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Controversial opinion:
You might be wasting your points and miles by redeeming them for flights.
Let me explain.
You might think paying for your flights with points is always the better deal than paying with cash.
A lot of people think that, and for good reason: Paying with points means fewer dollars are leaving your bank account to travel.
Just because you’re paying fewer dollars in cash does not mean that you are getting the most value out of your points. You have to check what your points are worth in a redemption.
Points are a currency
You might say, “Kurt, free is free.” (Or free plus tax.) “Why should I care what value I get out of my points?”
You’re not alone. A bunch of fancy schmancy business school research shows how people are less price sensitive when paying with points. The logic is that it’s “free,” so the “cost” is nothing.
But you don’t need to have an MBA to understand that logic is behavioral economics 101. If you see points as not cash, then you’re less concerned about how many points it costs to redeem.
This is especially true when you really want to go somewhere, but you want to spend as little money as possible.
But the reality is, points are a type of currency. And like any currency, they have a value and rules about how they can be used.
Lawyers sometimes call points “nonliquid assets” because you can’t transfer them to others the way you could Venmo money to a friend. And you can’t sell points like furniture or a house. (Points also not taxable in most cases, but that’s a story for another day.)
So, before you spend that hard-earned signup bonus from a new card, how do you determine the value of points?
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