Does The Discover it Miles Card Make Sense For You?

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A couple of weeks ago I first wrote about the Discover it Miles Card, which is a brand new no annual fee product from Discover.

The card offers unlimited 1.5x Miles for every net dollar you spend on purchases, with a few options for redemption.

  • You can redeem for cash as an electronic deposit to your bank account or for a credit for travel purchases on your statement made within in last 180 days.
  • Travel purchases include airline tickets, hotel rooms, car rentals, travel agents, online travel sites and commuter transportation.

What makes this card especially interesting is that you earn double miles for the first year. After the first 12 consecutive billing periods that your new account is open, Discover will double all the miles you’ve earned and apply them to your account in the next billing cycle

Your sign-up bonus is effectively getting 3% back on all purchases for the first year, which is tough to beat on everyday spend.

So under what circumstances does it make sense to sign-up for a credit card with no “instant gratification” sign-up bonus?

What’s the opportunity cost of a credit card application?

A couple of years ago I wrote a post entitled “how much of a reward do you need to apply for a credit card?”

As the name suggests, I pondered what my threshold really is for taking action and applying for a credit card. There are a few things that factor into my decision:

What’s an “inquiry” worth?

  • When you apply for a credit card you get a credit inquiry, which temporarily dings your credit score.
  • So what do you value your credit score temporarily falling ~2-3 points at (long term applying for cards can actually improve your score)?

What’s the opportunity cost of the application?

  • This is similar to the above, though I guess more specifically what’s the direct opportunity cost of that application?
  • Which card could you otherwise apply for?

How much “hassle” is involved?

  • Ultimately applying for a credit card isn’t rocket science, but you have to apply, activate it, manage the payment of it, etc.
  • That takes at least some time.

My personal threshold is ~$400. If I can make a net “profit” of ~$400 on a card, it’s worth it to me to apply. Of course that’s an average over time, and assumes there’s not some other better offer at the time (I don’t generally apply for many credit cards at once).

And I’ll also readily admit that everyone should come up with their own number. There’s no right or wrong answer here.

What’s the best alternative for everyday spend?

It makes the most sense to use the Discover it Miles Card for everyday spend which wouldn’t otherwise qualify for a bonus category.

I’d argue the next option would be one of the following:

In other words, for everyday, non-bonused spend the incremental return of the Discover it Miles Card over one of the above cards is ~0.8%.

Crunching numbers

This isn’t a great card for people that are small spenders, in my opinion. That being said, if you spend a lot on credit cards, the value to be had from the card is potentially enormous.

For example, if you spend $100,000 on the card in a year you’d earn $3,000 cash-back. At best you’d otherwise be getting ~$2,200 of “return” on non-bonused spend through other cards. So that’s a difference of $800, and I think that’s well worth a credit card application, in my opinion.

Let me give another example. Say you pay a lot in taxes. There are websites that will let you pay your income tax by credit card for a convenience fee of ~1.87%. You could literally earn a ~1.13% return on your tax payment if you pay for it with the Discover it Miles Card.

Bottom line

The beauty of this hobby is how diverse the participants are. I get emails from blog readers that struggle with making $1,000 minimum spend over three months, and I get emails from blog readers that spend $1 million per month on credit cards (often for work or reimbursable items).

If you’re not a big spender then this card is marginally worth it at best, and I think there are probably better cards to be applying for.

But if you’re a huge credit card spender, then this has the potential to be one of the most lucrative credit card sign-up bonuses yet.

If I had to create a “threshold,” I’d say the card is worth it for the first year if you spend at least $50,000 on non-bonused spend. If you spend $100,000 it’s totally worth it. If you spend $500,000+, this might be the most lucrative credit card sign-up bonus you ever get.

What do you think? How big of a spender do you have to be for the Discover it Miles Card to be worth it?

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Comments

  1. absolutely NOT worth it. this card has no sign up bonus. if you spend $100k on credit cards each year you can sign up for bazillion of cards and churn bonuses as you please.

  2. You need to tell us more about how the people who spend a million on credit cards.

  3. I spend $350k a year on cards. If the bonus earn were accrued every statement, then I would be all over this. But instead I’d have to wait a year for the 1.5% bonus, and pray during that time that they don’t terminate my account or institute some retroactive cap. Out of caution I’m going to pass.

  4. I spend about $60K per month of business expenses on my business SPG. I think I will go for this.

  5. I have the original Discover It cash-back card, which gives 5% back for categories of items that change quarterly (e.g., 5% cash back on gasoline in Q1). Let’s say I adjust my spending each Q to earn the max cash back (5%) on every purchase and I spend $100,000 per year; my cash back would be $5K. Therefore, it is beyond me anyone would prefer the Discover It Miles over the regular Discover It, and why Discover even came up with this new variant on their critically acclaimed original cash-back card…

  6. You can’t easily churn cards anymore (not with Chase or AMEX personal cards and even Citi is hit or miss). Barclays is 1 new card every 6 months? And don’t even get me started with USBank. The only truly churnable card is the BoA AS card.

    People who get this card, rather should get this card, are like Ben said, putting at least $100K/year on the card by manufactured spend techniques. They already have gotten every card out there and now need a card that they can put heavy MS on. Of course, there is also the risk of Discover shutting you down before the year, but there is always some risk in the MS game.

  7. If your inquiry value threshold is a measly $400 (very low), then getting this card would still require $50,000 in spend to earn that level of bonus. I’m used to bonuses with minimums of $0 spend, first use, 1K, 2K, 5K, even 10K for 100,000 AA or AX points. A required spend of $50,000 to earn $400 is just plain silly.

  8. How confident can I be that a tax payment won’t show up as a cash advance?
    Also, is the 12 month 0%APR still on for the tax payment?
    Thank you!

  9. @ Charlie — Like I said, I don’t think it makes sense for everyone. But I have a ton of readers that spend millions in unbonused spend every year on their cards. And I don’t think you’d disagree that for them this is as good as it gets.

  10. @ DCS — Well because that’s for specific categories as opposed to everyday spend. There’s a big difference there.

  11. @ Lantean — Totally get that it doesn’t make sense under your circumstances, but I think it’s important to have some perspective on how diverse the “participants” in this hobby are. Say you have tons of reimbursable business expenses. Churning cards and opening/closing them to reach minimum spend is going to be a nightmare from an accounting perspective. If you spent a million dollars a month, for example, on reimbursable expenses, I don’t think you’d disagree that this is arguably the best sign-up bonus ever, no?

  12. @Lucky

    i understand that everyone’s situation is different and this is a diverse group… but how many have $1m a month of reimbursable expenses? plus even if they do, chances are bulk of it in some bonus category… so even a non-churner can probably be better off with some Ink/Amex biz gold/Citi Premier combo especially if they want to use those miles on flights.
    but if not, yeah, $30k a month in cash-back does sound divine. 😉

  13. @ Lantean — I think you’d be surprised. Certainly not a majority of people by any stretch of the imagination. But over the years I’ve received well over a hundred comments/emails from people that spend upwards of a million dollars a month on credit cards, largely in categories which don’t qualify for a bonus.

  14. I didn’t know you could pay taxes on their Discover site. I pay a lot of taxes and I’m getting nothing…so I might look into this card. Thanks for the tip.

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