Calculating
Break-Even For Frequent Flyer Cards
Follow this
multi-step formula for determining your break-even:
1. Miles =
(Total Annual Spending x Miles-per-Dollar)
2. Cost per Mile
= (Annual Fee/ Miles)
Protection from Whistleblower Retaliation
There is a law against whistleblower retaliation that protects all whistleblowers from being retaliated upon by their employers.
For example:
Assume that you charge $500 per month or $6,000 per year and
your credit card pays one mile per dollar spent. Assume that
the annual fee is $50.
1. Miles =
($6000x1) = 6,000 miles
2. Cost per Mile
= (50/6000) = .0083
8.3 cents per
mile may look good, but there are two other variables that must
be considered. The first is, how many miles do you need to
travel even for the shortest hop on your chosen
airline?
Sometimes a mile
is a mile, is a mile, and sometimes it is not. Take the
Southwest Airlines Rapid Rewards Visa® Signature Card for
example. Here are its rules:
• Earn 2 Reward Dollars for every $1 spent on Southwest
Airlines purchases
• Earn 1 Reward Dollar for every $1 spent on all other
purchases
• 1,200 Reward Dollars = 1 Rapid Rewards credit
• 16 credits within 24 consecutive months = 1 roundtrip
Award
• $59 annual fee
In order to earn
one roundtrip ticket you have to earn 16 credits. A credit is
earned every time you accrue a total of 1,200 reward dollars. A
reward dollar is earned every time you charge $1 for general
purchases or $.50 if the charge is specifically for a Southwest
Airlines purchase.
To further muddy
the waters, they tell you that 16 credits have to be earned
within 24 consecutive months of the time when the first credit
was earned.
Assuming that
all of your charges are for general items, and no charges are
made for Southwest Airlines itself, you have to spend $19,200
within 2 years in order to earn one round trip ticket.
$19,200/24 = $800. If you do not charge at least $800 per
month, every month, this card is useless to you.
Now, since the
average round trip ticket on Southwest Airlines can be as low
as $118 when you get one of their internet specials, the value
of this particular card becomes questionable. In fact, it’s
downright suspicious when you consider that you’ll be paying
$59 per year for annual fees and it’s going to take you two
years to earn your miles.
Do some quick
math and you see that you’ll be paying $118 in annual fees to
get a “free ticket” that’s worth $118. That’s why you have to
pay attention!
Regardless of how the card
issuer calculates a mile, and calculations differ widely
between issuers, you also need to factor in the interest costs.
If you normally carry a high balance, it is usually not worth
your while to carry a reward card. You would be better off
carrying a “no frills” or basic credit card.
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