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While planning travel, we often get confused whether to use points or cash while booking tickets. We may have two options, for example, while booking a flight ticket:
Cash price of $600
OR
40000 points + $50 in taxes/fees
Which one would you choose? Well, it all depends on the points redemption value. In other words, what’s the cash value of each point for the offer? Compare that with your benchmark value you expect from each of your points. If the cash value is more than the benchmark value you expect, redeem and pay through your points. If not, pay cash instead.
This calculator will help you calculate the redemption value of each of your points.
Cash Price ($): This is the cash you would spend if you don’t redeem and pay through your points. Yes, this already includes taxes and fees. In our example, the cash price is $600.
Points to Redeem: This is the number of points you plan to redeem to avail the offer. Instead of paying the cash price, you pay via points. In our example, the points to redeem are 40000.
Taxes/Fees ($): Even if you decide to redeem and use points to pay, you still need to pay taxes/fees using cash. This is because taxes/fees are regulatory and need to be paid to tax authorities. You can’t pay taxes using points, of course. In our example, the taxes/fees are $50.
The formula to calculate points redemption value is:
(Cash price - taxes/fees) / points to redeem
In our example, the value per point comes:
($600 - $50) / 40000 = $0.0138 or 1.38 cents
Talking of logic, this formula is simple to understand. If you divide the cash price by the points, you get the cash value of each point. Now, since you need to pay taxes/fees separately using cash, the complete $600 isn’t the cash equivalent of points. So, you need to deduct $50 from $600.
Now, to decide whether to redeem and pay using points, you need to compare this 1.38 cents per point value you’re getting with the benchmark value you expect from your points. If the benchmark is over 1.38 cents, pay using cash instead. If the benchmark is less than 1.38 cents, that means you’re getting good value for your points and therefore should redeem points.