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It’s often a challenge to figure out which credit cards offer the most valuable rewards. In many cases, banks offer rewards in the form of points or miles, yet the only way to compare these cards to cash-back credit cards is to establish a value for each point or mile.

Unfortunately, determining the value of credit card reward points and miles can be a challenge as it always depends on the value of what the points and miles can be redeemed for.

Where to Start

First, you have to read the fine print of your credit card user agreement. For example, Capital One’s Venture Rewards card offers two miles per dollar spent on every purchase, and each mile is worth one cent each as a statement credit toward any travel expense. Therefore, each mile is worth about one cent each, although they are not quite as valuable as having cash at your disposal.

In another instance, U.S. Bank offers its 1-2-3 rewards card in partnership with Kroger stores. It features one rewards point per dollar spent on most purchases, double points on purchases in their stores, and triple points for purchases of their store-brand goods. Yet in this case, 1,000 points are needed for a $5 certificate, making each point only worth one half of a cent each.

When it comes to hotel points, the calculation is much more complicated. Cardholders will want to estimate the value of their points to themselves by looking at how they can and will redeem them. For example, my Hyatt Gold Passport points could be worth more than four cents each if I redeem 22,000 of them for a $1,000 room at the Park Hyatt in Milan. Yet, since I am actually using 8,000 them for a $119 room at the Hyatt in St. Louis, they are only worth about 1.5 cents each.

By far, the hardest rewards to quantify are airline miles as it all depends on where you’re going and what award seats are available. For example, Delta offers domestic award flights for as little as 25,000 miles roundtrip, but it makes award seats at the lowest mileage level extremely scarce. And as Delta executive Jeff Roberson recently noted, frequent flier awards requiring the fewest Delta SkyMiles are only available for the lowest-priced seats. Therefore, the value of their miles are limited to between one and two cents per mile, at least when it comes to domestic awards in economy class. Nevertheless, it is still possible to find international business class awards that return four cents a mile or more.

Determining a Value

Yet there are several reasons that cardholders should be cautioned not to simply divide the sales price of their award seats or hotel room by the number of points or miles required. First, travelers will have to be extremely flexible and persistent to find airline award seats at the lowest mileage levels. Also, travelers using award seats will not be able to earn points or miles and receive upgrades (with a few exceptions), which can be worth about 10% of the cost of the ticket.

In addition, cardholders must always consider their least expensive alternative, not just what the airline ticket or hotel room would have sold for. Finally, reward card users can’t claim that the value of their rewards is equal to the full value of business class seats or luxury hotel rooms, unless they regularly pay cash for these reservations. Cardholders must also realize that these rewards are only worth what the cardholder would have paid for them if he or she had paid cash.

By carefully considering the value of one’s points and miles, cardholders can make the best decisions when it comes to choosing a rewards credit card.

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