technique. It's $2,000 in "extra" manufactured spend per month — and cheap, too!

I do everything I can

Obviously, I don't use manufactured spend techniques I don't have access to (I sometimes hear from readers who can still buy Vanilla Reload Network cards!), and I don't use manufactured spend techniques I don't know about.

But to the extent possible, I pursue every avenue of manufactured spend available, because it's impossible to know when any particular technique will cease to be available. Since I do my best to redeem rewards currencies roughly as quickly as I earn them, I never want to find myself with empty account balances and no way forward to earn more.

Two ways to travel exclusively on miles and points

There are two ways to generate enough miles and points to fund the number of trips I want to take at deep enough discounts to make them affordable: be reimbursed by an employer for frequent business travel, or manufacture spend furiously.

While my takeaway from my point density charts is that paid hotel stays are an incredibly inefficient means of generating sufficient points for award stays, that only holds if you're paying for your own stays. A Starwood Preferred Guest elite paying for stays with the American Express co-branded credit card earns 5 Starpoints per dollar spent at Starwood properties, and would have to spend $2,000 on paid stays before they earned enough points for a single award night at a mid-tier property.

I don't think I've spent $2,000 on hotel stays in my entire life to date.

On the other hand, a Starwood Preferred Guest elite paying for stays with their co-branded credit card and being reimbursed by their employer for those stays wouldn't have to pay a penny for an award night at a mid-tier property; they'd just have to wait until their employer had spent $2,000 on their behalf.

Meanwhile, the same 10,000 Starpoints would cost someone manufacturing spend with their co-branded credit card perhaps $86 in fees, depending on the techniques used.

Manufacture spend furiously

If your reimbursed business trips generate enough miles and points to finance all the travel you're interested in, you're in luck.

Otherwise, you can research every technique you come across to find out whether it can be integrated into your miles and points strategy.

The stories affiliate bloggers tell about paying for travel with signup bonuses are "just so" stories, which is why I don't tell them. Of course if you work backwards from the signup bonus you're trying to sell, you can find trips that will be exactly covered by the points earned. But if you want to be in charge of your own miles and points strategy, rather than running off to the Maldives every time an affiliate blogger tells you to, you should be pursuing a robust, diverse miles-and-points-earning strategy.

And unless you're one of the lucky few, frequent business travelers, that strategy should include as many different manufactured spending techniques as possible.

Travel hacking when you've got plenty of money

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Before I learned the first thing about travel hacking, I still traveled, and I was still broke. So for me, travel hacking straightforwardly allowed me to take the trips I was already taking — and more! — while paying far less out of pocket than I had been when all my trips were paid for with cash.

I don't have to fly Spirit anymore, either.

That sometimes leads to some crossed wires between me and my readers, since on the one hand I don't pursue "aspirational" redemptions with the same fervor (the Maldives are expensive!), but on the other hand I have much more time to spend earning miles and points every day than prominent bankruptcy attorneys do.

But that doesn't mean I actually believe travel hacking is just for poor people! In fact, there are some opportunities that are either exclusively available to, or more lucrative for, people with plenty of assets to sink into them. Here are three opportunities I'd pursue if I had a few hundred thousand spare dollars lying around.

Brokerage bonuses

Perhaps the only links on my site that haven't changed in the years I've been blogging are those to Fidelity's United, Delta, and American brokerage bonuses. Deposit $100,000 for 9 months, earn 50,000 miles.

You're eligible for one bonus every rolling 12-month period.

Note that you shouldn't do this if you're going to let a Fidelity salesperson talk you into an expensive, actively managed fund. But if you are willing to put in the effort to coordinate your Fidelity account with your other cash and assets, these miles can be very close to free.

The next-lowest hanging fruit here may be Scottrade, which currently offers tiered bonuses up to $2,000 for deposits of $1,000,000. As a percentage return, you're best off depositing just $200,000, however, and earning a $600 bonus.

See Doctor of Credit's list of current bank account bonuses for some other opportunities available to the well-heeled.

Bank of America Preferred Rewards

With a cumulative $100,000 on deposit in Bank of America, Merrill Edge, and Merrill Lynch accounts, you qualify for Bank of America Preferred Rewards Platinum Honors, which has one key benefit: a 75% bonus on rewards earned with the BankAmericard Travel Rewards credit card. Since the card earns 1.5 cents per dollar spent everywhere, the 75% bonus makes it a 2.625% cash back card, when redeemed against travel purchases made with the card.

That's the best return you're going to get on a Visa or MasterCard for purchases everywhere (the Discover it Miles card gives 3% cash back everywhere for the first year of card membership).

Kiva Loans

I've left the Kiva loan business for two reasons: first, my PayPal accounts have all been closed! But second, I couldn't justify tying up money in months-long Kiva loans when the same money could be turned over weekly at my local merchants, albeit with far higher transaction fees.

With access to much more liquidity but finite local avenues for manufacturing spend, I'd be thrilled to pour that additional liquidity into Kiva loans using super-lucrative US Bank credit cards.

Conclusion

Fortunately, virtually all manufactured spend and travel hacking techniques are available regardless of your income, let alone your net worth, as long as your credit score and income get you approved for the credit cards you want. I'm living proof of that.

But there are advantages to having a few hundred thousand dollars to throw around, as well. This is America, after all!

Personal finance digression: putting Mango in "time out"

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I periodically write about high-interest accounts which I think are obvious choices for people with basically unlimited access to cash. In June I wrote that Mango prepaid cards had stopped accepting new applications. Shortly after that, the similar Union Plus Prepaid card was discontinued and cardholders were told that our accounts would be closed and a new prepaid card provider would contact us by September 16, 2015.

Reminder: why these cards were great

Although it was never advertised or clearly communicated, the Mango and Union Plus prepaid cards were great savings vehicles for two reasons:

  • the linked 6% APY savings accounts did not, in fact, require any employer direct deposits to have their well-above-market interest rates triggered;
  • the prepaid card balance allowed Automated Clearing House (ACH) "pulls" initiated by most credit cards and banks.

That meant that simply parking $5,000 (or $15,000 — cardholders were allowed 3 distinct accounts with a $5,000 limit on each 6% APY savings account) in the linked savings accounts allowed cardholders to generate a little over 5% APY (after a $3 monthly fee) on what were completely liquid funds: each month, the interest could be moved from the savings account to the linked prepaid card account and withdrawn as a transfer to most bank accounts or as a credit card payment.

The new Mango product is not the same as the old Mango product

In July, Mango announced that they would transition from their existing MasterCard prepaid product to a Visa prepaid product, and invited existing cardholders to apply for the new product.

I've now completely transitioned one of my accounts to the new Visa prepaid product, and am not impressed. Here's what I know so far about the new product, and about transitioning from the old product:

  • Once you activate your new Visa prepaid card, your prepaid and savings account balances instantly transfer to the account you access at my.mangomoney.com, rather than at rev.mangomoney.com;
  • You can continue to make ACH deposits to your new, Visa prepaid account using the First Bank & Trust routing number you used previously (114994196) using your First Bank & Trust account number;
  • You can no longer make ACH withdrawals using that account information;
  • You can also not make ACH withdrawals using the Sunrise Bank routing number (091017138) that comes with your Visa prepaid card.

The new accounts have been around for too little time to provide definite answers to the following questions:

  • Do you need to receive $500 in direct deposits to qualify for 6% APY on the new savings accounts?
  • If so, what direct deposits qualify?
  • Is the $2,500 daily purchase limit enforced?

The answer to these questions is essential since the principle benefit of using these accounts for your high-interest savings was their liquidity. If the $2,500 daily purchase limit is enforced, than it would take 2 full days to withdraw $2,500 from the prepaid account by buying, for example, money orders. If the daily purchase limit is not enforced, then while there would be a slight inconvenience, you could still withdraw a $5,000 balance by simply buying five $1,000 money orders at a cost of roughly $3.50.

Likewise, if a $500 direct deposit is required to trigger the savings account's high interest rate, that will require also finding the time each month to move that $500 back to cash using a method besides ACH pulls.

Neither of those are deal-breakers, but they're both far short of complete liquidity.

I don't trust this company enough to find out

I'm not planning to close my Mango accounts for now, but I am putting them in "time out:" I'm withdrawing all the money from my accounts and redistributing it. In the case of my "old" MasterCard account, that means simply making ACH withdrawals from the linked checking account. In the case of my "new" Visa account, it means buying cheap money orders, since ACH withdrawals no longer work. Since I haven't maxed out my Consumers Credit Union Rewards Checking account yet, I'll park the money there until the dust settles and earn a "mere" 5.09% APY on it.

I'll keep an eye on the situation and if the state of play evolves significantly I'll be sure to update my readers.

In the meantime, here are two invaluable resources regarding all things Mango (if you don't mind wading through the personal attacks):

Weekend Roundup Roundup for August 23, 2015

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A lot of bloggers write weekend roundups of their own posts or posts from other bloggers they found interesting or helpful that week.

So many, in fact, that it can be hard to keep track of them all. To make it easier, here's the inaugural Weekend Roundup Roundup: your roundup of all the weekend roundups you may have missed:

How to get started travel hacking (hint: don't apply for any credit cards!)

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A lot of people seem to treat my site as a space for "advanced" travel hackers, but I've never felt that way myself; in fact, I don't think of myself as an "advanced" travel hacker at all!

  • I don't know the first thing about fuel dumps (although I took advantage of one for my January trip to Italy).
  • I don't game voluntary denied boarding vouchers (although I was pleased as punch to take one last Sunday).
  • I don't pore over portal bonuses, buying and reselling gift cards and merchandise in order to manufacture spend (although I'll always use portals and bonus categories to buy the things I need at the steepest discount possible).

I consider myself a working travel hacker. This is my job: I love it, I have a lot of fun, and my readers are the greatest, but I'm no expert.

I wrote my (now quite outdated) ebook, and launched this site, not because I had any special insight into travel hacking, but because all the major existing blogs were so obviously taking advantage of their readers' ignorance.

In other words, I've always thought of this site as a resource to save beginners from experts, not to pile more expert advice on them. With that in mind, here is the best beginner advice I can muster from my experience in the travel hacking game.

Don't apply for credit cards (until you're ready)

Manufacturing spend with the right co-branded and proprietary credit cards is a fantastic way to generate miles and points that you can redeem for travel.

Manufacturing spend with the wrong co-branded and proprietary credits cards is a fantastic way to generate profits for the issuing banks.

There is a whole industry committed to convincing you that what's good for the banks' bottom lines is good for you. It isn't. The only way you'll ever be able to make the right decision about what credit cards should be in your travel hacking portfolio is taking deep dives into the earning and redeeming structure of each card.

A lot of that information is here. A lot of that information is on Google. And if it's not in either place, ask!

Your credit score is not even among your most valuable assets

Bloggers who are paid based on the number of successful credit card applications you complete are naturally game to figure out how to "goose" your credit score as much as possible.

If you're interested in applying for new credit cards, it's worth learning how to improve your credit score in order to ensure those applications are successful.

For example, once you figure out when your credit cards report their balances to the credit bureaux, you can pay off those balances ahead of time: that will ensure that however much you spend each month, other credit card companies will treat you as debt-free.

But unless you're applying for new credit, you should basically not care about your credit score month-to-month. Your credit score does not hover above your head while you go about your daily business.

Plan around (your!) actual travel

One particularly pernicious feature of affiliate blogging is picking random "aspirational" destinations and explaining how the credit cards the blogger is selling will get you there.

But if you weren't interested in traveling to Bali before you discovered travel hacking, why would some random credit card bonus encourage you to go there?

Once you've examined your actual travel plans, you'll likely find that a 2% cash back card serves your needs best.

And when you've come to terms with that, you'll finally be able to calculate how other signup bonuses and earning rates will allow you to save money by leveraging hotel, airline, and proprietary bank points.

Conclusion

My animosity towards the "Big 5" affiliate travel blogs is no secret. But there's no straightforward way to keep folks who are newly interested in the hobby from falling into the same expensive mistakes over, and over, and over again. There may never be.

And as long as that's the case, I'll keep writing.

Using Mint to track travel hacking expenses and returns

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The single most important thing you can do to succeed in travel hacking is stay organized. That's true of every single aspect of the game:

  • If you're booking your hotel stays through a portal like Rocketmiles or Pointshound, you have to make sure the correct number of miles post for each and every reservation: miles posting incorrectly or not at all means foregoing hotel loyalty points in vain;
    • If you're chasing elite status, you have to make sure you know the number of elite-qualifying miles you need each year and game out each and every flight you plan to take: falling short by a few hundred — or even just a few — elite-qualifying miles is in most cases a catastrophic failure;
  • If you're manufacturing spend across a number of credit cards, you need to keep track of the statement closing and payment due dates of each and every one of your cards: a single missed payment will result in interest and penalties that can wipe out the returns on months of manufactured spend.

I use a variety of methods to track my manufactured spend, but just one to track my actual income and expenses: Mint.com.

Mint can download most transactions from most banks most of the time

Most major banks and many reloadable prepaid card accounts can be added to your Mint master account. When you do so, each time you refresh your Mint account your balances and transactions are downloaded from each bank's server.

The system's not perfect, and I find that Mint's servers are unable to download transactions from some banks most of the time. US Bank is a particular offender — don't bother using Mint to track business credit card accounts with US Bank.

Tracking transactions is nice in and of itself, but the real genius of Mint is allowing you to recategorize transactions, which is to say reassign them from the category Mint guesses they belong, to the category where you know they really belong.

Recategorizing transactions gives you a concrete sense of your actual income and expenses

Here's a deposit to my primary local credit union checking account. Mint originally categorized it as "Income," but I knew better and recategorized it as "Transfer:"

That keeps Mint from adding that amount to my monthly income statistics.

In addition to recategorizing transactions, Mint also allows you to "split" them. Here's a recent purchase I made at one popular merchant:

Mint, naturally enough, originally categorized the $504.94 transaction as an expense. But, knowing better, I categorized just $5.64 of it as "Fees & Charges," while the remaining $499.30 has no effect on how Mint reports my income and expenses since I recategorized it as a "Transfer."

As a final example, for tax reasons it's necessary for me to track my self-employment income. But I also want to treat things like credit card retention bonuses, statement credits, and cash back as positive income flow. To do that, I use Mint's "bonus" category (you can create your own categories to help refine transaction reporting even further):

Don't worry, I'll be paying self-employment tax on Andy's subscription come April.

Do you need to keep track of your manufactured spend expenses?

This practice gives me an instant grasp each month of every penny I spend on fees while manufacturing spend, and also lets me see at a glance how much of a cash return I get on those fees.

It's also a pain in the ass.

Don't get me wrong: I do all this coding while in bed each morning sipping a cup of coffee or three. But you don't get to sleep in every day, sipping coffee. You have a job. Hell, you may have two jobs!

So should you keep track of your manufactured spend expenses as closely as I do? There are strong arguments on both sides.

On the one hand, as I hopefully made clear, Mint can only keep track of dollar-denominated expenses and returns. It won't tell you how valuable your Hilton HHonors points or United Mileage Plus miles are; it will only tell you how much you paid for them. Since you aren't recording income each time you redeem your miles and points, why should you record your costs each time you earn them?

On the other hand, you really are spending cash money when you manufacture spend. That's money you can't put towards a down payment, towards tuition, or towards retirement. It's gone, and if you use Mint to track your expenses, logic demands that those expenditures be recorded somehow as well.

Conclusion

Ultimately, I come down on the side of meticulously tracking manufactured spend expenses, not because they make a huge impact on my net worth, but because I find it risky to dispense with absolutely rigorous honesty when so much is potentially at stake. I can't help but think that if someone doesn't face the concrete costs they pay when manufacturing spend, they'll be more likely to ignore similar expenses elsewhere in their financial life.

That being the case, I'm happy erring on the side of scrupulous honesty when it comes to my own income and expenses.

How do you react to a shock to your travel budget? How should you?

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Yesterday my scheduled flight out from my ancestral homeland was overbooked — very overbooked. They asked for 6 volunteers, and ended up taking 5 of them, each of whom received $1,300 in Delta voluntary denied boarding compensation. I was one of the lucky inconvenienced (my partner was volunteer #6, and had to actually fly home, the poor thing), and the proud owner of $1,300 in Delta travel.

Then I realized that I had a problem. I already manufacture enough miles and points to pay for my planned hotels and air travel. In fact, once my next statement closes and my HHonors points post, I'll have all 5 of my remaining planned vacations this calendar year fully booked.

Moreover, Delta transportation vouchers are non-transferrable: the recipient has to be one of the passengers on the reservation — although excess funds can be used to pay for additional passengers on the same reservation.

Air transportation vouchers are worth (much) less than cash

This is a corollary of my argument that statement credits are worth (much) less than cash: for me, $1,300 in airfare is worth a maximum of $700, since that's the cash value of the 70,000 US Bank Flexpoints I would otherwise redeem for a reservation costing between $1,200 and $1,400, and as little as $350 or so, which is roughly what I paid out of pocket for those Flexpoints.

But does that mean I should take my $1,300 in bump compensation by redeeming 70,000 Flexpoints for $700 in cash?

Thinking about travel budget shocks

With a nod to economics, we can describe what happened yesterday as a positive "shock" to my travel budget. If my miles and points balances, travel needs, and manufactured spend strategy were previously in equilibrium, they are now by definition out of equilibrium: I've now accidentally purchased more (deeply-discounted) travel than I have a current plan for using. Since I try to never earn miles and points speculatively, this disequilibrium requires action.

But what action? Here are four ways I could respond to this travel budget shock.

Monetization

No, I don't mean selling the transportation voucher — it can only be used for reservations where I'm one of the passengers. I have in mind the following logic:

  • I just received $1,300 in airfare.
  • I planned to redeem 70,000 Flexpoints for my next $1,300 in airfare.
  • Instead I'll use the transportation voucher and redeem my Flexpoints for $700 in cash.

It's true that my Flexpoints are worth more than $700 when redeemed for airfare, but that's begging the question: the whole point is that $1,300 in airfare is worth less than $1,300.

Why do you think the airlines are so eager to give it away?

Travel more

I have a strategy for earning all the miles and points I need for the travel I already have planned, but now that I have $1,300 in Delta funny money, I can travel more than I expected. There's always somewhere to go, after all!

The simplest way to do this is to not alter my planned earning and redemption at all: if all my trips are already optimized between revenue fares (paid for with cheap Ultimate Rewards points and Flexpoints) and award trips, then I can convert my Delta transportation voucher directly into airfare for new trips.

A more nuanced (read: time-consuming) approach would be to re-optimize all my refundable and not-yet-booked air reservations. For example, a $450 ticket that I might have planned to reluctantly redeem 30,000 Flexpoints against can now be paid for with my transportation voucher, while I can redeem those Flexpoints for a new trip costing up to $600.

Likewise, a $250 flight against which I might have redeemed 20,000 Ultimate Rewards points can now be paid for with Delta funny money, and I can start looking around for a high-value Hyatt redemption where I can stretch those same Ultimate Rewards points.

Convert to leisure

My current manufactured spend strategy met my current needs before the travel budget shock, but now it exceeds those needs by $1,300. Sounds like it's time for a vacation! For the next 70,000 Flexpoints I had planned to earn, now I get to hit the alarm clock and go back to sleep.

Just kidding. I don't have an alarm clock.

But for those of you who do, if your goal is to earn the miles and points you need to meet your travel needs, a large positive travel budget shock like this is a godsend. Spend the time you would have spent at the grocery store, gas station, or hunting down promising Kiva loans with your kids. They probably won't appreciate it, but you will.

Switch to cash

Everyone has their "best" cash back option. Maybe it's 5% cash back with a US Bank Cash+ Visa card or a "new" "old" Blue Cash card. Maybe it's 2.625% cash back with a Bank of America Travel Rewards card. Maybe it's 2.105% cash back with a Barclaycard Arrival+ MasterCard. Maybe it's 2%+ with a Fidelity Investment Rewards American Express (or Visa, or MasterCard). Maybe it's a Citi Double Cash (although that's a stretch).

If you don't want to slow down your manufactured spend, and you don't want to monetize the points you've already earned, this is your hybrid option: start earning the most cash back possible with the cards you already have, instead of earning the points you had intended to redeem for your travel.

After all, everyone wants money. That's why they call it money.

What about negative travel budget shocks?

The impetus for this post was a huge positive travel budget shock. But there are other kinds of shocks: you could lose access to a merchant that previously allowed you to manufacture spend; you could suddenly learn of an unanticipated trip you have to take; Delta could stop publishing award charts and your miles could suddenly be worthless for the trips you planned to take.

You don't need to plan for every eventuality, but you should plan for some eventualities.

Conclusion

Don't for a second think that this post is meant to say that you need to treat every "win" as an excuse to lose sleep worrying over how to deal with it. The first thing you need to do is celebrate (I know I did).

But when you're done celebrating, you may want to spend a minute or two figuring out how you're going to work your win, big or small, into your overall miles and points strategy.

Quick hit: my annual fees and retention offers

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I wrote yesterday that I don't chase signup bonuses as one of my principle methods of earning miles and points. But I also consider recurring annual benefits to be worth almost nothing.

I've written before that companion tickets are scams, with the exception of the very generous version offered by Bank of America's Alaska Airlines — if you happen to live in a city served by Alaska — since it can be paid for with any credit card.

I've written before that annual free hotel nights are scams, although the Citi Hilton Reserve and Chase Hyatt free nights are slightly better than the rest — if you otherwise manufacture Hilton HHonors points or transfer your Ultimate Rewards points to Hyatt.

And of course, I'm the leading proponent of the argument that airline statement credits are worth (much) less than cash.

Five annual fees I'm willing to pay

As a result, I carry only five cards with annual fees, and I pay those annual fees solely because I believe manufacturing spend on the cards makes them worth keeping for my own miles and points strategy:

  • Chase Ink+. Bonus earning at office supply stores and gas stations, and turns my non-flexible Chase Freedom Ultimate Rewards points into flexible Ultimate Rewards points. $95 annual fee.
  • US Bank Flexperks Travel Rewards. Makes flying on paid airfares very cheap. $49 annual fee.
  • Barclaycard Arrival+. Makes hotels, Uber, and taxes and fees on award tickets cheap. $89 annual fee.
  • American Express Hilton HHonors Surpass. Makes hotels cheap. $75 annual fee.
  • American Express Delta Business Platinum. Makes Delta elite status cheap. $195 annual fee.

Even I'm willing to admit the Delta Business Platinum card is a marginal play, but I do really like checking bags, so the elite status is something I'm — for now — willing to pay for, as long as I'm also earning 1.4 SkyMiles per dollar spent with the card.

Don't pay annual fees you don't have to

Those are the annual fees I'm willing to pay. But I mostly don't.

  • On Wednesday I called the number on the back of my Ink+ card and explained I was trying to decide whether to keep the card. The frontline representative (no transfer required) offered me a $95 bonus statement credit to keep the card. $0 annual fee.
  • Every year I spend $24,000 on my Flexperks Travel Rewards card I receive 3,500 bonus Flexpoints, which I redeem against my annual fee. While the Flexpoints themselves are worth up to $70 when redeemed for airfare, this allows me to treat this card as a no-annual-fee card, which is my preference. $0 annual fee.
  • Each year I call Barclaycard and ask them to waive my annual fee. They have been happy to oblige for the last two years. $0 annual fee.
  • Also on Wednesday, I called American Express, told the computer I wanted to close my account, and was immediately directed to a representative who offered me a $50 statement credit to keep the card. $25 annual fee.
  • I haven't yet called American Express about my Delta Business Platinum card, whose annual fee I paid back in May. Hopefully they'll offer me something, although gunning for low-level Delta elite status is such a marginal play that I'll probably cancel the card anyway once I've secured status for the 2016 program year. $195 annual fee, minus a prorated refund.

Conclusion: your miles will vary

I assume one reason I have had luck so far with retention offers is that I spend hundreds of thousands of dollars per year on these cards.

If you spend less — or more — you'll find that the credit card companies have different offers for you, or possibly no offers at all, which is why it's important to know what annual fees you are willing to pay if you can't get them waived.

Only once you know how much you value a card, whether for its recurring annual bonuses or earning rate on manufactured spend, will you be able to decide whether the offers you receive from your credit card companies make it worth paying to keep your accounts open.

The only way I know how to value miles and points

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Yesterday I saw Trevor at Tagging Miles musing about how he values his miles and points, but in listing the different methods he's seen people use, he doesn't mention the only one that makes any sense to me. Since he framed his post as a rhetorical question, I'll take this lazy Friday opportunity to answer it.

Points are worthless until you redeem them

Feel free to carve out a small exception for points that can be redeemed directly for cash, like Ultimate Rewards points and US Bank Flexpoints, but the essential fact is that banked miles and points are the worst possible form of savings, outside of a large investment with Bernie Madoff:

  • Unlike money, they don't belong to you;
  • Unlike money, they can lose some or all of their redemption value overnight, whether through mergers, devaluations, or bankruptcies;
  • Unlike money, they don't earn interest.

That's why I keep my points balances as low as possible, and will almost always privilege redeeming miles and points over paying cash for reservations. Obviously I'll maximize the value of my miles and points over all my anticipated future reservations, but I don't store up miles and points for speculative, possible future reservations, when I need plane tickets and hotel rooms in the here and now.

When redeeming points, decide whether to earn more

The other reason to redeem miles and points, rather than cash, as aggressively as possible is that it affords a unique opportunity: the ability to see how much your miles and points are actually worth.

Like anyone else, in the process of planning each trip I search simultaneously for paid and award flights, and paid and award hotel nights – not because I'm interested in paying cash for a flight or hotel room, but because it gives an instant, accurate picture of how much my miles and points are worth: just look at the flight reservations you would make and hotel rooms you would book if you were paying cash, and look at the flights and hotels you would reserve if paying with miles and points.

For example, I earn 1.4 Delta SkyMiles per dollar spent on my Platinum Delta SkyMiles American Express card when I spend exactly $25,000 and $50,000 per calendar year (which, it follows, are the only amounts it makes sense to spend on the card). Since my next best card for unbonused spend is a 2.22% cash back Barclaycard Arrival+ card, I know I need to redeem my SkyMiles for "a bit more" than 1.59 cents each to justify manufacturing additional SkyMiles. I'll typically compare American, Delta, and Alaska fares, since those are the three airlines whose flights I can credit to the Alaska Airlines Mileage Plan.

If I find myself consistently redeeming my SkyMiles for less than 1.59 cents each, I know I need to shift my earning either to cash back or to another, more valuable rewards currency.

But note that this has no effect on my willingness to redeem my SkyMiles. With the ongoing devaluation disaster taking place at Delta, it would be madness itself to hoard SkyMiles for a speculative, future redemption if I already have enough SkyMiles in my account to book an award ticket (of course if I have another, higher-value redemption coming up, I'll redeem my SkyMiles first against that reservation before redeeming them against the less-valuable one).

Conclusion

That is the entirety of my methodology for valuing miles and points: I rely on the actual value I receive from the miles and points I manufacture, and use that value to decide which miles and points to manufacture on an ongoing basis. If, due to devaluations, movement of hotel properties between categories, or restrictions on award space, I find that I'm not getting enough value to continue manufacturing the miles and points I have in my accounts, I respond accordingly.

But I'll always privilege miles and points redemptions over paying for my travel with cash.