Four use cases for Hilton credit card spend

Lately I’ve been mulling a series of posts by Nick Reyes over at Frequent Miler about the relative value of earning Hilton Honors points directly through credit card spend, versus purchasing them for 0.5 cents each during Hilton’s periodic point sales. As someone who considers Hilton indispensable to my travel hacking practice, I took the opportunity to reflect on what I might be doing wrong (or right).

The Deal

As Reyes explains, the opportunity comes from the fact that while Hilton normally sells their points for 1 cent each, they very frequently offer sales where you can purchase up to 80,000 points per calendar year for $800, and receive 80,000 bonus points, bringing the cost per point down to 0.5 cents.

Moreover, you should be able to receive the same deal clicking through the TopCashBack portal and earning 2.5% cash back, or up to $20 on an $800 purchase. And of course the purchase itself will earn cash back, worth another $16 on a 2% cash back credit card. That means you can purchase up to 160,000 Hilton Honors points per year for $764, or 0.4775 cents each.

If that’s the cash cost of 160,000 Hilton Honors points, you should be at least reluctant, if not unwilling, to pay more than that in opportunity cost. For example, Hilton Honors credit cards earn 3 points per dollar on unbonused spend. If you can otherwise earn 2% cash back on unbonused spend, putting the same spend on a HIlton credit card would mean paying 0.67 cents per points — 40% more than they cost on the open market.

Even manufacturing spend in the Hilton Ascend bonus categories may mean overpaying: earning 6 Hilton Honors points per dollar spent at grocery stores means giving up 3 cents in travel on the US Bank Flexperks Travel Rewards card, while at gas stations it means giving up 2 Ultimate Rewards points per dollar on the Chase Ink Plus and Ink Cash.

All that is straightforward enough. What I wondered was, under what circumstances does it still make sense to put spend on a Hilton co-branded credit card?

Reimbursed business travel

It’s easy to forget today, but travel loyalty programs were not actually designed with cheapskates like me in mind. Instead, they were meant to encourage business travelers with control over their reservations to prefer one travel provider over another by offering to kick back a portion of the company’s travel budget to the traveler for later, personal use. And to an extent, that’s still what they do.

If you’re a reimbursed business traveler, it can make sense to charge your Hilton reservations to an Ascend or Aspire credit card. The former earns 12 points, and the latter 14 points, per dollar spent at Hilton properties, including taxes, resort fees, and room charges, the equivalent of 5.73% and 6.69% cash back, respectively (since 12 points can be bought for 5.73 cents during 100% bonus promotions on purchased points). That compares favorably to the 3 ThankYou points per dollar spent at hotels with the Citi ThankYou Prestige and 2 Ultimate Rewards points per dollar spent with the Chase Ink Plus.

Indeed, you would need to value the marginal ThankYou point at 1.91 or 2.23 cents each, and the marginal Ultimate Rewards point at 2.865 or 3.34 cents each to be willing to give up 12 or 14 Hilton Honors points per dollar spent. Those are not incredibly unrealistic values, but they’re well above the rate at which I would acquire those points speculatively.

And of course, American Express Offers linked to your Hilton credit cards may offer substantial additional savings, like the $70 off $350 offer I took advantage of in Hawaii last month.

Ascend free weekend night award spend threshold

If you don’t manufacture spend, and you don’t have reimbursed travel you can direct to Hilton, then you probably shouldn’t carry an Aspire card (with its $450 annual fee) and you absolutely should not carry an Ascend card unless you’re willing to meet the $15,000 cardmember year spend threshold to trigger a free weekend night award.

That free weekend night award has two costs: the card’s $95 annual fee, and the opportunity cost of putting $15,000 on the Ascend card instead of your next best alternative. Here I’ll assume that opportunity cost is 2% for unbonused spend, and 3% for bonused spend (gas stations and grocery stores). You should re-run these calculations if your opportunity cost differs, of course.

That brings the total cost of the free weekend night award to $395 or $545, from which we can back out the 45,000 points (worth $214.88) or 90,000 (worth $429.75) points earned on the spend, for a net cost of $180.12 or $115.25.

Using the same base cost of 0.4775 cents per Hilton point, we know $180.12 can buy you 37,721 points, and $115.25 can buy you 24,136 points. In other words, any Hilton free weekend night redemption above those values leaves you at least marginally better off than if you had put the $15,000 in spend on a 2% or 3% cash back card instead and simply purchased the corresponding number of points.

But ideally, you won’t be making breakeven redemptions. At a 95,000-point property, a free weekend night is worth $453.63 in purchased points, for a profit of $273.51 or $338.38. If the new Waldorf Astoria Maldives Ithaafushi really charges 120,000 points per night for a standard award — and those awards can be booked with free weekend night awards — then the potential profit is even larger.

Increased float

Even replacement-level affiliate bloggers have enough of a conscience to warn the folks they sell credit cards to that you should pay off your balance in full every month, since the high interest rates credit cards charge (sometimes after a low-interest or zero-interest introductory period) will almost immediately reclaim the value of any rewards you earn on spend.

A newbie taking this advice literally might use their manufactured spend to immediately pay off the card used to generate it. And indeed, during opportunities like the unlimited 5% cash back offered by Wells Fargo credit cards in the past, that’s sometimes the most lucrative strategy.

But more experienced folks understand that while credit card interest should be avoided, there are lots of advantages to holding onto cash, rather than plowing it back into the card used to generate it. A card with a 30-day billing cycle and 20-day grace period effectively offers a series of rolling 50-day interest-free loans. The more lucrative your short-term investment opportunities, the more willing you should be to maximize the value of those interest-free loans, a strategy discussed by Sam Simon and Robert Dwyer in the February 1, 2019, episode of their Milenomics Squared podcast.

That means if your credit limits are too low to meet your needs for cash to plow into your most profitable gigs, you may well find it worthwhile to put spend on a second-best or third-best card.

Ascend Hilton Honors Diamond spend threshold

In general, Hilton Honor Diamond status doesn’t afford very many concrete or guaranteed benefits. In fact, the only guaranteed benefit I’m aware of is that Gold members are only entitled to executive club access when they’re upgraded to a club floor, while Diamond members receive club access even when they are not upgraded. That’s not nothing, but it’s also not much.

Moreover, Hilton status seems to last more or less forever. So while Diamond status is a benefit of spending $40,000 per year on the Hilton Honors Ascend American Express card, you don’t have to spend $40,000 every year. If you spend that much even once, you’ll probably have Diamond status for at least 2-3 years, if not longer.

However, if you’re keeping the Ascend in order to hit the $15,000 spend threshold every cardmember year, you may find it worthwhile to also hit the $40,000 Diamond status spend threshold every few years, especially if you can do so in bonused spend categories.

Bonus use case: you just need more points

As Reyes pointed out in his post, while each individual Hilton account holder is limited to purchasing 80,000 (and receiving 160,000) points per year, Hilton has made it easy to transfer and pool points, so in principle you can simply enlist as many people as needed to buy points during each promotion and then combine them for your desired redemptions.

In reality, conscripting friends and family to help you spend thousands of dollars on virtual currency is as likely to generate dead-eyed stares as it is Hilton Honors points. Once you’ve picked the low-hanging fruit of yourself, your spouse, and your kids, you might simply not have any good options for additional points purchases. At that point, instead of wasting time trying to cajole your relatives into playing along, you might find that it’s worth slightly “over-paying” to avoid the fuss.