Why I’m Choosing Points Over Cashback for Our Trip to Japan
When I first started learning about credit card rewards, I was all in on cashback rewards. But as I started to be drawn to traveling more and more, I started comparing cashback vs travel points. If you want to jump straight to the strategies I’m employing to book our trip to Japan later this year, check out my Japan on Points series. But for the sake of this post, I want to focus a little bit more on the why behind my use of points vs cashback.
Japan on Points series:
Japan on Points (Part 1): My Plan to Cover $40,000 in Flights with Points
Japan on Points (Part 2): Turning Points Into Hotel Nights in Japan
Cashback vs Travel Points
In this previous post HERE I talk about cashback vs travel points a bit more in depth. Now if you simply want to earn a little something back for your everyday spending, cashback is definitely a lot easier on the brain. If you have a card that gives you 2% cashback, for every $100 you spend you’ll get $2 back. Now that’s a very simplified version as you have cards out there that give you more cashback for different categories, one example is gas. But once you earn the cashback your “rewards” are good old US dollars. So, if you are planning a trip to Japan and you want to cover your $1,000 flight with your cashback rewards, in our simplified example, you would need to spend $50,000 to earn $1,000 in cashback. I don’t know about you but that’s a lot of money! And there’s no real way to scale the value of the rewards you get because the it’s in US dollars. But that’s where we get into the benefit of using travel points and why I’m going this route for our Japan trip later this fall.
Now let me preface it this way, travel points are much more rewarding than cashback, but with that comes a lot more complexity. I’m not saying that to dissuade you from going with travel points, but when you’re just starting out it can be a bit overwhelming because of the vast number of options at your disposal on top of the different valuations that exist between the different points currencies. What do I mean by this? Well, when you use a cashback card your rewards that you get back are US dollars. But when you use a points paying credit card you don’t get dollars back, you get whatever points currency that card agrees to pay you for your eligible spending. The best way to understand how much your points are worth is to convert them into dollars. But this amount varies from system to system. Chase Ultimate rewards points are worth a different amount per point than American Express Membership Rewards points. A popular site called The Point Guy has valuations that many use to help calculate what we call the cent per point value. How you calculate your point’s value is simple. Take the total amount of points you have and multiply it by the cent per point value. This will give you the rough dollar valuation of your points.
The Math of Travel Points
Let’s go through a simple example for those that need to see the math (I’m one of these said people haha). For the sake of simplicity, I’m going to use Chase Ultimate rewards as the example currency. Let’s say you have 100,000 Chase Ultimate Rewards points and at the time of writing this post, The Points Guy valuation of Chase Ultimate Rewards points is 2.05 cents per point. From here the math is simple to figure out what our Chase points are worth. Take your 100,000 Chase points and multiply them by $0.0205 and you get a dollar valuation of $2,050. Now this is where travel points cards have a leg up on cashback cards, the current sign-up bonus on the Chase Sapphire Reserve (Chase’s premium travel credit card) is 125,000 points when you spend $6,000 in the first 3 months after being approved for the card. Remember our example above where you would need to spend $50,000 on a 2% cashback card to get enough cashback to pay for $1,000 flight to Japan. I don’t know about you, but $6,000 compared to $50,000 is a heck of a difference. If you did the same calculation that we just did, your 125,000 Chase points would be worth $2,562.50. And since the money spent is money that you would be spending anyways, it’s the time differential that it would take you to accrue half the cashback value compared to the points you would get in a fraction of the time. Now you might be saying hold on, cashback cards get sign-up bonuses too, to which I would say that is correct, but the amount that you get back when compared to the converted value I did in the Chase example isn’t nearly as much.
Another layer to the points side of things, which is a big reason why my strategy for Japan is to utilize points, is the fact that you can try and maximize your cent per point value. When you use your points on higher level redemptions for example, a business or first class flight, it’s possible to get a higher cent per point value on your hard-earned points. The formula to calculate the cent per point value you’re getting is simple. Take the dollar amount that you would have paid (minus any taxes and fees when using points), divide that amount by the cost in points, and then multiply that value by 100. For example, let’s say a one-way First Class flight from LA to Tokyo normally costs $10,000. Now that same exact flight in points costs 225,000 points. To keep things simple, I’m going to say that there aren’t any taxes and fees for this flight. I would take my $10,000 ticket price and divide it by the 225,000. That equation gives me 0.0444 which I would then multiply by 100 to get my cent per point value of 4.44 cents per point. Now that’s over double the original valuation given to us by The Points Guy. Now if there are taxes and fees that can’t be paid in points, you would subtract them from the $10,000 ticket price and then divide that amount by the points price and multiply that outcome by 100. This is a big reason that I’m choosing to use points instead of cashback. Is it a little more complicated, yes, but I think the little bit of extra work is worth it to extract a little more value out of the points my wife and I have earned.
Credit Card Churner vs Optimizer
Since I started going down the path of travel points, I’ve become what you’d call an optimizer. I don’t consider myself a credit card churner which is when someone rotates through different cards to get the sign-up bonuses. While this is a faster way to earn a lot of points, I also didn’t want to have a ton of different credit cards to manage. On the opposite side, I also don’t just have one single card that’s the only card I ever use. I ended up somewhere in the middle where I have a handful of cards that I keep in my wallet. In reality there are two that I primarily use, my Amex Gold Card and my Hilton Honors Surpass card. Using these two cards allows me to earn a flexible points currency at a decent rate and then a specific brand’s currency. My particular strategy, and how I’m planning to use points for Japan, and really any travel, is to use my flexible points for flights and then my Hilton points will cover our hotel stays. I think in my mind this has always been a way to simplify the complexity of points just a little bit.
How does all this relate to Japan? I’ve then been trying to optimize the amount of spend that is put on each type of card based on each cards earning categories and so I can earn the most amount of points. For example, my Amex Gold Card is solely used for eating out and grocery shopping because I earn 4pts per dollar in each of those categories. If I end up at a restaurant where Amex is not accepted, then I default to my Chase Sapphire Reserve which gives me 3 points per dollar at restaurants. Then for my Hilton card I use it when I need to fill up my car because I earn 6 points per dollar at gas stations. And while yes, this card also earns 6 points per dollar at restaurants and grocery stores, because Hilton points are not worth as much per point as American Express points ($0.005 per point), even though I get 6 points per dollar it’s actually less value than the 4 points on my Gold Card where the points are $0.02 per point. Essentially, I’ve been doing this since we went to Japan back in the Spring of 2023 when I depleted all our points to make that trip happen. Now did we have enough points to cover everything, no, but the trip was heavily discounted. If memory serves, I want to say we paid $2,500 for 15 days in Japan. While that may sound like a lot, one round trip flight alone to Japan from LA could be anywhere from $1,000 to $1,200 per person. This time around I’m trying to cover even more on points, and that’s what I discuss in my Japan on Points series.
Conclusion
And there you have it, that’s the reason I’m choosing to use points for our travel instead of cashback. I’ve probably said this in a previous post, but I’ll say it again, I’m convinced that earning credit card points has become a way to have my cake and eat it too. And what I mean by that is that my wife and I have certain expenses that we have to pay for in order to make sure our basic needs are met. Travel is a hobby and luxury that we like to enjoy, and if our spend on our needs can earn us points that can discount or make our travel free then why not? And the goal of this blog is to help those that want that too but aren’t sure how to get started. So, if you feel that’s you, check out this post HERE where I go over how to get started and also list out some examples of different cards with different annual fees that you can choose from. And remember there’s no right or wrong set up, you choose what will work best for you and the goals you have for yourself.
