Collecting points is like holding cash. Sure- you can hoard your points and build up an impressive bank of them, but their value is decreasing by the day. Hotels and airlines will devalue their programs whereby they will require more points for the same redemption.
Take for instance Southwest Airlines points. The author of a popular blog we follow, Doctor of Credit, compiled this list of the history of Southwest points:
§ 2011-2014 (March): All points were worth a fixed 1.67¢ per point
§ 2014 (April) – 2015 (April, 16th): All points were worth a fixed 1.43¢
§ 2015 (April 17th) – 2016 (April 19th or so): Fares in the lowest class were worth a fixed 1.43¢, fares in other classes were on a sliding scale
§ 2016 (April 19th or so) – 2018 (April 3rd): Fares in the lowest class are worth a fixed 1.39¢, fares in other classes were on a sliding scale
§ 2018 April 3rd – Currently: Fares in the lowest class are worth a fixed 1.28¢, fares in other classes were on a sliding scale
A "wanna get away" fare of $100.00 would have cost 5,988 points in 2014. Today, that would cost 7,813 points. This is economics 101, time value of money- the value of a dollar today is more than the value of a dollar tomorrow. All other things being equal, the value of a point today is more than the value of a point tomorrow. Hotels and airlines see the points that people are holding as currency- when there is too much "currency" out there, they will devalue their programs and require more points to be used in order to redeem them.
What does this mean if you have any points?
Due to inflation, Peter was a trillionaire in Zimbabwe. In the grand scheme of things, this did not mean much at all- everyone was a trillionaire. Don't let your points balance become so big you can boast about it- let your experiences become so amazing because you've used your points to get there!
Life situations dictate how each person should redeem their points
The value of all points are relative to those that are holding them. Flashback to our early days of points when we used points to buy a store gift card- at the time, that was what we needed and what was the best use of our points. Today, we look back at that and wish we had not done that- however, in that time, we had the best use of those points for our particular situation. Could we have got better value by redeeming for a flight somewhere? Sure. But we had determined a need for the gift card and a solution in the points that we were holding.
"Earn and burn"
A familiar saying in the points world is earn and burn. Without any system of "investing points" there is no point in keeping a huge balance of points. We love to use points for flights and hotels to take regular trips. Some people like to earn points to take a once in a lifetime business class, hotel with a butler sort of trip. Don't sit on your points balances- some points even expire and then you're left with nothing!!
The hottest points aren't necessarily the best points for you
Just because everyone you know has the Southwest companion pass from credit cards, it does not mean that this is the best card for you. For starters, if you don't have a companion to fly with regularly then it makes no sense to go after the companion pass. Different programs work for different people- for instance, if you live in a city that is an American Airlines hub then it may make sense to collect American points and get an American Airlines credit card for points.
You do you.