Is A Travel Rewards Credit Card Right for You?
Travel rewards credit cards can be a good deal for people who use their credit cards often or those who travel a lot. Although if you do not use your credit card often and are hoping to rack up enough rewards points to earn a free trip to Maui, you’ll probably end up disappointed as most travel rewards programs require you racking up tens of thousands of points to purchase a plane ticket. Application Requirements The standard credit card application is fairly short and straightforward. To apply you need to have a U.S. Social Security Number or Tax Number, provide personal information such as your date of birth, residence and annual income. Applications also request your current and former employers’ names and contact information as well as two personal references. You must also provide your bank account information. If you do not have a job, residence, or bank account the odds of your application being accepted are slim to none. Credit Requirements are higher All of the top 20 travel rewards credit cards list that they require “Excellent Credit” for acceptance into their programs. And So Are Interest Rates In the first quarter of 2013 the national average interest rate was 9.9%, in contrast, annual interest rates (know as APR) among the top 20 travel rewards cards range from 11% upwards of 20%. The higher interest rates allow the credit card companies to offer rewards without losing on profits. Understanding Dollars versus Points With many of the top travel rewards credit cards, card holders earn 1 “point” or “mile” for each dollar spent on the card. Many cards offer bonus points for meeting spending goals-a popular example of a bonus program is for cards to offer five, ten, or twenty thousand points for card holders who spend $1,000 in the first three months of having an active account. Points or miles do not translate into an equal amount towards travel. For example, having 10,000 “miles” on
your travel rewards card does not mean that you have a credit to obtain 10,000 miles of travel; in most cases 10,000 miles is equal to around $100 towards a plane ticket. Earning Rewards - All Purchases Are Not Equal Individual credit card companies offer different amounts of points for different types of purchases. Some companies offer an across the board 1-2 points for every dollar spend on anything at any location. Other cards offer varying amounts of points depending on what you purchase, where you make purchases, and if the purchase is made through one of their partners. In order to get the most out of a travel rewards program you should choose a card that gives the most reward points for purchases that you are typically prone to making with a credit card. Using Travel Rewards Most often travel rewards are credited as money off of the next billing cycle after points have been redeemed. For instance, if you have enough points from your rewards program to equal a $500 plane ticket then you would purchase the ticket using your credit card and then the credit card company would credit $500 to your next billing statement. Other plans require that you redeem points only at specific places, during specific available dates, or by choosing products offered through their website. When looking for a rewards card, be sure that the reward you would receive from the card is something that you can or would actually use. Annual Fees Many credit card companies wave the first year of annual fees for travel rewards programs. After that first year, the fees are likely to increase. Most cards have an annual fee ranging anywhere from $30-$500 dollars. In some cases you may pay more in annual fees that you earn in actual rewards. The Bottom Line So before you apply for a rewards credit card consider: • Which programs you will qualify for • The cost of increased interest rates and fees • The likely value of the usable rewards you can earn given your spending habits.
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