How to sidestep the potential pitfalls of travel credit cards
“Free travel” – two little words that can jump-start the pulse, excite the imagination and, if you’re not careful, actually take money right out of your pocket.
Travel rewards credit cards offering big sign-up bonuses and seemingly endless opportunities to earn points toward free flights, hotel stays and more can be almost irresistible. They’re so appealing, in fact, that you can entirely forget that issuers of these cards are in business to make money. Merchant fees, interest charges, late fees and annual membership fees all have a way of tipping the balance sheet in the issuers’ favor over the long term.
Even without grabbing the hottest new credit card offer, you can come out a loser in the points and miles game. Frequent traveler loyalty programs can lure you into making choices that are ultimately bad for your bottom line. Here are five ways to make sure you end up a winner.
1. Pay off your credit card balance every month
Credit card interest rates are, for the most part, outrageous. Even highly rated, otherwise excellent credit cards charge annual percentage rates of anywhere from 14% to 27% per year when you carry a balance, making it all too easy to pay out double or triple what you might have earned in free travel.
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Imagine, for example, you sign up for a credit card that requires you to charge $4,000 in the first three months to earn 50,000 points, worth about $500 to $750 in travel. If you take three years to pay that off, at a 27% APR you’ll pay around $1,900 in interest. So much for that “free” trip.
2. Include annual fees in your cost-benefit calculations
Travel credit cards’ annual fees run the gamut, from no-annual-fee cards to ones that cost hundreds of dollars to carry. Many are around $100 a year, which can be a bargain if you make good use of the card. But it’s still a setback in your quest to come out ahead. When you’re assessing the value of the travel rewards you’ll earn with that new credit card, remember to factor in the annual fee.
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3. Test run some travel bookings
Earning, say, 50,000 airline miles for spending a certain amount of money on a card might sound like a steal, and airlines’ claims that those miles can get you a round-trip ticket aren’t lies. But will those miles get you a ticket where you want to go, when you want to go? The only way to find out is to search the airline’s website for flights to some of your likely destinations around the time you plan to take a vacation. You’ll find that traveling during peak seasons (think anytime school’s out) can require considerably more points than you might have expected. The same advice applies to hotel redemptions. Plug in some sample dates and destinations at the hotel’s website, then select the “reserve with points” option to get a sense of how far your rewards will go.
4. Research your card’s little perks
If you’ve seen or heard a credit card pitch lately, the list of perks can seem tantalizing. Concierge service, hotel room upgrades and “luxury travel” benefits may sound good, but not every cardholder can benefit from them.
Some credit cards come with membership in the Priority Pass network of airport lounges, which is great for certain travelers – and nearly useless for others. For example, Priority Pass members who regularly fly Alaska Airlines out of terminal 6 at Los Angeles International Airport can enjoy convenient lounge access before every flight. But if you’re more likely to fly out of a different terminal, accessing the lounge may not be practical.
Similarly, credit cards sometimes confer privileges like free breakfast and late checkout with certain hotel brands. But you generally have to book through the program’s website to get these benefits, which means you could miss out on a cheaper price on another website.
5. Always browse the competition
When you’ve got a big stash of points or miles in a loyalty program, you’ll naturally want to keep adding to your balance so you can accumulate enough for your next free booking. That’s a powerful incentive to stay loyal to a certain brand. But always check competitor offerings before you book. Better properties, better seats and better prices could more than make up for the points you won’t earn if you stray.
More from NerdWallet:
● How to choose a travel credit card
● NerdWallet's best credit card tips
● How to get started with frequent flyer programs
June Casagrande is a contributor to NerdWallet, a personal finance website. Email travel@nerdwallet.com.
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