What Credit Card Should I Choose?

It’s free the first year and $30 thereafter, comes with a signup bonus of 6,000 points with your first purchase and up to 6,000 more for hotel stays, and offers points which can be used for hotel nights or converted 1:1 into most airline programs (it’s not a good option for accumulating United miles, since the ratio is 1:2 – BankOne, which provided a plurality of United’s debtor-in-possession financing, didn’t like competition from this card).

When you covert 20,000 points at a time into airline miles Starwood gives you 5,000 bonus miles — which means you’re really earning 1.25 miles per dollar on most every carrier, better earning than most airlines’ own co-branded offerings. The flexibility, though, is the best benefit. With, say, an American Airlines Mastercard you’re stuck with American Airlines miles. With the Starwood American Express you earn whatever miles you want and you don’t have to decide until later.

An example of the power of this card — spend $50,000 on the United Visa or American Mastercard, and you have enough miles for a coach ticket to Europe. Spend $50,000 on the Starwood American Express, and you can transfer those 50,000 points to Cathay Pacific in exchange for 60,000 Asia Miles which are enough for a business class ticket on British Airways from the East Coast of the U.S. to most destinations in Europe.

My own personal solution involves also carrying a Diners Club card and a Hilton American Express. This combination won’t work out as well for everyone, however.

The Diners Club card is now a Mastercard, so it’s accepted universally. I use the card with merchants that don’t take American Express. Their points program offers transfers into most airline and hotel programs. I can even launder United or American miles into other programs through this program (with some devaluation).

Since Diners Club became a Mastercard, it lost some of its unique features — such as two billing cycles to pay and a lower than usual foreign currency conversion charge. But it maintains its primary insurance coverage on rental cars (in many cases if you wreck a rental car paid for with this card your own insurance doesn’t need to know, in contrast most cards provide only secondary rental insurance), and since it’s a Mastercard it’s useful for airline and hotel promotions that require payments with that brand of card (such as Hyatt’s outstanding Faster Free Nights promo).

Downsides to the card are a charge for transferring points to airline miles (95 cents per 1000 miles) and a $90 annual fee. I rent cars enough to make this worthwhile.

I use the free Hilton American Express only for things where I earn bonus points (5 Hilton points per dollar instead of the standard 3). I use it at the grocery store and at restaurants and my cell phone bill is automatically charged to the card. I run no more than $1000 or $1500 a month on this card. If I ever run out of Gold status with Hilton, I’ll probably notch up the spending to reach $20,000 in a year which will requalify me for that level in the Hilton HHonors program.

One of the most important pieces of advice is to stay away from proprietary rewards programs, like the CapitalOne GoMiles card.

Proprietary miles programs have marketing appeal, offering "any seat on any airline" and tapping into the frustration that some feel trying to redeem their miles. But these programs turn the value proposition of miles on their head. Miles are most useful for tickets that would have been too expensive to purchase — international business or first class tickets, or even last minute cross-country flights (which aren’t as expensive as they used to be). Proprietary programs generally offer coach seats, which have to be purchased a few weeks in advance, and the amount of airfare that they’ll pay is usually capped.

Furthermore, proprietary miles can be earned only through credit card spending so it may be harder to earn enough points for a free ticket than it is with a traditional frequent flyer program. Airline and hotel points can be earned through a variety of partnerships, whether it’s telephone or internet or mortgage financing, let alone actually flying or spending the night somewhere.

Proprietary programs amount to a cash rebate card where you can only spend the rebate on specific travel offerings.

So What’s In Your Wallet? Comments are open.