The only thing better than a relaxing getaway is a relaxing getaway you don’t have to pay for. But sometimes chasing those freebies can cost you more than if you just ponied up in the first place. Recently, we took a look at the best travel reward credit cards on the market. Here’s how to get the most, uh, mileage out of those rewards and avoid some common mistakes that can shrink their value.
Get a card for the life you have, not the life you want. The biggest mistake is picking the wrong card for your needs. Don’t get a travel credit card thinking it’s going to motivate you to take more vacations, says Doug Miller, senior analyst for banking and cards at financial research company Corporate Insight. “One thing people should remember is the real benefit comes from earning points for something you already do. If you don’t fly a lot and you think an airline card will help you fly more, you’re probably not going to get full value out of it. People have a tendency to overestimate how much getting the card will change their previously existing patterns.”
Figure out if you want a co-branded card. If you travel often enough that you think a reward card will earn you some sweet perks, figure out if you’re better off getting a co-branded card affiliated with a particular airline or hotel chain, or one of the newer travel cards that let you apply your rewards to any travel-related purchase. If you always fly a certain carrier or stay at the same brand of hotel, the choice is easy. If you’re mostly loyal but sometimes deviate for a really good deal, here’s some easy math to figure out which type of card to pick: “The rule of thumb is if you fly close to 30,000 miles with the same airline or stay 20 nights a year in the same brand family of hotels, go with the credit card of that particular company,” says Odysseas Papadimitriou, CEO of card ranking site CardHub.com. “In almost every single case I’ve seen, that will beat any other credit card.”
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Earn your rewards in dollars instead of miles. All other things being equal, cards that give the reward value in dollars instead of points are a better choice, especially if you want to accrue a huge cache of points. Card issuers can — and do — change the number of miles you need to redeem rewards. “Watch what the value of the ticket equivalent is,” says Dennis Moroney, research director of bank cards at financial research firm TowerGroup. “There might be some sort of devaluation.”
“If you want to just save for your annual vacation, get a cash back credit card,” says Papadimitriou. “That way, you’re not exposing yourself to the risk of your miles or points becoming less valuable.” He calls the Capital One Venture Rewards card, which he just recommended in our top cards round-up, an exception because of its high redemption rate and ease of use.
Use ‘em or lose ‘em. If you are trying to save enough points for a luxury getaway, watch out for expiration dates, says Moroney. ”Points expire. The rules are getting tighter. You really need to be alert to that,” he says. Since airlines must account for unspent miles as balance-sheet liabilities, he explains, they’re loathe to let them pile up. A year is a fairly typical expiration timeline, but issuers can pick any length of time they want. If you’re not sure when you’ll be able to book your next getaway, a card that advertises no expiration dates on accumulated rewards might be a better choice for you.
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Use travel card rewards for travel. In general, you get the best deal when redeeming miles or points for travel rewards. If you want statement credits or cash back, just get an ordinary cash back card because the redemption rate will probably be lower than if you were using those rewards for a travel purchase. And stay away from merchandise rewards entirely, says Corporate Insight’s Doug Miller. If you do the points- or miles-to-dollars conversion, the stuff is almost always overpriced.
Pay in full every month. Finally, we’ve said it before, but it bears repeating: Don’t carry a balance. With few exceptions, APRs on travel cards are higher than on plain-Jane credit cards. If you revolve a balance, what you’ll pay in interest will cancel out the value of the rewards you earn.