I was reflecting on all of the good and increased offers recently from various banks for mileag-earning credit cards and I thought it would be important to offer some balance. I’ve been in this so long that it’s just second nature, but it bears repeating, and I don’t say it enough.
A plurality of miles are earned via credit cards (signup bonuses, spend bonuses, everyday spend) and not from butt in seat flying. Credit cards, in the US market but not just the US, are an integral part of the miles and points hobby.
I had an award booking client not long ago who had tons of miles but wasn’t paying off his credit card bills each month. With the interest charges he had to be paying he would have been better off buying the miles direct from the airlines and saving on interest with a better card selection. (Most mileage cards are also high interest rate cards.)
To play the miles and points game with the banks you must pay off your bills in full each month.
Not just that but you also must not spend more than you otherwise would because you’re using a credit card or justify extra spending “because you need it to get a signup bonus”
Violating either of these rules defeats the purpose of playing the game in the first place. And for many people it’s actually difficult to do, there are plenty of studies that the average consumer using a credit card spends more than one paying with cash. Some of that may be that consumers with credit cards are higher income, or that people choose to use credit for bigger purchases vs. smaller ones with cash but it’s certainly believed that accepting cards brings in higher average sales.
If you can’t resist this, the cards and miles game may not be for you. You should certainly care about interest rates (0% balance transfers and no balance transfer fees) rather than miles and points rebates.
I’ve been in this game a long time and have done very very very well thanks to playing it the right way with banks. But go in with your eyes open because the banks are where the money is for a reason.
There are great opportunities for arbitrage and large institutions can tolerate relationships where the consumer benefits but on the whole the banks wouldn’t play this game if there was greater benefit for most customers than for the banks. Everyone can benefit from the extension of credit, but consumer can also lose if they’re no careful with credit.
Be one of the savvy ones in the former camp, or don’t play the game.