What is a Travel Reward Credit Card, and How Does It Work?
A travel rewards card is a credit card that carries a travel-related incentive or “reward” for use. The more you use it, the more points that you accrue, the more points you can put towards airline tickets, rental cars, or hotel stays.
Travel reward credit cards are extremely popular and often offer the best rewards value in North America. They also have a tendency of providing considerable sign-up bonuses, exclusive perks, and insurance packages.
While all of those benefits can be great, travel rewards programs can quickly become more complicated than what a lot of people initially assume. One of the ways these rewards can become more complicated is by their offering numerous ways and times that you can actually use your points, be it blackout dates, hotel, or airfare there are a lot of factors customers have to keep in mind. With so many options, making sure that you are getting the best value involves doing some serious research and planning.
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Are Travel Reward Credit Cards Worth It?
In specific situations, travel reward credit cards can definitely be worth it. Many studies have shown that people who pay with plastic spend more than what they would have had they paid with cash. From 15 to 24% more in fact. If appropriately handled – meaning you pay off your balance every month, you stick to your budget – using travel reward credit cards can really pay off. Some Circumstances That Make travel reward credit cards worth it include:
If You Research and Understand How Travel Reward Programs Work & What the Limitations Are
The reality is that different companies have different rules and regulations regarding how long points stay valid and how they can be used. In order to get the most out of your travel reward points, you will want to keep an eye out for points that don’t have a very long shelf life – ideally, getting a card that offers quite a long time period that the points can be used. When collecting travel rewards, it is essential that you have some flexibility in terms of your being able to book around your actual schedule. This makes it significantly easier to use your points.
You Can Stick to Your Budget
When it comes to finances in general, having a budget is a crucial step in having and maintaining control. When it comes to credit cards, the trick is to only use them as a way to pay for items that you were going to purchase already – things you had budgeted for and can pay for.
If you do not stick to your budget, you are at high risk of ending up in financial trouble – and when it comes to travel reward cards having to forfeit your points. Remember, a credit card is not an extension of your paycheck, nor is it free money. It is a loan – a high-interest loan – which you must repay.
Pay Your Card Off in Full Each Month
Over 60% of North American residents carry a balance on their credit cards each month. This means that once time, fees and interest are added the price that you have to pay has increased by upwards of 50%. When it comes to earning travel reward points, they are usually only worth it if you are not actually spending extra money to try and obtain them. If you are, then you should look into merely purchasing your tickets outright and save yourself money on interest.
When you pay a lot of fees or interest on your credit cards, you are actually helping to pay for someone else’s trip. This is because the money to pay for rewards actually comes to the annual fees interest paid by consumers as well as the charges that merchants pay the credit card companies. Do yourself a favor, and save your money, pay for your own trips by paying off your credit card debt each month.
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Benefits of a Travel Rewards Card
- If used correctly travel reward cards can make traveling something that users can do more frequently.
- Some travel rewards cards also make it possible to receive extra bonuses such as private airport lounges and priority seating
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Drawbacks of a Travel Rewards Card
- As with any credit card, it can be easy to get swept up in the idea of free money, causing the consumer to go further into debt.
- Reward points are not accessible if your card is not in good standing – some cards require the balance be paid in full.
- Some travel reward cards don’t allow points to be used during peak travel times of the year like Christmas, and March Break.
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How to Pick the Best Travel Rewards Card for You and Your Needs
When choosing any financial product, it is crucial that you do your research. However, when it comes to a travel rewards card, it is also vital that you be realistic about both your expectations and your spending habits. Here are a few things to keep in mind when trying to decide between multiple travel rewards cards.
Find a Travel Rewards Credit Card with a Low/No Annual Fee
The sad reality is that when it comes to most reward credit cards – travel included – the cards that earn points the fastest for those who use it in a calculated manner, tend to come with high annual fees. However, in order to get the most out of your travel reward points, it is best to use a card that has a low/no annual fee. This is where a lot of people become frustrated because they either don’t spend enough on their credit cards to earn the travel reward points they got the card for, or worse, they spend more than they can actually afford just to earn travel points.
To put it simply, if you are someone who plans to only use your credit card for things in your budget need to use a travel rewards credit card that has either a low or no annual fee in order to really get the most out of your points. If your credit card has a higher yearly fee, you end up spending more on that alone and end up having to earn enough points to offset that fee before the points in order for them to become worthwhile.
Keep in Mind Who You Travel With
Some travel rewards cards only work with specific airlines. If it is not an airline that leaves from your area, or that you like to travel with, then why would you want points that essentially force you to?
Not all travel rewards cards are the same in terms of when points can be used. Many companies are quite specific about the dates or times of year that their travel points can be used. This can be challenging if you have similar regulations as to when you can go away. Take a look at your schedule, and when the various cards you are considering allow the travel points to be used prior to signing up for a card that won’t actually get you anywhere.
Is My Credit Where It Needs to Be?
Every travel reward credit card involves having a credit check done. While this is part of most financial decisions, it is not something that should be taken lightly. Every time a bank or financial institution pulls your credit report, your report takes a hit. Because of this, it is vital that you stay on top of your credit report, making sure there are not any errors and that you know what your credit score is. This will allow you to apply for cards that look for candidates in that credit range. After all, there is no point in taking a hit to your credit score for a card you won’t qualify for.
Travel reward credit cards really do offer a lot of benefits when used in a careful manner. But that doesn’t mean that they are all the same, or should be applied for on a whim. As with any financial product, there are a lot of factors that have to be taken into consideration, will these points actually get me to where I want to go? Am I able to use this card in a mature manner? What is the interest rate that I will be facing should I not be able to pay it off every month? How long do I have to use these points? If you are considering applying for one of these cards, it is essential to sit down, look at your options, and ask yourself these questions prior to applying.
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If you are considering applying for a travel rewards credit card, you have a ton of options to choose from – each with their own details. While there are things like APR, annual fees and billing cycles that you have to consider with any credit card, with a travel rewards card you also have to keep in mind what you really want out of the points, and how to get the most out of them. As long as you are willing to put in the time and effort to research your options, you are sure to find a card that is just right for you and your travel needs.
Good luck and safe travels!