Conferring with the enemy (Part 5): Finishing the deal

Fire breathingPhoto courtesy of Diariocritico de Venezuela

All posts in this series:

 

Last year, I told the story about how I had held my breath (or perhaps my nose) and went in and applied for a credit card in order to net enough frequent flyer miles to fly from Boston to Dublin on Aer Lingus, using British Airways miles.

I did this in concert with taking my mom to Europe. After all, using miles to fly yourself for cheap is great, but using miles to fly someone else for cheap might just be the best way to use frequent flyer miles.

That trip has long completed. However, when thinking about the trip and my write-up of it, it occurs to me that I never talked about one of the most important aspects of the whole transaction, one that you would definitely not want to forget about.

The recap

I wanted to fly the Boston to Dublin route because it required 25,000 miles instead of the typical 50,000-60,000 miles usually required for U.S.-Europe round trips. Also, flying with Aer Lingus, I would be able to avoid “fuel surcharges”, which are totally unreasonable charges that some airlines (British Airways in particular) add on to the cost of frequent flyer miles tickets, reducing their value.

At the same time, since I didn’t have any British Airways miles (called “Avios”) I applied for the British Airways credit card, which netted me 50,000 miles upon spending $2,000 dollars in 3 months. This was tricky, as I usually don’t recommend putting everyday spend on a credit card. Nevertheless, I managed to do it. I purchased not only the leg from BOS-DUB but also the legs that continued to and from the mainland (which were much shorter and cheaper, obviously).

When all was done, I was left with around 20,000 Avios. Not bad for starting at zero.

I have no plans to use these miles right now, which is fine. But more importantly, I have no plans to use the credit card. Ever.

The card

The credit card I got came with an annual fee of $95. This was waived the first year, which is a common tactic to get you to sign up. Once you’re on board, the companies hope that inertia and debt will keep you from canceling.

British Airways card

Fake shadowing effect not included.

But for me, $95 for the privilege of using a credit card is not something I’m willing to accept.

There is only one reason to keep a credit card that carries an annual fee: The benefits you get from holding the card that you would have paid for anyway must be greater than the annual fee.

The benefits I get from having this card are as follows:

  • No foreign transaction fees
  • 3 Avios per $1 spent on British Airways purchases, 1 Avios per $1 spent on other purchases
  • A companion ticket (stylized as a “Travel Together Ticket”) every year that you spend $30,000 in purchases.

It’s not difficult to see how unlikely it would be to net $95 worth of value from this card, and certainly not possible unless a significant amount of intentional spending were going on. Let’s see how:

  • Foreign transaction feesI’ve written about foreign transaction fees before. These are the fees that get attached to every international purchase you make. Typically, the fees are 3% of the total purchase, so if you purchase $100 worth of goods overseas, you’ll get charged $103. So to get $95 of value from this alone, I would need to spend $3,167 in international purchases. Every year. And that’s just to break even. Not likely.
  • Earning Avios: Avios, like all frequent flyer miles, are notoriously hard to value. This is because the amount of money you get per mile can vary widely, depending on what kind of ticket you purchase, and when. For my Aer Lingus flight, it cost 25,000 miles and $116 in taxes for a flight that was going for $850 at the time. So that’s 2.9 cents per mile (cpm), which is pretty good. So assume that we value a single Avio (?) at between 1-3 cpm; to get $95 in value from earning Avios alone, I’d need to spend $3,167-$9,500 in everyday spend in a given year, or $1,056-$3,167 in British Airways spending. And remember again, that is to break even. Also not likely.
  • Travel Together Ticket: I don’t think I spend $30,000 worth of anything in a given year, much less throwing everything on a particular credit card. Therefore, this is an unachievable benefit for me, so I put its value at $0.

Kill it with fire

You take my point, of course. It’s very difficult to achieve $95 in value from this card each and every year, much less more. The first year, with the sign up bonus and the waived fee, it makes sense. But after the first year, the math doesn’t add up.

So I called up Chase, the purveyor of the card, told them that I wanted out, and asked to cancel. I received no pushback or conflict, and within 10 minutes my card was canceled.

My conferring with the enemy was thus complete.

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

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Mike Pumphrey
Posted on May 9, 2016