Sunday, May 23, 2010

Why The Obsession With Miles?

This blog is devoted to creative ways to save and earn money. Why do I focus on earning miles, which seems to be something for hobbyists or collectors? Isn't mileage collecting only for people that constantly fly and like flying first class, and not for most people?

Well, in short, the answer is that miles are valuable for (almost) everyone, even for regular people. The exact value of miles really depends on who is collecting the miles, and which airline they are collecting with. The bottom line is that miles are extremely valuable, even if you don't consider yourself a traveler or don't care for flying first class.

I know when something sounds too good to be true, our gut reaction might be to think that it probably isn't for real. But that's not the case here. I have collected way over a million miles over the past three years. Many people have collected way more than me.

The easiest way to collect lots of miles is through credit card signup bonuses. True, you earn miles every time you fly, and when you use some credit cards, but it doesn't even come close to the miles you can earn from opening credit cards.

One of the reasons people are skeptical of earning mileage is that it takes so much travel just to earn one free flight. But you can earn a free flight just from one credit card signup!

For example, 25,000 miles gets you a free flight anywhere in the US. This is worth anywhere from $200 for someone on a tight budget to $1000 for someone who pays for first class tickets. You can earn 25,000 miles easily, just by opening a credit card! In fact, there are often promotions which let you earn two, or even four free domestic tickets, just for opening up a credit card! Recently, we've applied for the 50,000 United miles and the 100,000 British Airways miles signup bonuses.

The miles are generally free to collect. The amazing thing about miles is that companies give them out far faster than they give out free cash. Even if you don't have any travel plans, it's a good idea to save up for when you might fly, even in a year or two.

Let's take a current offer out there as an example: 35,000 miles for a Citi credit card. (You can get three different types of cards, totaling 105,000 miles, or 4 domestic tickets.)

The amount of time it takes to get a credit card, including spending the money, paying the bill (and canceling the card, if you choose to do so), shouldn't take longer than 3 hours. If you are applying for more than one card, the amount of time per card goes down. It probably takes me about 1.5 hours per card total.

Now, let's see what those miles are worth. It really depends on your travel style. To me miles are worth just over a penny a mile, making 35,000 miles worth $350. In many situations, miles can be worth way, way more than that. This doesn't mean that you should be pay $350 for 35,000 miles, as you might have to hold on to the miles for a long time before actually using them, but it does give you an idea as to their value. Here's an article that discusses the value of miles as well.

Even if you consider 35,000 miles to be worth just $200, remember that this currency is not taxed! So it's better than getting $200 in cash which you would have to pay taxes on.

Here's how I would generalize the different categories of people using miles. The value per mile is just an estimate. It can be worth less, say if you use the miles for a cheap / short distance flight. And it can be much, much more valuable for you. Take for example a flight within the US which cost $500 - $600. In such a scenario, the same 35,000 miles would obviously be worth much more.
  • Never Travel: 0.5c/mile
    If you absolutely never fly at all, and never plan to fly in your life, then you can use the miles to either get gift cards, magazine subscriptions etc. or trade your miles with someone, for something they might have that you want.

  • Travel Every Few Years: 0.7c/mile
    If you are like most people, and travel at least every once in a while, even it's only once every couple of years, then you can benefit from using the miles for flights. You need to keep on top of your miles (use AwardWallet) to make sure they aren't expiring. For such a person I would value miles at least .7 cents a mile.

  • Fly Often - Tight Budget: 1c/mile
    If you are a frugal traveler on a tight budget, then you can use your miles instead of spending a few hundred dollars on airfare. For such a person I would value miles at about a penny a mile. So 30,000 miles is worth $300. As mentioned above it can be worth less, if you use it on a cheaper flight, though if you fly often, then you can save the miles for the more expensive flights. If you use your miles for a last minute booking or an expensive route, then the miles can be saving you double that or more.

  • Enjoys Flying First Class 2c/mile
    If you fly coach when you pay for tickets with cash, but would be willing to pay a few hundred dollars more in order to fly business or first, then I would value miles between 1.5 and 2 cents a mile. See this post from ViewFromTheWing for some amazing First class mileage redemption options. Some of them seem to be pretty close in cost to a economy flight redemption.

  • Only Business or First Class: 3c/mile
    If you are the type of person who enjoys flying business and first class, and are willing to pay for it, the miles are much more valuable. For such a person, miles can be worth three cents a mile or more, making 35,000 miles worth over $1,000!

  • Trading Your Miles
    If you have a friend that needs a flight, you can use your points to get them a ticket. One day down the line, that friend might get something back for you.

    Some people go as far as outright purchasing miles from people. This is not allowed by the airlines. So, if you go down that path, be aware that the airline can take away all your miles. The point is that you are allowed to buy someone a ticket using your miles but you are not allowed to get paid for it.
To summarize, when you apply for a card for the miles, you are earning $300 - $1000 for three hours of work. Impressive? Come on board and start reaping the awards!

There are a few basic downsides to mileage collecting:

1) Miles Expire
The downside of points and miles, is that it can take a while until you actually use the miles, and especially if your family collect miles or points with a few different programs, it can be a headache to track all the points and make sure they aren't expiring. It can also be tough to even remember all those mileage accounts, and how many miles you have in each account.

To solve this, use AwardWallet. See my review here. Also, every once in a while there are offers for free miles from different airlines. Every time you have some activity in a mileage account, it extends the life of all the miles in that airline.

2) Keeping track of all your credit cards
If you sign up for lots of credit card for the signup bonuses, it can be a headache trying to remember which cards you have, and which you need to cancel.

To solve this, use an excel spreadsheet to easily keep track of it all, and you can set a reminder in your calendar for when to cancel the card. Send me an email, and I'll send you what I have.

3) Don't like opening and closing cards
If opening and closing cards isn't for you for whatever reason, either because you find it too time consuming, or because you don't feel comfortable with the idea of opening a card just to get the signup bonus then closing the card after that, you can still get one great signup bonus card from each company, then just downgrade it to a free version once the first year is over.

If you are new to the credit card scene, read up the Credit Education Series, and check your credit report before you go out and apply for a bunch of cards. Make sure your credit is good before you start.

Recommended Sites:
Here are some sites you may want to check out if you start collecting miles. Each one is unique, check them all and see which ones you like: Flyertalk, FrugalTravelGuy, ViewFromTheWing, OneMileAtaTime, FrequentFlyerMiles and DansDeals.


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