“You’ve been approved!” The words were music to my years. I had just completed the most difficult semester of my college career. Now, my visions of taking an extended summer vacation could finally become a reality.
But there was only one problem: I was a financially strapped graduate student drowning in a mountain of debt. To add insult to injury, my income was extremely limited and I had no real plan to repay the “debt” that I’d be incurring on this vacation. All I knew was that the credit card had me covered, and I would figure the rest out when I returned.
I have to admit that I had the time of my life.
But the joyous memories I created while on vacation were quickly overshadowed by the nightmare that awaited me the following month when I received the credit card bill in the mail.
Now, I’m not suggesting that all travel reward credit cards are bad. However, many consumers often get caught up in the shiny advertisements, only to discover that the card isn’t all it was hyped up to be. So instead of rambling on about all the so-called “benefits” you can get, I’m going to share the not-so-pleasant side of things in an effort to help better evaluate your options.
Drawbacks of Travel Rewards Cards
If you’ve ever had a credit card, you already know that beyond the interest rate, there are additional fees you must consider. Most annual fees start at $95, and increase from there. The other day, I ran across a card with a $450 annual fee and I almost fainted. In most cases, the more lucrative the perks, the higher the annual fee.
You must also consider foreign transaction fees, which are typically three percent of the total purchase. To illustrate, if you travel abroad and spend $2,500, you will fork over $75 in foreign transaction fees alone.
A better option: shop around to locate cards with minimal annual fees. You may find one that will at least waive the fee for the first year. And if you are planning to travel internationally, a card with no foreign transaction fees is definitely a more cost-efficient option.
You can see the annual fees, rates, and fine print details on these reward card offers..
Tricky Reward Programs
There is no one-size-fits-all model when it comes to rewards programs. Some offer a certain number of points when you spend in a particular category, while others vary each quarter. What’s important is that you only apply for cards that will actually grant you the ability to earn points.
If you apply for an airline card that only enables cardholders to earn points for qualifying purchases made with their airline and you always fly with another carrier, the costs will surely outweigh the benefits.
Also, pay attention to the terms and conditions of the program.Otherwise, you could end up in the same boat as I was with a card that has limited redemption options, tons of blackout dates, and points that expire after 12 months.
Meager Introductory Offers
Most travel rewards credit cards – especially those offered by airlines – will allow you to earn a free flight through the introductory offer. However, there’s always a catch – like spending a few thousand in the first few months.
That’s not very hard to do these days, but the benefit only works out in your favor if you actually pay the balance off before the grace period ends. And if you fail to meet the minimum spending thresholds, guess what happens to the thousands of bonus points? They vanish into thin air.
This is arguably the most dangerous aspect of travel rewards credit cards, and it all boils down to self-control. When I was on my “plastic sponsored” getaway, I felt the need to “treat myself,” no matter the cost. And to justify my reckless spending, I kept reminding myself that I’d be earning points for my good behavior. Too bad the points didn’t do much to help me get out of the hole.
A Few Effortless Ways to Hack Travel Rewards Cards
- Take advantage of other airline perks. If you are adamant about getting an airline card, be sure to actually take advantage of all the accompanying benefits. This could include free baggage, lounge access, expedited security screening and discounts on in-flight purchases.
- Pay attention to the APR. The interest rate on travel rewards cards can be a bit higher than what you’d find with traditional credit cards.
Most importantly, you’ll need to conduct a cost-benefit analysis to determine if the rewards program best suits your needs. Simply put, will the annual fees and interest be less costly than the benefits derived?
A Final Thought
In hindsight, I should’ve done more research before applying for my travel rewards card and delayed the trip until I had more disposable income available.
While I can’t change the past, I learned a lot of painful and expensive lessons from that experience, and I am very diligent in the way that I use the only travel reward card that I still have in my possession. I do pay an annual fee, but I earn so many free nights each year without paying a dime of interest that I’ve saved my family thousands of dollars of lodging expenses.
Opinions expressed here are author's alone, not those of any partner bank, credit card issuer, hotel, airline, or other partner. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.