What You Should Know About Travel Rewards Cards
Will I Ever Collect Enough Miles to Actually Take a Free Vacation?
Do you carry a bright plastic promise of free travel in your wallet?
I’m talking about a travel rewards credit card. I find it completely ironic how most people respond to the offer of a travel rewards card with the same 3 words – “Sign me up!” Yet these same folks never actually ever redeem their points.
To the average Jane and Joe, how could the offer of free travel be a bad thing? Especially when the majority of North American’s find themselves scrounging for grocery money, paying off their bills with credit cards and struggling to pay their mortgages each month…who really has the money to take a vacation? So a little free travel would be nice.
Travel rewards programs offer a golden nugget. They’re just like normal credit cards – with one big bonus, they reward you with travel points every time you use your credit card. It’s really that easy! Every time you make a purchase using your travel rewards card you automatically earn points towards travel. The points can be redeemed for an extravagant all-inclusive cruise or a practical rental car for your own business – it’s up to you how you use your points.
You can cash in your points at anytime towards:
- Cruises
- Rental cars
- Airline tickets/air miles
- Hotel stays
- All-inclusive vacations
- Theater
- Theme parks
- Dining
- Much more…
As you rack up the travel rewards points, you’ll receive monthly statements that tell you how many points that you have accumulated so far? It sounds like a win-win situation doesn’t it?
Well that’s what you thought when you eagerly signed up for a travel rewards credit card, and when it arrived you started charging away. The only problem is that you’ve had the card now for over a year and you’re still not able to buy that ticket to Cancun. Now you’re wondering why it’s taking so darn long to incur enough travel points to actually go on a vacation. And why are you suddenly paying more in interest and annual fees than you’re collecting in travel points?
Well according to CNN Business news editor Gerri Willis - you’re not alone! Financial institutions attract customers to sign up for their credit programs by dangling the carrot of free travel rewards in front of their noses. However with the average person charging only about $5,000 a year on their credit cards, it could take 5 years before they actually collect enough travel rewards for a free airline ticket.
Sure you want to travel, but you need to approach this as you would a trip to Europe – you have to research how you’ll get the best experience for your money. So here’s what you need to know about travel rewards cards to actually end up with your dream trip:
Understand what you’ve just signed up for – There are thousands of travel reward programs out there, but there are only 2 types of travel rewards cards - those affiliated with airlines and those that aren’t. So which is better? Well that depends on you and your spending habits. Let’s explore this a little further:
Airline travel rewards cards
Airline-affiliated credit cards give you the equivalent of 1 mile for every dollar you spend. Just because your credit card is affiliated with US Airways you can often redeem points towards travel with partner airlines and retailers that are associated with the same travel rewards program.
What you need to know about airline-affiliated travel rewards credit cards:
- The fees and interest rates on airline-affiliated credit cards may have you looking for the nearest parachute and emergency exit! Annual fees are on average $50 to $150, and annual percentage rates (APRs) are typically between 15% and 18%...now that’s some high flying.
- However if you fly a lot and you’re the type that charges all of your purchases to a credit card and pays it off the entire balance at the end of the month, then you will pack in the air travel points with a card like this. On the other hand, if you don’t charge a lot to your credit card, or if you tend to keep a balance on your card, you’ll likely incur more interest and fees than you will travel miles. The trick is to pay for absolutely everything with your travel rewards credit card – from a pack of gum to a postage stamp. Just be careful not to run a balance on this credit card, because the interest payments will delay your hopes for travel anytime soon.
- The great thing about airline-affiliated travel rewards programs is the marketing folks behind them have caught on to the fact that most people don’t want to be limited to one airline for all of their travel needs. That’s why you will often see airlines teaming up, for example American Airlines teamed with Continental Air, British Airways and U.S. Airways to offer customers more flexible travel options – and you can upgrade to first class and business class with any of these airlines as well.
Non-affiliated airline rewards cards
Travel rewards programs offered by non-airline affiliated outfits also work on the 1 travel point: $1 spent system, but the difference is that these are offered by financial institutions. Still you won’t be able to redeem points for a free airline ticket to anywhere in the United States until you’ve collected roughly 25,000 travel points.
What you need to know about bank-offered travel rewards credit cards:
- The good news about bank-issued travel rewards credit cards is that the most don’t charge an annual fee to use the travel program, and if they do it’s usually under $50.
- Many bank backed rewards programs cap your points redeemable at once to $400. That means if you live in New York $400 won’t get you all the way to Jamaica.
- Bank-offered travel rewards programs change every 2 years, which means you’re trip to Seattle could be covered with 25,000 points today, but not in 2 years time, so use your points within 24 months time - or chance losing them.
- Annual percentage rates tend to be slightly lower at 12% on average. Still if you tend to keep a balance on your credit card from month to month, like oh about 60% of North Americans do, you’re likely cannibalizing your travel points earned to pay off the interest rates on that running balance.
4 tips for getting the most out of your travel rewards points
- Redeem your points yearly - www.FrequentFlier.com offers this statistic on travel rewards card holders - approximately 650 billion travel rewards points are accumulated per year, but sadly only 75% of those points are ever redeemed. The key to getting the most out of the travel rewards points that you’ve incurred – is to use them! Most folks never use their points because they don’t actually have enough to pay for an entire flight – it doesn’t matter. If you like to travel; use your points. That’s assuming that avid travelers, who would travel with or without free mileage, are the one’s signing up for these programs in the first place.
- Swap travel points for other swag - Another little known factoid about travel rewards programs is that you’re not limited to spending your points just on travel. No, you can use them towards gift certificates for any of the participating retailers. However, FrequentFlier.com says don’t expect to transfer your points for free! Nope swapping travel points for a Nintendo Wee on eBay will usually cost you additional miles or money.
- Give travel points to a charity of your choice - If you're not going to use your miles to travel yourself; why not donate them to a good cause? That’s right, the humanitarian side of you might want to log onto miledonor.com, where you will see a list of charities that will gladly accept your unwanted travel rewards points. However if you’re looking for a tax break – think again! Miles donated are not tax deductible.
- Be aware of bonus mile offers – and take advantage of these puppies! Bonus travel miles are an easy way to collect the points you need for that trip to Hawaii. We figure if you’ve taken the time to sign up for a rewards card; take the time to read the member emails they send out. You never know when a double or triple bonus points offer is on. To stay updated log onto frequent flyer informational websites like webflyer.com, frequentflier.com, freefrequentflyermiles.com or flyertalk.com.
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