Picture this: You’re reserving a go to to Europe and see two selections — 60,000 miles for a round-trip flight or $650 in cash. Which do you choose? With out crunching the numbers, it’s only a guess.
That’s the place calculating the value of an award redemption saves the day. With easy arithmetic, you could determine whether or not or not you have to e e-book with cash or redeem your points and miles.
Calculating award redemption price
Calculating the value of an award redemption requires a straightforward methodology:
Redemption price = (cash price – taxes and prices) ÷ points or miles used × 100
This supplies you the value of each degree or mile in cents.
Occasion: New York to Los Angeles on Delta
Let’s put this into comply with. Say you’re reserving a round-trip flight from New York’s John F. Kennedy Worldwide Airport (JFK) to Los Angeles Worldwide Airport (LAX) on Delta Air Strains. The cash fare is $450, or you could redeem 32,000 SkyMiles plus $12 in taxes and prices.
Using the strategy: ($450 – $12) ÷ 32,000 × 100 = 1.37 cents per mile.
When to redeem rewards vs. pay cash
So, you have bought calculated your redemption price — now comes the huge question: Should you actually use your rewards or pay cash?
Why taxes, prices and surcharges matter
When calculating redemption price, it’s vital to account for all prices — failing to take motion might make a “entire lot” look larger than it truly is. Right here is how prices and surcharges can impact redemption price all through varied sorts of bookings:
- Lodging: Taxes are usually based on the cash price, so using points could make it easier to steer clear of these extra costs. Resort prices, nonetheless, would possibly or may not be waived on award stays counting on this technique. For example, World of Hyatt waives resort prices for award bookings, whereas Marriott Bonvoy does not.
- Flights: Some airways add extreme carrier-imposed surcharges to award tickets, which could skew redemption price. For example, Virgin Atlantic Flying Membership awards would possibly embody prices that exceed a diminished cash fare. On a regular basis embody these prices in your calculation to get an appropriate comparability.
- Mixed points-and-cash awards: It’s best to use the an identical technique for awards that blend points and cash. Subtract the cash portion from the entire cash price, then divide the remaining amount by the points used. This ensures your cents-per-point calculation shows the true price of the points portion.
By along with taxes, prices and surcharges in your calculation, you could steer clear of overestimating the value of a redemption and make smarter selections about when to utilize points or miles versus paying cash.
Completely different points to remember
Redemption price is a helpful benchmark, nevertheless it certainly’s not the one situation when deciding whether or not or to not make use of rewards or cash.
- Various worth: Paying cash can earn you points or miles for future journeys. For example, a $300 flight could earn 3,000 miles that you could be redeem later, which you miss out on if you use rewards now.
- Comparable selections: Not all flights or inns are created equal. If one airline charges 25,000 miles for a route and one different supplies an an identical flight for $100 cash, ponder which chance supplies the upper whole price — even when the maths for the first chance seems “good.”
- Personal price: Typically probably the greatest redemption isn’t about maximizing cents per degree. You might redeem points for a specific experience, like a first-class flight you wouldn’t pay cash for, even when the redemption price is lower.
- Completely different perks: Using cash in its place of points could make it easier to qualify for elite standing, earn bonus points or unlock loyalty program benefits that may forestall money or improve your journey experience in the long run.
Related: Why probably the greatest degree redemptions are usually in all probability probably the most wise
Bottom line
Calculating award redemption price helps you slender by way of the guesswork and make smarter selections alongside along with your rewards. The arithmetic is simple: Subtract prices, divide by points and study in opposition to TPG’s valuations. Increased however, plug your numbers into TPG’s Award Calculator for an immediate reply.
Merely keep in mind: The “most interesting” redemption isn’t always about squeezing every remaining cent out of your points. Typically the exact switch is reserving the journey that’s wise for you, aka saving money. Nonetheless by realizing learn how to calculate price, you could guarantee you’re getting in all probability probably the most out of your hard-earned points and miles.
