You should think of buying points as a currency exchange: are you getting the right spread in the new currency to justify your purchase?

Points have value

First up is a common misperception, which we’ve addressed previously. You signed up for a new credit card and you’ll be receiving a rather large sign-up bonus. Let’s call it a 100,000 bonus. All these websites call it valued at $1,500–wow, it must be good. Then when it comes time to use those points, you might be tempted to say that the stay is free because your options are to use cash or use points, and you chose not to use cash. Not using cash makes the stay free, right?

Unfortunately, that’s not how it works. You can’t sign up for an offer under the premise that it provides you value and then completely ignore that value later on. That’s contradictory and will lead you down the rabbit hole of bad math practices and fiscal irresponsibility. Whether you want to believe it or not, when you use points to stay at a hotel or fly in a plane or anything in between, it costs you. Points are a currency.

It’s important to also distinguish the value of a point from the cost of a point. The value is what the point can buy while the cost is what you spent to acquire the point. The difference, then, between the value and the cost can be thought of as the spread. Common sense would dictate that you don’t want the cost to exceed the value of the point (i.e., a negative spread) or you would have lost money in the transaction.

Everyone has a buy price whether you admit it or not

There are some people out there who proudly proclaim they would never be a buyer of points. They generate all their points for free–from sign-up bonuses or manufactured spending–and wouldn’t bother buying points directly from a sale if offered an opportunity. They’re wrong already because of opportunity cost–rather than signing up for a card giving points, they could have signed up for a card giving cash back, and thus those points cost them the chance at earning real cash. But, we can ignore that argument this time.

Let’s look at a rather basic manufactured spending technique: using your credit card to purchase a pre-paid gift card, then going to a friendly store to load the pre-paid gift card onto a money order, then cashing in the money order at the bank. It’s a very simplistic cycle, but the point is you’re generating a lot of points off the purchase of the gift card. And if you do the cycle fast enough, you could even pay off your credit card statement with the money in the money order.

There are two things to consider:

• The inherent monetary cost in the process. While you might find promotions that eliminate fees for purchasing a gift card, generating a money order still isn’t free.
• The value of your time. You can’t do all steps from the convenience of your house, so you’ll need to make at least one stop somewhere along the way. There are also some natural speed limits in the process (your bank might not like $50,000 in money order deposits all at once). And so you’ll need to spend time monitoring it all too. How much are you “paying” yourself per hour for this work and is it better than taking on freelance work? Time has an opportunity cost too.

Maybe, when it’s all said and done, you could generate points at a very low price–well, below what the airline or hotel program sells them for. But it would stand to reason that if someone sold them for less than that price, you’d be a buyer, right? Think of all the time you’d save just keeping things simple. Well, congrats, you’ve now proven you’re a potential buyer. Your only problem is you can’t find a program that sells it that cheaply.

More important than buying points is how you’ll use them

Before you start thinking about buying miles, you need to think about how you’re going to redeem them. Simply buying miles because they’re available is a little irresponsible. How do you know you’re going to get at least face value from the purchase? Perhaps you’re convinced that the buy price is so good right from the start that you don’t need to think about it. But what happens if the points devalue? Or if the airline or entity goes bankrupt and awards aren’t honored?

When you’re trading cash that can be used anywhere for a point currency that can only be used at one place, you better have done your homework.

Before you make a purchase, consider this general framework:

• It’s far better to purchase miles that do not expire (or can easily be extended) than to purchase miles with a hard expiration.
• Ideally you would be purchasing points or miles that you expect to use in a reasonable timeframe, before the next time the loyalty program devalues. Let’s say that means use them within 2-3 years, though some programs devalue more frequently than that (sorry, Hilton, but you’re not a shining example of loyalty here).
• If you have an idea of where you would use the points, you also have an idea of what value you’ll get out of them. That way you know not to overspend for those points.
• Consider buying points and miles where you do not have an easy opportunity to accrue miles through other channels, like transferring points in from another account or a bank program. However, the same is true going the other way: why transfer points in if the program sells them cheaply and you can transfer points elsewhere?
• Ignore the limited-time sale and instead focus on the price you’ll pay. The price is the only thing that matters, not the opportunity.

The main take-away from this is to make sure you aren’t blindly buying them because someone else is doing it. Everyone has a different use for the miles and points, a different risk appetite, and a different belief in the loyalty program itself. You probably also shouldn’t criticize someone else for making a purchase you wouldn’t because you don’t know their situation. All you should care about is if you’re an informed buyer.

When and how to buy miles and points

The beauty of going through the thought process above is that you now know at what price you’re a buyer. Each points currency is unique, so it might help for you to have a place for yourself to jot down your thoughts on each. But where would you consider buying points?

Mileage sales might lower the threshold but not all are created equal

The most obvious answer is to just buy miles directly from the airline or hotel program. However, the answer isn’t always clear cut:

• The default price to buy miles is generally above what most people would be willing to pay almost intentionally.
• Mileage sales happen periodically, which can lower the price to a reasonable level. However, the best price might require buying a lot all at once. These sales might vary the amount of bonus miles you get with each sale.
• Some loyalty programs sell points directly, like Avianca Lifemiles and American AAdvantage. In those cases, if you buy with a card earning a bonus on travel, you can get some extra miles for free from the card issuer. If you have no other use of annual travel credits on your card, there’s a chance your points purchase gets flagged as travel and you get reimbursement.
• Most loyalty programs do not sell points directly and instead sell them through points.com. But you might find buying points through a portal offers some extra bang for your buck.

In general, this is a low risk method of acquiring points but the cost can be high, especially when you’re buying when there is no mileage sale. There typically isn’t much of a lag after you buy them–they should be usable shortly after purchase.

Consider using a shopping portal to stack rewards

We’ve talked separately about Rakuten and how you can use it to rack up lots of Amex or Bilt points. Sometimes you might be able to make a purchase strictly for the miles you earn and not for the service itself. It’s fair to call this buying points too; it’s just called something else.

Take the 100X points offer at Rakuten for Incogni below. The service itself is to remove your personal details from other sites, but maybe you don’t have a need for the service at all. At a 100X multiplier, you’d be buying Amex or Bilt points at 1 cent each if you value Incogni’s service at exactly $0. If you value and use Incogni, you could think of the points as being even cheaper than that.

Here, you’re limited to the terms, which essentially means you can only buy as many points as you can fit into one transaction. There’s also the potential that Rakuten or Incogni determine your purchase to be invalid to earn the points. This is definitely the case when you try buying lots of points all at once. We would peg this as a potentially cheaper avenue of buying points, but also more risky if the points don’t post.

Merchant offers can sometimes hand out miles or rebates

Similar to the shopping portal argument, you might find offer directly on your credit card that offer rebates. These rebates could be extra miles or they can be cash back. It’s even better if you can find these on the same merchants in your preferred shopping portal so you can stack the deals and earn even more.

Typically, your opportunity to outright “buy” points with this method is more limited: you’re likely not going to earn enough points to make up for the spend. On top of that, some purchases might not be valid, so check the terms before you buy. Of the options available, this is probably the worst method to buy points, but it helps to stack this with other purchases.

One thing to note though: sometimes this bonus works at any merchant: something along the lines of “spend $10,000 and earn 20,000 points”. This pseudo sign-up bonus could mean that even buying points directly from the airline or hotel will get you more miles on top. Again, this one is best as more of a combo 1-2 punch than on its own.

Get a new credit card

What’s better than a pseudo sign-up bonus? How about a real one? Signing up for a new credit card is in some ways “buying” points. We talked about that above with the opportunity cost discussion.

This is a fairly reliable method of earning points, but spending the requisite amount to earn the bonus and then waiting for the bonus to post means this might be slower than desired. If you need the points today to book your award travel, signing up for a credit card won’t help you.

Join buying groups

Since we talked about manufactured spending above, let’s talk about a different potential avenue. Sellers like Amazon don’t like it if you’re buying things with the purpose of selling them back at a higher price. In fact, we should all ideally discourage scalping as a society, but the fact of the matter is that it exists. There are some items that are highly sought after, and purchase limits on those items.

Buying groups are exactly what you expect them to be: a collection of individuals that buy discounted items and then sell them to the leader of the group who then turns them around and earns a profit. You typically won’t earn much of a premium for the purchases you make for the buying group. The expectation is that you’ll be compensated with the rewards you earn on your card. Some people do consider this as a way to earn a lot of points. But unless you’re highly invested in the group, you won’t earn much from it.

If you live and die by it, you can earn a lot of points from buying groups. But it comes with its own risks:

• The platform you want to purchase from (like Amazon or Dell) might consider you a reseller and ban you from buying anything from them.
• Items can get lost or damaged in transit.
• Buying groups might not give you money timely for the purchases you make.
• Returns can be an administrative headache.

Similar to other methods where you’re not buying points directly from the vendor, this is a slower method of earning points. The potential is high but so is the risk.

When do you decide to buy points and miles?

Suggested reading:

• The Best Credit Cards For Costco
• Earning Points From Taxes: Easy Money?
• Never Spend Above Your Means