Guide: How to Decide Whether Paying For Miles Makes Sense

If a merchant offers you a percentage discount for you to pay by cash or imposes a surcharge for credit card payments, should you incur a higher cost to use your credit cards to earn miles?

Let’s take a hypothetical S$1,000 watch for instance and the shop wants to charge you a 3% surcharge for making payment via a credit card: you now need to pay S$1,030 for the S$1,000 item you wish to buy. Is the extra S$30 worth the miles you earn?

Step 1: calculate the cost per mile

Deriving the cost per mile is a straightforward process: take the additional cost divided by the miles you earn.

In the situation above, you are paying S$30 extra for using your credit card. If your card earns you 4 miles per dollar on this transaction, you will get 4,120 miles on this transaction. Your cost per mile is therefore 0.73 cents each (S$30 ÷ 4,120).

A quick and dirty way would be to take the surcharge percentage divided by the miles earn rate of your card. In this case, we can take 3% ÷ 4 miles per dollar which gives 0.75 cents. The reason why this differs slightly from the above calculation is that the surcharge of S$30 itself will earn miles on your card, but this should be a fast way to decide on the spot the cost you are paying for miles.

Seth
Seth

🔥 Check out April card deals here! Get up to S$400 eCapitaVouchers, iPads, Dyson and more!

Subscribe to the Telegram for more great deals and updates. Prefer email/WhatsApp? Tap here.

Step 2: ascertain the value you can get per mile

Now if the conversation was about whether to use a 5% cashback credit card if the shop insists on a 3% surcharge, I think it is a pretty straightforward answer that you should indeed pay the surcharge to use the cashback card since the rewards exceed the cost.

The same can be applied to miles card – if you value each mile at 1.25 cents each, your 4 miles per dollar card is equivalent to a 5% cashback card, and that means you shouldn’t shun away from paying 3% to use your credit card.

Ascertaining the value you can derive from your miles is thus something you need to do to consider whether paying for miles is worth it. My personal valuation is that miles are worth around 1.25 cents each. So if it costs you less than 1 cent to buy, it’s a definite steal, and if it costs anywhere between 1 to 1.25 cents it’s a relative fair price.

Deriving the value per mile 

Miles can vary greatly in value depending on what you use them for:

If You…Value Per Mile
Use points as cash rebate (with banks)0.5 to 1 cent each
Use miles as cash with Kris+0.67
Use miles as cash with KrisShop0.80
Use miles as cash with Singapore Airlines0.95 cents each
Use miles to redeem flights 1 to 2 cents each (subjective; see below)

When using your miles for cash, banks and airlines usually give a fixed rate for your points so it is quite clear to see what the value of miles is. Banks happily take your miles for anywhere between 0.5 to 1 cent each depending on which card you are using.

Value of miles can vary greatly for flight redemptions

For flight redemptions – likely the best and most popular way of redeeming your miles – the value of miles can vary widely depending on what destination you pick and the cabin class you select. I’ve talked about this at length in my miles webinar and Value of a KrisFlyer Mile video, so check that out if you want more details.

The gist is that value of flights can become very subjective, especially premium flights like business or first class. You may be able to use 100,000 miles to redeem a S$3,000 business class flight making your miles worth 3 cents each, but if you wouldn’t have paid S$3,000 for the flight in the first place, are your miles truly worth that much? 

It might seem strange and counterintuitive that you shouldn’t use the ticket price, but that is the best way to value experiences that can’t be resold easily. Again, this has been discussed in my previous videos, so do watch them if you want a deeper dive into this topic.

Using a miles card over a cashback card? It’s a similar situation

When you can use a 5% cashback card instead of a 4 miles per dollar card, you are essentially giving up 1.25 cents per mile you get. It’s a very similar situation to paying for miles, even if you don’t directly pay for the miles. The opportunity cost gets more obvious when you are talking about something like the DBS yuu which can give as much as 17.5% in rebates compared to 4 or even 6 miles per dollar. Giving up 17.5% rebate in favour of 6 miles per dollar means your miles now cost as much as 2.91 cents each!

Pay when the value of miles > price

In short, the obvious answer is to pay only when the value you get out of the miles exceed that of the price you pay. Play the game well and you can get value. Otherwise we’d just play into a system cleverly designed to get people to spend more… or give up too much cashback for too few miles.

Keep up to date on the best cashback/mile cards, financial products, attractive deals, and more tips to maximise your financial wellbeing by subscribing to my Telegram channel.

Subscribe to the channel, then join the group chat. You would often benefit from the tips shared exclusively in the group chat!

Disclaimer: I may receive an affiliate/referral fee when you sign up for services/products on this site, and such fees keep the site running. I would only recommend services/products I would personally use or recommend to my own friends and family, but I do not provide any warranty or guarantee for the quality of these services/products. Thank you for supporting my site!

Please exercise due diligence when signing up for any service/product as I will not be liable for any personal loss, financial or otherwise. Content published here are my sole views and personal opinion, and none of the information here constitutes personal financial advice nor represents the views of my employer(s).

Keep up to date on the best cashback/mile cards, financial products, attractive deals, and more tips to maximise your financial wellbeing by subscribing to my Telegram channel.

Subscribe to the channel, then join the group chat. You would often benefit from the tips shared exclusively in the group chat!

Disclaimer: I may receive an affiliate/referral fee when you sign up for services/products on this site, and such fees keep the site running. I would only recommend services/products I would personally use or recommend to my own friends and family, but I do not provide any warranty or guarantee for the quality of these services/products. Thank you for supporting my site!

Please exercise due diligence when signing up for any service/product as I will not be liable for any personal loss, financial or otherwise. Content published here are my sole views and personal opinion, and none of the information here constitutes personal financial advice nor represents the views of my employer(s).

Leave a Reply