Both airline loyalty programs and rewards cards present the opportunity to earn bonus points (extra points on top of what you would normally earn) for shopping with a select range of bonus partners. By doing this, you can often significantly boost your points-earning potential. However, if you are not careful, this can also become yet another Catch 22 of rewards credit cards.
Changing your spending habits solely for the purpose of earning additional points will almost always cost you more money in the long run. To illustrate this point, let’s look at buying a one-way domestic flight from Sydney to Melbourne.
Let’s say there is a flight with Virgin at a cost of $70. Assuming you are a member of the Velocity program with a similarly aligned credit card, you will earn points for purchasing the flight using your credit card, as well as bonus points for flying with Virgin. However, let’s also assume Tiger Airways has a fare that is $30 lower. With a difference of only $30, you might consider booking with Virgin anyway to earn the bonus points, but those extra points are worth far less than $30.
And here is why. Using the Velocity website, we can see you would earn around 350 bonus points for a flight around this cost (Red level member) plus add 70 points for paying for the flight using your credit card – this gives us 420 points in total. It would normally take 8700 points to redeem that same $70 flight for free, and to earn 8700 points at this rate, you would need to take the trip 21 times. If you instead chose the Tiger fare every time (assuming it is consistently $30 cheaper), after 21 flights you would have saved $630 – a substantial difference.
The same rules apply not just to flights, but to all bonus partners. If you can earn bonus points along the way with items that are the same price and quality, this is a great way to boost your points balance. Just don’t pass up a lower price to earn extra points – it’s almost always better to go with the cost-effective option.