Introduction
I have a wedding in Maui this summer and was looking for a hotel for the wedding. We’re already scheduled for the Andaz on points, but we wanted to stay at the Sheraton, where the wedding will be held, for the night because we don’t want to drive back to the Andaz that night. Thus, these were my options.
Option 1 – Pay $300 cash
This was the wedding group rate for the night. After taxes and fees and the resort charge, I’ll be out of pocket around $330. However, since I’ll have to pay the $26 cash on the points option as well, then this option really means a cash difference of $300. This group rate also earns NO SPG points on the stay.
Option 2 – Pay 20K SPG points + $26
Unfortunately at this resort, I’m out $26 in resort charge even when using points.
So pay cash or use points?
This was a very tough decision. Initially I picked the points but then decided on the cash and then went back to the points. I even asked a couple of people what they would choose and they mostly said CASH. Their argument for choosing CASH was that I could transfer those 25K points to airlines and when booked on premium international flights, I’d get a whole lot more value than 1.5c per SPG point. Most people try to redeem SPG for at least 2c per point, and I was in that same boat as well.
Why I went back to POINTS
After a month of mulling over this decision, I finally decided to go back to POINTS. The reason for that is because you have to factor in 2 things for redemptions – how much it costs to acquire a point and the value you get per point. In a world where there is a LIMITED number of SPG points, then paying cash would almost always be the optimal route since you’d want to save the SPG points to transfer to airlines to maximize valule. However, if you have the bandwidth to MS 20K SPG points at a cheaper cost than $300, then you should go the points route.
To MS 20K SPG points, factoring in purchase fees and liquidation fees, it should cost me about .4c per point, so 20K * .004 = $80. That’s how much I’d be paying for the hotel room, not factoring in time spent liquidating the cards.
What about opportunity cost?
This is a huge one. It actually makes no sense for me to MS 20K SPG points. I should MS on a 2% card instead and earn $400 cashback and then pay the $300 cash for the room. Man, this is one psychological hurdle that I keep tripping up on. Even after writing this post, I’m still unsure of the route I’m going to take.
Please tell at least one rational reader out there would MS on a cashback card and then use that cashback to pay for the hotel instead of MS’ing on the SPG card.
What is the cost (purchase and liquidation fees) for doing 20K spend on a 2% card? You need to subtract those fees from the $400 you earn. If your fees are less than $180, this is the preferred option.
It would be the same cost since both are unbonused spend. The right answer is the 2% card but it’s the pscychological barrier of using cash that is holding me up.
HAha I thought your “psychological hurdle” link was going to link to our blog. I scrolled through to see if Daniel had commented on this post but I guess not. That whole opportunity cost is his thing though. Did you talk to him about it already?
No he would tell me to use the cb card of course.
Unless you plan on taking an international trip over the next 12 months I would use the points. No point in holding onto them for something that you “may do” when you can cash them in for money right now. Especially in a program that has a shelf life. Can use that $300 for the wedding gift!
Good advice Mark. I’ll probably use the points.
I wonder if you could’ve MS’d $20k of either SPG or 2% in all the time you spent mulling it over…
Sometimes the meta-optimal decision is not to worry about what the optimal decision is and do whatever’s easiest; and heuristically this is all the more likely when the decision seems to be so close.
I only think about this when I’m in the shower, so can’t really do MS there, but I got your point.
Aha, I got it then — the optimal solution was not to shower!
How do you MS 20k SPG for $80? The SPG card only gives 1x and at $5/$500, I don’t understand the math
There is a better route than $5/$500.
What’s that? I’m genuinely interested.
If you wanna shoot over 20,000 StarPoints to my AA account, I’ll give you $300. And you get to earn points for the stay!
Opportunities to spend the points on decent values don’t come around all that often; 1.5c/p isn’t great for SPG but it’s not all that bad, and you’re actually spending them instead of your dollars. Here’s what you should do: pay for the room with SPG points, then go MS 20k on that 2% card and put $400 in your pocket! Win both ways.
Haha I think that’s the route I’m gonna take Billy. Thanks.
i think this has a very clear answer..
according to your post $80 gives you either 20000 SPG points or $400 cash back… I would take the cashback and use the cash to pay and you will still be at least $100 ahead.
I agree. Ideally price match and get match + 2000 SPG points.
I realize there is certainly a clear answer but it’s the psychological hurdle. Once that $400 hits my bank account and now I’m shelling out $300 for the room, I wince in pain whereas if I pay the 20K points, then I feel great although I clearly made the wrong financial decision.
How much more is the cash rate if not using the wedding rate? I know a wedding I went to last month, I was able to get a cheaper rate myself than the group rate by using a corporate code. If the rates are close, you could earn SPG points, which could possibly help justify the cash rate even more. Also SPG’s summer promotion earns 3X points on Sheraton, but appears you have to stay 2 nights, which I don’t think you’d want to do. Just a thought…
Thanks for the ideas Ryan. The regular rate is about $60 more than the group rate, and I’ve tried corp codes and no go.