Are Air Miles Credit Cards Worth It?

2430404There’s something that has been gnawing away at my brain for a very long time. It’s the idea of loyalty or reward cards, and more specifically flight rewards. To get downright specific, credit cards that also include some type of “Miles” program.

I understand the allure. You can’t argue with the idea of getting discounts just for showing a piece of plastic to the cashier. Suddenly, by using your card for business purchases, you’re taking the family on a free flight to Disneyland.

And, in a perfect system, these would be a great idea. When I find a small business running perfectly, I’ll be sure to let you know.

In reality, I’m not sure that these are as valuable as people seem to think. I originally wanted to calculate a real number to show how much more they would cost you than using a lower rate credit card and just paying for the flights with cash. Then I realized that there are just too many variables to give a number that I would feel was accurate.

Instead of an exact figure, let’s look at 2 numbers.

19.9 and 11.9

Hopefully you didn’t guess that those were in any way related to my IQ. No, those are interest rates. From the Canadian banks that I looked at, those 2 numbers seem to be the standard ones offered. The first, 19.9, is the interest rate you are charged on a typical Air Miles or Aeroplan Visa or MasterCard. The second, 11.9, is the interest rate you are charged on the no-frills credit card offered by those same banks.

To be fair, the 11.9 card is boring. It doesn’t give you Air Miles, cash back, Petro Points, or discounts on NHL memorabilia. It just gives you an interest rate 8 points lower than the fancier model.

Here’s where we come back to the “perfect system”. In this perfect system, interest rates don’t matter. You have painstakingly setup an automated banking system that is the financial equivalent to perpetual motion. During the month, all of your supplies, utilities, meals, and other bills are paid for by your Visa. Then, the day after your credit card statement is issued, your bank account automatically sends a payment for the full balance and the cycle begins anew.

In this perfect system, I completely agree that having this card is beneficial. You’re paying $0 in interest every month, AND you’re getting your flights either free or at a substantial discount.

It’s when you stray from perfection that this system breaks down. If you are running EVERYTHING through your Visa or MasterCard, that could mean a Visa balance in the thousands or tens of thousands of dollars each month. Make a payment or two after the cut-off each year, at 19.9%, and that flight you’re getting for free suddenly got real expensive.

What the moral of this story?

Be honest with yourself…about yourself. Ask yourself the following questions.

  • How much money will I be charging to the card each month?

  • How much money do I need to spend in order to generate enough points for a free flight?

  • Will I ALWAYS pay the credit card statement on time?

  • How much extra will it cost me at 19.9% if I don’t?

  • Are there other ways for me to save money on flights?

As for that last question, sure there are. Instead of paying 19.9% interest, why not put money aside that’s generating interest of its own. Ok, probably not at 19.9%, but everything helps. If you’re always paying interest on the balance, using the boring card just saved you 8%, which is a good start. Keep your eye out for discounted flights by tracking specials on Twitter. Reduce expenses in other parts of your business. And, if it’s a flight for a business meeting, maybe find a way to meet virtually instead.

So, what about you? Do you use these cards in your business? Have they saved you money? Do you have any tips of your own? Let me know in the comments.