If you follow blogs that talk about miles and points or are in one of the myriad Facebook groups, you’ve probably run into people making seemingly authoritative statements about the “value” of credit card benefits.
When you’re trying to figure out whether to pay an airline credit card’s annual fee, or to pony up that $695/year for the American Express Platinum card, it’s helpful to value the benefits of your credit card.
Rule #1: Get more value than you are giving up
The only reason to use credit cards for purchases is because you are getting more value from them than you are giving up. This is pretty simple for no-annual-fee credit cards, as the convenience, fraud protections and benefits like extended warranty protection are worth more than nothing. But what about cards that carry annual fees? If you are paying an annual fee on a credit card, you should be getting at least that much value from that card every year. If you aren’t, you should cancel or downgrade that credit card.
I reevaluate the value of the benefits I’m getting from every one of my credit cards, every year. For credit cards that carry an annual fee, I start looking at the value the month before the next year’s annual fee comes due. I total up the value I’m getting from relevant benefits and rewards. If that amount is less than the amount I’m paying for that credit card, then the card gets the axe.
Our valuations will be different. That’s okay.
I’m not a fan of saying “this benefit is worth $X” because often the benefits offered by credit cards are worth different amounts to different people. Airport lounge access or checked bags may be hugely valuable if it allows a family of 5 to check bags and eat at the airport for free a few times a year. But if you never travel? Those benefits aren’t really worth anything.
What I want to do in this post is to show you how I think of the value of credit card benefits. I encourage you to use this same framework as a tool to find how much value your cards’ benefits are providing to you. But your answers might be (and probably should be) different.
How I value credit card benefits
In some sense, my framework for valuing credit card benefits it simple. Ultimately, my valuation comes down to one key question:
If I had to purchase this benefit at the start of the year, what would I pre-pay for this benefit, in cash?
In practice, I don’t go through the list of benefits and answer this question for every benefit. I categorize benefits into a handful of buckets, all of which get similar valuations. Here are the details.
A large chunk of the value of many premium credit cards comes from statement credits that offset purchases. Most premium travel credit credit cards will come with an annual travel credit. Some offer credits for restaurant purchases. And the American Express Platinum is practically a coupon book with its litany of statement credits. It is easy to simply say that a credit is worth its face value. Some card issuers, notably American Express, tout “$1,500 in Platinum value” citing the statement credits they offer. But would I pay $1,500 in cash, in advance, for the statement credits offered on the Amex Platinum card? Nope. Here’s how I think about statement credits.
Cash-like credits that are easy to use – 80% of face value
Some statement credits are easy to use, not restricted to a certain merchant, and can offset purchases I would make anyway. I generally value these credits at 80% of their face value.
Most often, this applies to travel credits. The Chase Sapphire Reserve offers a $300 annual travel credit that is super simple to use. When I spend my first $300 in travel purchases on the card, I get an automatic statement credit to offset travel purchases. That’s both easy to use and reasonably easy to remember. The travel credit renews on my account anniversary date and I use the card for travel purchases anyway. Chances are, even if I forget, I’ll capture the value of the travel credit.
The credit offered on the Capital One Venture X card requires a little more work. But it is still easy enough to use that I value it at 80% of its face value. Like Chase’s travel credit, Capital One’s travel credit automatically offsets eligible purchases. Eligible purchases include flights, prepaid hotel reservations, and prepaid rental cars booked through Capital One Travel. While Capital One Travel isn’t my first stop when booking hotels or rental cars, it is easy enough to book most flights through that portal. When my account anniversary opens up a new travel credit, I simply book my first $300 of flights through Capital One Travel and capture the value of the credit.
Credits to places I spend money anyway – 50% of face value
Some cards offer statement credits toward purchases at specific merchants. If these statement credits are easily usable for things I’m likely to purchase anyway, I value these at 50% of face value. As an example, the American Express Platinum card offers $200 in airline fee credits and $200 in Uber cash every year. The airline fee credits can be used for award travel fees, incidental charges, and other expenses on your selected airline. I fly Delta consistently enough and book enough award travel that I can make use of these fees.
Likewise, the Uber cash benefit gets put into this bucket…but only barely. At home, I rarely have a need for Uber. When I’m traveling, I use public transit where it’s reasonable to do so or rent a car. Even when I do want to hail a ride, Uber is sometimes more expensive than Lyft. And in some places, I’ve found that ridesharing prices have risen so much that metered cabs are more economical and convenient. I can probably count the number of times I’ve used Uber in the last year on two hands. Most months, I find myself using the Uber credit through Uber Eats for lunch at Chipotle. I probably eat at a fast-casual restaurant often enough that there’s a reasonable chance I’m offsetting purchases I’d make anyway.
I put airline companion certificate that I consistently use into this category as well. At the moment, I’m able to use the companion certificate from my Delta Skymiles Platinum card pretty much every year, for a flight that costs $200-$300. I’d probably pay $100 in advance for that benefit.
Credits I use, but that would never offset spending – $0
I do go out of my way to use some credits or subscribe to a few services that I would not otherwise subscribe to, simply because they are free. Walmart+ is a good example. The American Express Platinum offers a monthly credit for Walmart+. I find Walmart+ useful, but I wouldn’t subscribe to Walmart+ if it weren’t free. So, this credit is worth $0 to me.
The same is true for the American Express Saks Fifth Avenue Credit. Every six months, my American Express Platinum card offers a $50 credit toward purchases at Saks Fifth Avenue. Saks isn’t a place I’m normally shopping, but I do manage to find something that I can use the credit on… a pair of shorts, a pair of socks, a belt… Yes, I do get value out of that, but I’m unlikely to ever open up the Saks website absent spending a credit.
Airport lounge access
Another big chunk of value of the benefits of many premium cards is airline and airport lounge access. Recent overcrowding issues at Delta and American Express lounges aside, I find that airline and airport lounge access provides plenty of value for me. Most airport lounges offers some sort of food and beverage. If I have access to an airline lounge, there is little reason for me to spend money on food at an airport. If I’m connecting after a transcontinental or international flight, many global hub airports’ airline lounges have showers. Taking a shower upon arriving to Europe is absolutely wonderful and is a great way to combat jet lag. And, in the case of canceled or delayed flights, having access to an airline’s lounge can mean getting rebooked faster.
There are so many factors in valuing airport and airline lounge access. The value you put on this will depend on your home airport, your travel patterns, how often you travel and who you travel with. But it all comes back to the key question of how much would you pay for this benefit, in advance, in cash. Would I buy a $695/year membership to the Delta Sky Club? Certainly not. But would I pay $200/year to be able to access Delta Sky Clubs, Amex lounges and Priority Pass? Sure.
Benefits I consistently use, but don’t value.
I always purchase electronics and other items that have a warranty with a card that offers an extended warranty benefit. Likewise, paying your cell phone bill with a card that offers cell phone protection is a good call. You should be renting cars with cards that offer a collision damage waiver benefit. And I have used my American Express to access pre-sale event tickets on occasion. These benefits have value, but I value them at $0. Why? There is no easy way for me to determine if I’ll use them during the year or how much value I’ll get from them.
Credit card rewards
I only consider the value of rewards after the value of other benefits, and then only for cards that I put significant spending on. After all, the value of credit card rewards requires a bit of math. If a credit card is providing enough value to justify its annual fee in benefits alone, I can save myself some time by not bothering with this calculation.
But when a card’s benefit value is marginal, sometimes I calculate the value of the rewards I’m getting. If I do end up looking at the value of the rewards I earn, I use the amount of actual rewards I have earned in the previous year, minus any one-time welcome bonuses. But I subtract the rewards I would have earned, had I put that same spending on my next-best credit card.
Here’s an example. The American Express Blue Cash Preferred card earns 6% back on my first $6,000 of grocery store spending every year. And I usually put $6,000 in grocery purchases on the card, earning $360 in cash back rewards. But my next-best option for grocery store purchases is a 2% cash back card, so I subtract what I would get if I put my grocery store spending on that card ($120) to determine the value of the Blue Chase Preferred’s cash back rewards. This means that I value the grocery store cash back rewards on this card at $240/year.
Benefits duplicated by other cards – $0
If you have multiple credit cards in your wallet, chances are that there is some overlap in the benefits you get. Many premium credit cards offer credits for Global Entry and TSA PreCheck, for example. And almost every ultra-premium credit card offers Priority Pass lounge access. If I am valuing the benefits on a card and that card has a benefit that I value, but is duplicated by another card that I am keeping, that benefit is worth $0.
This may seem counterintuitive, but let’s use Global Entry and PreCheck as an example. I am a big fan of Global Entry and TSA PreCheck. I *will* pay $100 for Global Entry (which includes PreCheck) every five years. But I never include these credits in my value calculations. Why? I have this benefit on almost every card that I carry that has an annual fee. One card with a credit for Global Entry is worth $20/year. But the second card? That’s worth $0.
My framework for valuing card benefits and rewards
In summary, here’s the framework that I use when evaluating the value I get from a credit card’s rewards and benefits. You can expect to see this table re-used in a few upcoming posts in the not-too-distant future.
|Credits – cash-like||Face value||80%|
|Credits – restricted||Face value||50%|
|Lounge access||How much I would pay in cash||100% or|
0% if I have the benefit on another card
|Rewards||Amount of rewards earned in last year||Reduce by the amount of rewards I would have earned on my next-best card|
Credit card benefits and rewards can be highly valuable, but that value depends on your situation and how you use the benefits. For the cards that carry an annual fee, it’s a good practice to reevaluate the value you’re getting on every card, every year. If a card isn’t proving value to you in excess of its annual fee, you should close or downgrade the card. Hopefully sharing how I make this decision provides framework that is useful to you in deciding how much value you’re getting and whether to keep or close a card.