[Updated June 2016]
The best way to optimize reward points is completely subjective to what you value. For me, I always decide what I want to do, then I decide how to get there and where to stay.
The secret to optimizing points is to know what points are most valuable and in what circumstances.
Some general rules of thumb that I've learned over the years:
For me personally, I use Chase ultimate reward points to convert into airline miles - primarily Southwest for flexible, short flights and the occasional international flight on a United affiliate (but NEVER United). I generally buy American and Delta economy long-haul or international flights and then use upgrade certificates or points to upgrade to business class. The reason I do this is because I generally need the qualifying miles from purchasing a flight in order to achieve status levels (which keeps the points flowing). I only use starpoints for nights at SPGs.
One last set of tips...things you should NOT do:
Great, now you know how to optimize your rewards to save you cash. Click here to see my system for tracking rewards and assigning cash value.
Questions? Comments? Tweet me @RetireOnRewards.
Retire on Rewards