6 times you should redeem points and miles rather than pay cash

Points and miles are terrific tools that can open up incredible travel opportunities. Social media is awash with content by the Average Joe who managed to take extravagant vacations with just a few credit card sign-up bonuses, along with budget travelers stretching their rewards to the max.

If you're new to points and miles, you may be struggling to determine when using points or miles versus paying cash makes the most sense. The answer depends on a few different factors and varies for each traveler. But here are six times when you should redeem points rather than pay cash.

The most valuable type of points you can earn is those that can be transferred to airline and hotel partners, such as American Express Membership Rewards® points, Chase Ultimate Rewards® points, Citi ThankYou® Points and Capital One miles. Before diving in, here's a look at some of CNBC Select's best rewards credit cards for earning transferrable points and miles:

Using points for luxury travel can be a great way to save money and access amazing travel experiences. With the right loyalty program, you can save on airfare, hotels, car rentals, cruises, and more. One of the best uses of points is for first-class flights and luxury resorts. An international first-class ticket can easily cost over $10,000 round-trip, while a top-tier hotel costs over $1,000 per night. Most people can't afford these experiences, but points can make them more attainable.

Points can make expensive hotels more affordable since they can often be redeemed for free nights at high-end properties that would otherwise cost thousands of dollars per night in cash. 

The Maldives is a popular (and pricey) destination where your points can go a long way. A night in a beach villa with a private pool at the Alila Kothaifaru Maldives can easily go for $1,000 or higher. Meanwhile, you can book the same room for just 30,000 Hyatt points. At 3.3 cents each, you're getting exceptional value for your points, making this a great redemption.

Even if you can afford luxury travel, points can save you thousands of dollars that you can put toward other vacation expenses. The Maldives is notoriously expensive, with round-trip transportation between the airport and hotel often costing over $500 per person. Everything from meals to activities and spa treatments will command a premium, so using points to save on hotel and airfare can free up your budget for other experiences.

During peak travel seasons, such as summer and holidays, points can save you money when cash fares are sky-high. It's important to note that many airlines now impose dynamic pricing, meaning the cash price determines the mileage fare. However, plenty of programs still publish an award chart with set pricing so you can get value out of your miles. For example, summer fares between the West Coast and Paris can go as high as $1,300. Meanwhile, Avianca Lifemiles charges just 60,000 miles round-trip for an economy-class ticket.

Off-peak travel can also be an exceptional use of miles. For example, programs like British Airways Executive Club, Iberia Plus and Virgin Atlantic Flying Club still follow award charts, with lower prices to specific regions on off-peak dates. This is a great way to stretch your miles further while saving money.

The same goes for hotel loyalty programs, which adjust pricing based on demand. World of Hyatt even publishes an award chart specifying peak and off-peak pricing, which starts at just 3,500 points per night. Despite off-peak hotel prices being lower, you can still save money by using points. For example, the Alila Manggis resort in Bali has off-peak rates in October, starting at around $150 per night (including taxes). The same room requires just 3,500 Hyatt points, getting you 4.3 cents in value per point. That's higher than the 3.3 cents-per-point you can get in the earlier example in the Maldives.

Some loyalty programs offer the occasional sales, deeply discounting the miles needed for an award. For example, the Flying Blue program often runs Promo Rewards discounting award tickets by as much as 50%. When award tickets are this cheap, you are usually better off redeeming points than paying cash.

Contrary to popular belief, there are hardly ever "last minute deals" on airfare – you need to book in advance to get a good deal. Last-minute flights can be expensive, which is where points come in. Many airlines release saver-level award space (especially in premium cabins) closer to departure. So if you book a last-minute trip, you can often find good award availability and save money on expensive fares. It's a win-win.

Letting your points expire is one of the worst mistakes you can make with your rewards. Most airline miles and hotel points have expiration dates and the best way to track them is through an app like AwardWallet or MaxRewards. You'll get notified if your points are about to expire so you can redeem them ahead of time. While not all loyalty programs are included, most are and the program is free to use. 

Using points before they expire is important because it allows you to get the most value out of them. So if you know an expiration date is nearing and you have no other way to keep them active, use your points for travel so they don't go to waste. 

When deciding between using points vs. cash, it's important to also consider your elite status goals. Airlines don't count award bookings towards elite status qualification. So if you're close to reaching your goal, you might want to consider booking a cash fare instead of using miles. You can also double-dip by redeeming a flexible currency like Capital One Venture Miles. Capital One lets you book flights with your credit card, then redeem them at one cent per mile towards travel expenses. You can earn miles and elite status qualification through your chosen frequent flyer program while covering the cost of your ticket with Capital One miles. 

Hotels are more flexible on this front. Choice Privileges, Hilton Honors, IHG One, Marriott Bonvoy and World of Hyatt all count award stays towards elite status. Knowing your loyalty program's policy can help you decide whether it makes more sense to redeem points vs. cash.

You'll generally get the most value by redeeming them for premium travel: international business class, first-class flights and luxury hotels. These high-priced experiences give you the highest return on your points, especially if you're booking with a loyalty program that publishes a set award chart. Even programs that utilize dynamic pricing can offer you tremendous value for your points when redeemed for premium travel. 

That being said, the best use of points comes down to your travel needs. If you just want to save money, use your points. Don't obsess over the cent-per-point value you're getting or traveling to far-off destinations to keep up with the travel influencers. Redeem your points whenever it saves you money and keeps your budget on track. Points can devalue at any moment and using rather than saving them indefinitely is always the best way to go.

The worst use of points is generally for non-travel purchases. Gift cards, cash back and merchandise may seem like sensible redemptions, but they'll often get you less than half the value of your points. Points are meant to help you save on travel purchases, so using them for anything else is generally a  losing proposition. 

If you want to redeem your rewards for non-travel purchases, you might be better off with a cash-back card like the Chase Freedom Unlimited® or Citi Double Cash® Card. You'll pay no annual fee and earn generous cash-back rewards in popular spending categories. You can even convert your cash-back rewards to points. Citi Double Cash Card rewards can be converted to Citi ThankYou® Points if you have a card like the Citi Premier® Card. Meanwhile, you can convert your Chase Freedom Unlimited cash to Ultimate Rewards points if you have another card that earns those points (i.e., Chase Sapphire Preferred® Card, Chase Sapphire Reserve® or the Chase Ink Business Preferred® Credit Card).

Calculating how much value you would potentially get from your points and miles is easy. Simply take the cash cost of the redemption (such as a flight or hotel stay) and divide it by how many points/miles are needed.

For example, if a flight were to cost $500 or 25,000 points, you would get two cents in value per point. The calculation is: $500 / 25,000 points = $0.02 per point.

Ultimately, deciding whether to redeem points rather than pay cash for travel is a personal choice. You'll get more value by using them for high-priced travel experiences. But if you're a budget traveler who just wants to save a few bucks, use your points for that economy flight or low-category hotel redemption. The key is to have a use in mind before you start earning points. That way, you're less likely to hoard points and get caught in a program devaluation. "Earn and burn" should be your mantra and by planning ahead, you can do this while still getting value from your points.

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