Introduction to Credit Card Rewards Part 2

Travel Cards Now we should be familiar with the evils of credit cards as well as the tidy sums we can earn with a cashback card, but we want to be like those travel bloggers and see the world!

In order to do that we need to look into credit cards that offer more rewards that go toward travel. Aside from the bonus and fee calculations it only makes sense to get a travel card which earns more than you could get in cashback. For example, if you get a card which gives one point per dollar which can only be redeemed for travel at one cent per point you are earning a restricted 1%. You would be better off with a 1.5% cashback card and even a 1% card would be better because you could buy stuff without restrictions.

Strategies

Travel cards offer great sign up bonuses that vary greatly, so it is important to research what the amounts have been offered in the past to make sure you are getting a great bonus because in the best case scenario you will not be able to get this bonus again for two years. The bonuses are the key component in this round because they can be amounts like 50,000, 80,000, and even 140,000. It is much easier to spend $3,000 to meet the requirements and get a sign up bonus than spending $50,000 to get this many points, this is why it is so important to wait for the higher bonuses.

Organization

With a cashback card you may have needed to create an online account, but with travel cards you will likely need to add an account with the airline/hotel as well. When you start getting several cards the number of accounts you have quickly increases and I got to the point where I need a spreadsheet to stay on top of everything.

Points

The term points can be confusing because there are several types.

Travel program points/miles: These points belong to a specific airline or hotel chain and can only be used for an award within the program or perhaps with a partner or alliance partner. Examples are American Airlines miles or Marriott points. There is not an exact monetary value on these points because they can be redeemed for various rewards which have different values. For instance, you could use 40,000 miles for a trip to Europe which costs $1,000 (2.5 cents a point) or maybe you fly first class for 125,000 which costs $10,000 (8 cents a point). As you can see it is tough to value, but I tend to value my points at the equivalent economy fare or comparable hotel rate in the area.
Fixed value credit card points: Certain cards have points which can be redeemed for a specific value. I have an Amex Blue Sky card which allows me to redeem 7,500 points for $100 off a travel purchase. This is 1.33 cents per point. I also have a Chase Sapphire Preferred (CSP) which allows me to book travel through their site at a value of 1.25 cents per point.
Transferrable points: These are points which have multiple uses. The points I earn with my CSP can also be transferred as miles to airlines or points to hotels at a 1:1 ratio. Oddly you can also transfer Starwood points to airline miles at a 20,000:25,000 ratio. Points which have multiple uses have value in their flexibility.

Earning points

So now we get the importance on the sign up bonus, but we’d also like to earn points after that. Like cashback cards with bonus categories, travel cards also offer bonus categories. If the card is branded for a certain airline or hotel you may earn 2/3/5 points per dollar spent on that brand. If you are using a more general travel credit card then you may get a bonus for travel expenses and possibly dining. When you have multiple cards you often will use one for dining, another for travel, and maybe another for everything else.

Fees

There are often annual fees associated with travel credit cards. These are usually waived in the first year but range from $50 to $500 with amounts around $100 being the most common. In order to avoid fees you should cancel right before a year is up. However, there are cards that are worth the fee because they may offer a free night stay annual or other benefit.

Spending

One problem with points is sometimes you need to have a minimum number to redeem. For my Blue Sky card I needed 7,500, but for award airline tickets the minimum is likely 12,500 for a domestic one-way. If you earned airline/hotel points then bookings are made through that account rather than through your credit card.

Conclusion

So now we understand how to get some free travel, let’s see if we could do a solo trip plan to Madrid. We could get an American Airlines card with a 50,000 mile bonus and use 45,000 to get to Madrid in the off-season. Then for hotel we could get a Marriott card with an 80,000 point bonus and stay in one of their hotels for 3 nights. This European vacation was done with two bonuses, so now you can see why others keep getting new card and traveling.

Continue reading in Part 3…