I'm trying to figure out how best to compare the rewards of a miles-oriented credit card to the rewards of a cash back card. I'm thinking of a simple conversion of like 1 frequent flyer mile to $0.015 . Is there a widely-accepted conversion rate?

The reason that I ask is that I've build a unique tool that calculates expected annual rewards from a person's monthly spending profile (how much spent in each category (gas, travel, restaurantes, etc.)). (You can see the tool at creditcardtuneup.com if you're interested.) I'm thinking of adding miles-oriented cards to the tool. And I'm thinking of having the conversion rate (miles to dollars) be a user-enterable parameter. If you have any other suggestions on how best to do an apples-to-apples comparison between cards, I'm open to any feedback.

Thanks,

Joel

I daresay this is the single most discussed topic on Flyertalk. I suggest you use the Search function in the MilesBuzz section to look for discussions of the "value of a mile".

Valuation is largely determined by how the miles are redeemed. My personal valuation ranges from $0.022 (AA/BA) to $0.027 (VS) to $0.033 (Starpoints).

I tried a search initially (and just tried once again). My search came up with nothing. Thanks for the reply mia.

One useful data point is that pretty much anyone can set up a google checkout account to accept credit card payments with a 2% commission (plus a small fixed per-transaction fee). That means if you really wanted miles/points, you could always pay yourself through google checkout, at a cost of $.02 per dollar charged.

So basically any time I can get more than 2% cash back (in particular restaurants with the AMEX Costco 3% card), I always go for the cash. Otherwise, points. Also, if there's some promotion in which I'd be paying for something to get points, I won't even consider it unless the effective cost is below $.02 per point.

Flyertalk's search facility is feeble, but I found these for you, listed in reverse chronological order...

http://flyertalk.com/forum/showthread.php?t=571107
http://flyertalk.com/forum/showthread.php?t=475245
http://flyertalk.com/forum/showthread.php?t=326497
http://flyertalk.com/forum/showthread.php?t=8333

This is a great idea! $.02 per mile is quite reasonable. I thought you had to be a "real" merchant to process credit cards. I also thought credit card processing would cost more than 2%.

Is there any downside to this? Does it trip any warnings at credit card fraud departments or tax or money laundering authorities?

Some good stuff in there; and quite a variety of opinion/valuation.

I'm feeling a bit sheepish about not being able to search and find those postings myself. Thanks again mia!

So I haven't used google checkout, but I've used paypal (which I think is closer to 3%, so I definitely wouldn't recommend it for points purposes). Assuming google checkout is roughly similar to paypal, the idea is that google acts as the merchant, and just passes the money on to you, minus their cut. The only thing you need in order to set this up is a web site (i.e., where you sell your "product" or "service").

I haven't looked into this in too much detail, so I don't know about downsides. It could be that it violates the terms of the credit card reward program--check the fine print. It could also be that it complicates your taxes, though in my admittedly limited understanding (please check with an accountant), even if you paid yourself $1,000 and had to count that as income for some business, you should then be able to deduct $1,020.20 as the cost of business, making it essentially tax neutral. (Since you would always lose money, it's more like a hobby than a business.)

Of course, I would love to hear from someone who tries this for real. There are a lot of "non-linear" rewards for credit cards (e.g., something good kicks in when you charge over $35,000 in a year, etc.), so this would be a good technique to use if you end up pretty close to one of these thresholds.