For Credit Card Miles, Just Say 'Charge it' (Part 5 of 12)

After travel itself, the next most common way to earn frequent flyer miles is by charging purchases to a mileage-generating credit card. In fact, the widespread use of these cards has created a new segment of mileage-earners: Alongside the traditional frequent flyers, we now have frequent buyers.

Mileage cards: From novelty to mainstream

When the first miles-for-charges program was launched in 1985 by Diners Club, it was a novel marketing gimmick, assumed to have niche appeal solely to that most rarefied of consumer segments, the ultra-frequent business traveler. That was Diners' core constituency, so it made sense.

Initial reaction to the first airline-specific card, launched by Continental the following year, was more skeptical. And in 1987, when American introduced the Citibank-issued AAdvantage credit card, not even the most fervent loyalty-program booster would have predicted that it was destined to become one of the world's most widely held cards. (For competitive reasons, airlines and banks are less than forthcoming when it comes to divulging cardholder statistics. American claims 55 million AAdvantage members, and unofficial estimates are that more than three million carry a Citibank AAdvantage credit card.)

Today, every major airline and hotel program has at least one co-branded consumer card, and most offer small-business and check cards as well.

The lure of travel

It should be mentioned at the outset that there are many alternatives to the mileage rewards schemes. For consumers whose primary focus is economy, there are credit cards that offer cash rebates (e.g. the Discover card). Other cards reward users with rebates on specific products or services (GM cars and trucks, ExxonMobil gasoline, etc.). And still others kick back a small percentage of every charge as a donation to a designated association, school, or charity.

And then there are no-frills cards which simply offer users a low annual fee, or no fee at all, and a low annual percentage rate (APR).

Notwithstanding the multitude of rewards and rebate options available to them, many consumers choose to earn miles or points for their charges. What they're really focused on, of course, is not the miles themselves but the travel those miles can be redeemed for.

As marketers say, travel is aspirational—meaning it's perceived value far transcends its actual cost. That explains why miles or trips are so often featured as rewards in marketing promotions and sweepstakes. And it underscores the importance of carefully weighing the benefits and costs associated with contending card products.

In what follows, we assume that you have analyzed your options and made an informed decision to pursue miles, rather than a cash rebate that might be worth more than a free trip.