My colleague Steve asked me the other day whether he should have an airline affinity credit card, the kind that earns miles every time you charge something to it. The answer, in his case, was yes.
But affinity cards are not for everyone.
Steve already had a Gold Delta SkyMiles Credit Card from American Express, which is free for the first year. The card charges an $85 annual fee thereafter, and he was wondering whether he should renew it.
I told him that he probably should, as long as he would charge more than $250 a month to the card. Here’s why:
By charging $250 a month, he’ll earn 3,000 miles for the year. But he’ll have to pay the $85 annual fee for the privilege. And for about $85 he could buy 3,000 miles from Delta outright. (Yes, airlines sell miles.) Unless he’s going to charge more than $250 monthly, he would be better off using a credit card that doesn’t charge an annual fee and buying the miles.
But if he charges more than $250 a month, he can rack up some miles, especially if he eats and drives a lot. That’s because this particular Delta card pays double miles for purchases from supermarkets, gas stations, drug stores and home-improvement stores.
(See a very cogent comment by Mark Ashley on this post suggesting that my $250 a month threshold is way too low. My oversimplification of his argument: the miles aren’t really worth the $85 Delta would charge for them. It’s an excellent point. – jl 10/2)
I also suggested to Steve that he sign up for any special promotions he’s offered for the card. I’ve seen some where you can sign up online to get double miles for all your purchases during a certain period.
The same kind of calculation can be made for any airline card that awards miles into a frequent flier program. FrequentFlier.com has a handy comparison chart of those cards and their fees.
Of course, no credit card is worth the miles unless you pay off the balance every month. You’ll never earn in miles what you’ll lose in interest if you have to pay credit card rates.
Had Steve determined that he wasn’t going to charge $250 a month, I would have suggested a rewards card, such as the Capital One No Hassle Miles Rewards Card, which charges no annual fee. Instead of earning miles on a particular airline, the card holder earns points that can be redeemed for a ticket on any airline. The number of points required depends on the price of the ticket.
You might wonder why I don’t recommend rewards cards over affinity cards in every case. But affinity cards have certain advantages that I’ll explain in a future blog entry on this topic.