By Ken Yee
I don’t have a job that requires me to travel so I’m responsible for all of my travel expenses. I enjoy traveling but it can get expensive. And earning points or miles can be quite a challenge when I’m looking out for my budget as well. So if you’re like me, there will probably come a time when you’ll wonder if you should redeem your points at a hotel to save some money or just pay out of pocket. But remember this when making that decision: points aren’t just points. They’re another form of currency.
Like any other currency, you should watch what you spend and make sure you’re getting the best value. Frivolous use of your points will not only deplete your points balance and set back your big vacation, but it’s entirely possible that you’ll end up spending more money in points than if you had just paid cash.
Consider the following example:
Earlier this year, I took a weekend trip and decided to spend a night at an Embassy Suites hotel. I was faced with the decision of paying $126 (tax included) for the night or redeeming 30,000 Hilton HHonors points. Conservatively calculating the value of an HHonors point at half-a-cent, the cost of 30,000 points is approximately $150. Paying out of pocket was the better decision for me. If I had chosen to redeem the points, I would have been overpaying for the hotel room.
In these types of situations, I’ll usually choose to save the points instead of the money, even if it’s close. Don’t get me wrong. Saving money is great but there’s one thing that the points offer that money can’t. Flexibility.
Points offer you the opportunity to live beyond your means.
The expensive places that you felt were out of reach are now available to you. Since the cost of the points are fixed, it really doesn’t matter how much the hotel costs in terms of dollars. Whether a room is $100 or $1,000, you can “afford” it if you have the points. With cash, that’s a pretty big gap in terms of affordability.
Another reason that I prefer saving the points instead of the cash is that it’s generally easier to get the cash back. Let’s go back to the Embassy Suites example for a second. It’s a lot easier to recoup $126 than to recoup 30,000 points. It’s important to point out that those points represent 60 percent of the points needed for one free night at a top tier hotel within the Hilton brand of hotels. Burning those points would mean there’s a good chance that I would have to sacrifice one night, or more, for my future vacation. You don’t want to sacrifice nights.
An extended vacation where you stay at a top tier property is the only time that might be worth it to overpay with points. Let’s continue using Hilton as an example. A Category 7 hotel costs at least $200 per night. Multiply that price times 4 or more nights and you have a pretty big bill that will justify spending the points.
It can take a while but credit cards help expedite.
It took me several years to build up the points I needed to get into a Category 7 hotel. I honestly wouldn’t have made it without the help of the Hilton HHonors American Express credit card. The no-fee version of this credit card currently offers 40,000 Hilton HHonors points after you make $750 in eligible purchases within 90 days of opening your account. The spending threshold is low compared to other cards and you’ll get a nice bonus to help get you started or to help supplement your existing balance.
Not only will this card give you plenty of opportunities to earn points, it can also help you save points. Normally a 4-night stay at a Category 7 hotel will cost 200,000 points. However, the AXON discount, which is only available to Hilton HHonors American Express cardmembers, brings the cost down to only 145,000 points for a 4-night stay. This is a 27.5 percent savings. Now you can reach your destination faster than you thought, or you can save some points that will become the building block towards your next vacation.
As you begin to crunch the numbers, you’ll be able to set your own valuation based on the numbers that you see the most. Knowing the value of your points will help you make the best decision when you’re faced with spending cash or redeeming points.