Let’s say you want to go to Paris.
Do you like a particular hotel or airline? Do you have a credit card that gives you points or rewards when you stay or fly with your favorites? How about if you use that card on other purchases?
Do you spend more just to get more points? Have you ever wondered how your spending translates back to your rewards?
Recently, I was asked to collaborate with U.S. News & World Report regarding travel credit cards. As a nationally recognized publisher of consumer advice and information, they conducted a nationwide study of consumers who own credit cards.
From this study, they created a guide which shows travelers how to best use their cards and get the most from them.
Finally, something that compares cards and gives me information that makes sense.
Throughout the next month I will post results from that study. Hopefully, you will learn something about your credit card.
The link to the entire study is https://creditcards.usnews.com/travel#heading2
Today we’ll learn about how those cards work.
Travel rewards cards help users save money on travel expenses, like on airfare, hotel and transportation spending. Travel credit cards benefit repeat customers, because the more you spend, the more savings (or benefits) you receive.
Travel rewards cards offer higher earning rates for travel spending in particular, and may can be cashed in for highly discounted or free flights and hotel stays, free or reduced baggage fees, priority boarding and other perks. Some cards may not even require any points at all to take advantage of those perks, but they may carry an annual fee to offset those costs to the issuer.
Travel credit cards often come with lucrative sign-up bonuses with the best cards offering as many as 100,000 points to new members who hit a minimum spending amount within the first few months.
Like other premium rewards cards, travel cards are generally known to carry more restrictions and fees than the average credit card. For this reason, travel cards are not as beneficial for the occasional traveler.
There are three basic types of travel credit cards: airline, hotel and general travel.
Airline credit cards
Airlines partner with credit card companies to offer cobranded travel rewards credit cards that earn the most miles when used for flights on that particular airline and spending with affiliate partners, typically double or triple the miles. Cardholders still earn miles for day-to-day purchases (with a few exceptions like cash advances and purchases of prepaid cards), only at a lower rate, typically one point per dollar. You can redeem earned miles with that airline or its affiliates.
Benefits: Perks and spending rewards
Airline cards can deliver a cheaper, more comfortable flying experience. Benefits often include free or reduced baggage fees, priority boarding, complimentary or discounted access to the airport lounge and discounts on in-flight purchases.
But airline cards can also save you money by offering sizable sign-up bonuses, waived foreign transaction fees and double or triple miles earned on airline and affiliate purchases.
Hotel credit cards
Hotel credit cards are most valuable when used to book accommodations with that particular hotel chain. Unlike airline cards, it’s not uncommon to earn five points per dollar spent with that brand, with other travel purchases earning fewer points and all other purchases earning the least. Points have to be redeemed through that brand or its partners.
Benefits: Free nights and special status
Hotel credit cards work best for loyal guests of one particular hotel chain or group. Free nights are the most valuable benefit, and most hotel cards provide users with an easier path toward elite status, which delivers perks like guaranteed room availability, membership discounts, priority check-in, and complimentary upgrades. As with airline credit cards, one-time sign-up bonuses are common if you spend a minimum amount within the first few months.
Some hotel cards charge an annual fee that’s waived during the first year, but those that do typically don’t charge foreign transaction fees. Many hotel cards provide various forms of travel insurance, like lost baggage protection, trip delay reimbursement, emergency assistance and car rental insurance coverage. Some hotel rewards programs let you transfer your points to their airline partners.
General travel credit cards
General travel credit cards are not tied to any particular travel brand and offer the flexibility to redeem through their own travel portals or transfer points to partners to redeem for cruises, hotel packages, rental cars and cruises, among other options. Purchases typically carry a flat reward rate, but points can be redeemed from a broad selection of travel brands and sometimes for nontravel rewards.
Benefits: Flexibility and value
General travel cards are inherently more flexible than airline or hotel credit cards, which is a big plus for travelers who aren’t loyal to any particular brand or who travel to destinations with fewer options for hotels or airports. Cardholders can worry less about blackout dates or travel restrictions because they’re not tied to a sole provider.
Points can sometimes be transferred to other loyalty programs. However, points don’t transfer equally with all partners and the exchange rates do vary; in some cases you get get the best redemption value by transferring points to partners. It’s important to review your card’s reward charts to better calculate the value of transferring your points with partners.
The ability to also redeem general travel card points toward statement credits or cash back makes this type of card particularly attractive to users who prioritize flexibility.
Benefits and Drawbacks of Travel Rewards Credit Cards
For the right consumer, travel credit cards can make a lot of financial sense, but it’s important to understand the pros and cons.
Benefits
Better point valuations and redemptions: Travel-related spending with travel credit cards accrues points and miles faster than general rewards credit cards, and when those miles are redeemed for travel, they have potential to deliver better ratios than other rewards like cash back or statement credits. Points can be used to book free nights at hotels or for free flights.
Travel perks: Many travel credit cards also offer perks like free checked bags, priority boarding, concierge services and travel protection and assistance.
No foreign transaction fees: A foreign transaction fee is a surcharge on every purchase made on a credit card outside the U.S. If your itinerary takes you overseas, a travel credit card that carries no foreign transaction fees helps you avoid that added cost, which is typically 3 percent of the purchase price.
Drawbacks
High costs: Travel cards’ purchase interest rates (APRs) fall on the higher end of the scale for all credit cards, and the credit score needed to secure them starts in the upper 600s. Qualifying credit scores on the lower end of the spectrum will, in turn, result in higher APRs.
Top travel cards charge annual fees that require high amounts of travel or other spending to offset them via rewards. Similarly, sign-up bonuses may encourage you to spend more just to qualify for them.
“I think that many consumers are very excited about the points without considering how much they’re going to spend in actual interest at the end of the day,” Cortez says. To avoid running a high balance on the card, Cortez explains that a savvy consumer will look at his or her budget in light of the required minimum spending amount to qualify for a sign-up bonus and determine a plan to earn the points in a way that complements their lifestyle.
Restrictions: Travel credit cards can also cost you time. Some cards require lots of planning or working with customer service to navigate blackout dates, limited seat availability or confusing terms and conditions. Depending on the card, there can also be restrictions on earning miles, including caps and expiration dates. And, of course, bonus points from airline and hotel cards are restricted to redemption only with that brand or qualifying partners.
Emily Jablon, cofounder at Million Mile Secrets, points out that for an expensive or long-distance trip, it may be worth the added cost to enlist the help of an award-booking service. For a fee ranging from $75 to $250 per traveler, services like Cranky Concierge and AwardAdvocate can help you find and book the lowest fares for award travel and answer any questions you may have about your trip.