Travel rewards credit cards combine two of everyone's favorite things: travel and rewards.
And they're everywhere. You can’t turn on the TV, walk through an airport or flip open a magazine without seeing ads for the next great travel card. But to understand how these programs really work, you need to know more than a 30-second commercial can tell you.
For instance, what do you know about redemption fees? And how much money are your "points" actually worth?
It depends on your card, but travel rewards cards can be inconvenient, expensive or downright deceptive. So before you apply, you need to read the fine print and do your research. We can't help you with the fine print, but you can start your research here.
Are you aware of these tricks?
1. Miles Are Not Created Equal
With actual frequent flyer miles, you can typically get a flight for a set number of points (i.e. 25,000 or 40,000 points for a roundtrip domestic flight). Almost any airline-branded card falls under this category.
But with some credit cards, the miles you get are not affiliated with a specific frequent flyer program. Instead, they are worth $.01 each when redeemed for a travel purchase. Most travel cards that aren't branded with a specific airline operate this way.
So which type is better? Well, there’s no one-size-fits-all answer. It’s like comparing apples to oranges. Miles on a card associated with a specific airline are often worth more (sometimes as much as $.02-.$03 each). However, they come with more restrictions, such as blackout dates and seat restrictions. On the other hand, generic “miles” aren’t as valuable, but they’re certainly more versatile.
The Takeaway: Although both types use the word “miles” to describe the rewards, know how your miles will work before applying and choose the method that works best for you.
2. You May Not Have a Seat
This is perhaps the biggest restriction when it comes to actual frequent flyer miles. Some airlines are notorious for only offering a small number of award seats on a given flight (even when there are plenty of seats available for purchase). I recently experienced that myself when trying to book a flight from Columbus to Los Angeles; no matter how far out the date was, I couldn’t find any open award seats. As a result, I’m left with nearly 40,000 miles that may end up expiring, since I can’t find a flight to redeem them.
The Takeaway: If you’re leaning toward a card that uses frequent flyer miles, make sure you research how easy (or not) it is to redeem them. There is a plethora of message boards, travel card reviews, and investigative articles that can help you gauge the answer.
3. You Won't Always Get the Bonus
“Free flight, apply now!” might be what the banner ad says, but make sure you read the offer’s details. It’s true that some credit cards really do give you enough miles or points for a free flight after your very first purchase. However, with most of them, you will have to spend a minimum amount before you get the bonus. It can be as much as $5,000 in three months.
The Takeaway: Make sure you can easily meet the spending requirement to get the bonus. It may be more than you can afford. The last thing you want to do is apply for a card to get a bonus, only to be left with a situation where you'll have to overspend just to qualify.
4. The Interest Rates Are Higher
We all know how destructive it is to carry a balance on your credit card. But if you do carry a balance, then a travel rewards credit card is one of the worst choices you could make.
According to the CreditCards.com interest rate survey, the average APR on airline cards is 14.63%. Meanwhile, the average APR on standard, low interest cards is 10.40%. The latter category is almost 30% cheaper!
The Takeaway: Travel cards are best for those who pay their bill in full. Those who have a balance and are trying to pay it off will be better off with a no-frills credit card that comes with a lower rate.
5. There May Be Redemption Fees
Regardless of the type of travel card, you need to be aware of any redemption and booking fees for claiming your rewards.
Almost every credit card will require you to pay the government airfare fees and taxes you would otherwise pay, so those should be expected. However, in addition to those, some programs will also hit you with their own redemption fees. That means you will actually pay to use your points/miles! This is especially common if you're cashing out for a last-minute flight—you may be charged as much as $100 extra.
The Takeaway: When comparing cards, read the fine print to check for fees—if any—that apply to each program. Weigh the additional savings that may come with the card, such as free checked luggage. After all, paying $25 for an award flight is more palatable if you are saving $50 on checked luggage fees.
Mike Dolen runs Credit Card Forum, a site for users to ask questions and talk openly about credit cards, as well as gather tips and tricks for getting the most value out of any card.