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Cashing in your credit card travel points for other perks? Avoid these mistakes

Dubai: Qualifying for a travel credit card and redeeming the points you earn can turn financially lucrative when you are gifted value-added freebies. But when chasing rewards, it’s common to lose out on most perks when you do not know how to best cash them out, travel experts have flagged.

“While travel credit cards make it easy to earn all kinds of rewards ranging from airline miles to hotel points and flexible travel credit, you can also redeem your rewards for some pretty worthless items, deeming them wasteful,” said Richa Dev, a Dubai-based travel consultant and blogger.

“It’s not unheard of to receive lesser points in value from airline miles or hotel points for certain, high-value redemptions. That doesn’t make these redemptions ‘wrong’ per se, but it does mean you’re effectively leaving money on the table when compared to other options.”

So, if you have a travel credit card that lets you redeem points for airfare, hotels, and more, Dev and Essam Kabeelali, an Abu Dhabi-based credit advisor, together agree that there are a certain number of redemption options you should try and avoid.

Avoid cashing in your points for online merchandise

With some rewards portals, you can redeem travel points for purchases made through online stores. But this convenience usually devalues your rewards, which is why you’ll want to reconsider before clicking ‘buy’ in this case.

“Cashing in your points for online merchandise isn’t the worst way to going about redeeming credit card rewards, cashing them for electronics, small household appliances, and other types of merchandise will typically get you one fil per point in value, and often a lot less,” said Kabeelali

“But how do you know if that is good? It’s generally considered a poor choice since the value you get from your points or miles is usually less than half a fil, even if redeeming rewards for merchandise may feel like a quick and easy way to buy a new appliance or laptop.”

How to get good value when redeeming points for rewards: An example To see if you’re getting good value, Kabeelali suggested first taking the cost of the item you want to buy and divide it by how many points are needed. For example, let’s say an e-retailer offers 500,000 points for a 10.5-inch iPad or a vacuum cleaner, with the model currently costing Dh2,500.The calculation is: Dh2,500 / 500,000 points = Dh0.005 or 0.5fils per point, meaning you'd be getting half a fil per point. “While it may seem tempting to use points for online merchandise, if you can bank enough points for something of higher value, it’ll be worth the wait,” added Kabeelali.

How much should you aim for when encashing points?

Like how it was calculated that the value of one point is typically much less than a fil when shopping at online retailers, we can calculate when cashing in points at other retail mediums as well. “You should always strive to get a 1:1 value, which means 1 point is worth 1 fil,” added Dev.

To find out if paying a purchase with points is valuable, as mentioned above, take the purchase cost, and divide it by how many points are needed. So, if there’s a Dh20 purchase and 3,000 points are needed, 1 point will be worth Dh0.006 or 0.6fils. (Dh20 / 3,000 points = Dh0.007 or 0.7fils per point.)

“You’re better off paying for the purchase with your card, earning rewards from it, then using the rewards for something else where they will have a greater value, such as a gift card or travel booking,” added Dev.

Not always lucrative to redeem travel points for air tickets

“Most travel rewards enthusiasts know that transferring points to airlines can help you get more bang for your buck, but you must remember this isn’t always the case. High value airline transfers can be a good deal, but not all programs are created equal.”

For example, Dev added that it’s common to transfer your points to the card issuer’s airline partners and receive at least 2 fils per point in value when you go to redeem. That’s because your points will typically transfer 1:1, except for certain airlines.

“Always bear in mind that not all airlines offer 1:1 when it comes to the ‘points: value’ ratio; some programs offer paltry transfer ratios. Some may let you transfer points to airline programs, but you’ll only get 2,000 airline miles for every 10,000 hotel points you transfer,” she added.

“The takeaway being not all point transfers are equal. Sometimes it makes sense to lose points in the transfer just to be able to use the points, but when you’re sacrificing thousands of points just for the privilege of transferring, you’re better off finding a different travel partner to use the points for.”

Key takeaways

If you have a bunch of airline miles you can’t seem to use, it might be tempting to cash them in for whatever is tradable for points. But experts reiterate that it will prove prudent to factor in that you won’t get very much value in return for all options that are available in the market.

“Don’t be in so much of a hurry to book your entire trip on points when saving them for your next trip will give you much more value. Cashing in travel rewards should only be your last resort if you find you absolutely cannot travel or your miles are about to expire,” added Dev.

“Don’t forget to check the cash value of whatever you plan to book with points before you pull the trigger on an award redemption. You should always strive to get at least one cent per point in value when you redeem, and you should consider paying in cash if you aren’t hitting that threshold.”

Some suggest pushing to get 1.5fils per point in value, or close to 2fils per point. “Being able to redeem travel rewards in a number of different ways doesn’t mean you should. For the most part, you’ll be a lot better off if you redeem points for what they were intended for,” added Kabeelali.

“If you do want to redeem travel rewards, consider picking up a cash back credit card that offers standard redemptions, meaning you can spend your rewards however you want. But with travel rewards, know that they are worth more when you use them for travel instead of items.”

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