For generating free travel there is no better tool then the travel credit card. If you are getting your first travel credit card or have earned millions of loyalty rewards and are looking for the next big travel credit card bonus you will have to decide which card you want to apply for. This article will help you develop criteria which will allow you to make travel credit card decisions based on your needs.
In this article we will talk about four aspects of finding the travel credit card that fits your needs. First we will talk about the factors that are least important in the decision of which travel credit card works for you. Second, we will talk about three common travel goals that a travel credit card can fulfill. Third, we will analyze and prioritize the factors that are critical to each of these three goals. Finally over the next few weeks we will do an analysis of the major travel credit cards that are available and rank those cards based on the three common goals that your travel credit card can accomplish.
NON FACTORS IN CHOOSING A TRAVEL CREDIT CARD:
Every credit card application is required to list certain disclosures. On the left and right I have screen shots that show some of those required disclosures.
If facts like ARP and Penalty Fees are a factor in your decision on a travel credit card you should not get the card.
Let me explain; the travel credit card tool only gives you a financial advantage if you pay the card off each month and “Avoid Paying Interest” and “Penalty Fees”. If you can not or will not pay these cards off every month it’s crazy to get a travel credit card. The tremendous benefits these cards offer to their owners are almost always off set by huge interest costs and penalty fees. There are tons of cards with much less aggressive interest rates and fees and if you are using the card with the intent of carrying a balance the travel credit cards are a very poor financial choice.
So, if you can and will pay your travel credit card balance every month, religiously, keep reading, but if you can’t or won’t religiously pay your card off every month these travel tools are not for you.
I mentioned in the start of this article that certain factors are not a priority a travel credit card decision and those factors are the ARP and the Penalty Fees. The simple fact is if you pay your card off every month these factors will never impact you, so they should not be priorities in any travel credit card decision. I start with this insight because it is the underpinning of the whole travel credit card strategy.
If you pay your travel credit card off every month it can be a fantastic aid in enjoying cheaper or free travel benefits. When I look at getting a new card there are three overriding goals that I will be trying to accomplish. The first goal is to collect a sign up bonus. Almost every travel credit card offers some kind of sign up bonus. These bonus’s can be huge but analyzing them can be a little tricky and require you to consider certain factors. The second goal is to find travel credit cards that maximize the power of your normal spending habits, an example would be a card that offers 3X points for gas. The final goal is to get benefits from the card like free luggage, upgrades, access to airport lounges or travel discounts, these benefits are not tied to the bonus offered or the amount you spend with the card.
THREE COMMON GOALS TO CONSIDER IN YOUR CREDIT CARD DECISION AND HOW YOU SHOULD PRIORITIZE YOUR OWN NEEDS:
I mention these three goals because each traveler will have different needs based on these goals and should base their decisions on which travel card to get on how their specific needs are impacted by these goals. Let me give three examples. First, Charlie, is a low income single grandfather with two children that live in Atlanta. Charlie wants to fly from Miami to Atlanta twice a year for free and that is his only need, that a travel credit card can help get there. Charlie is a simple guy and only flies with a back pack. For Charlie a good bonus that can supply him with enough points for four or five round trip tickets to see his kid may be the over ridding goal behind getting a travel credit card. Our second example, Susan is a small business person, she owns a food truck and spends approximately $6,000 a month just on groceries for her food truck. Susan is saving her points from her business so she can travel after she retires in five years. Our final example is Mike. Mike is an executive that travels to Paris approximately 25 times a year. His company reimburses Mike for his flights but will only pay for economy class flights. Mike’s primary goal is to be as comfortable as possible when he flies. Mike wants a travel credit card that has benefits such as first class upgrades and access to airport lounges.
Charlie, can use travel credit card bonus’s to best accomplish his goals. A one time bonus from a travel credit card that gives Charlie 100,000 points will give him years of free flights to see his kids. Because Charlie has only a minimal income the loyalty points he can generate from “spend” (the money spent on his card) is some what limited. Finally, Charlie is only flying a short distance, with a back pack so assets like free bags, lounge access and upgraded tickets are of limited benefit for Charlie. Charlie when looking for a good travel credit card should prioritize the sign up bonus first, the power of his spend second, and the the advantages like upgrades and lounge access last. Finally, because Charlie’s travel is limited and his income is limited he should be looking for a travel card with a low or even free annual fee.
Susan, will want a card that offers the maximum amount of return on money she spends on the groceries for her food truck. Although the initial bonus will build points initially her primary method of building loyalty points will be the $6000 dollars of spend she will put on her card each month for groceries. If she can find a card that has a high point value and offers 2X or 3X points on grocery purchases her points will explode very quickly. Susan when looking for a good travel credit card should prioritize the power of a spend bonus like 3X’s points on grocery purchases. Susan should prioritize a card with a high grocery spend bonus and then look at the goal of a good sign up bonus. The least important goal for Susan will be benefits like upgrades and lounge access.
Mike is all about the bells and whistles that are offered by some of the cards with high annual fees. If he is being flown by his company on a transatlantic flight 25 times a year loyalty points are the least of his worries, he has lots of points. Also a mere 100,000 mile bonus is just more water in a full bucket for Mike. What Mike needs is as much comfort as possible when he travels those millions of miles. For Mike the bells and whistles of a high end travel card that offers specialty airport lounges, easy flight and motel upgrades and services like a consigner is his first priority. Mike’s second priority may be a card that offers a 3X’s spend bonus’s on travel and restaurants, the last goal on Mike’s list will probably be the sign up bonus.
As you can see everyone will have a different set of travel goals and will prioritize their goals differently. As you analyze which card works best for you keep your personal travel style and needs in mind so you can get the most advantage from the card you choose. In our article on our credit card strategy we describe how our travel goals impacted our travel credit card decisions.
FACTORS IN YOUR DECISION:
How to look at bonus points:
Many bloggers have taken a simple view to analyze the value of bonus points. By simply setting a value for a point such as 2 cents and then multiplying that value times the number of points you can arrive at dollar value for the offered bonus.
For example if a point evaluator like reward stock.com says the cards points are worth 2 cents and the bonus offered is 100,000 points the value of the bonus is $2000 ( .02 x 100,000). As a quick and dirty evaluator this is a good system. Also look at the annual fee of the card. If the annual fee of the card in $95 the actual value of that $2000 bonus is only $1905.
An important factor is the actual flexibility of the travel credit card’s loyalty points or miles. Some points can be used for any type of travel including timeshares, trains, motels and even Uber, like a card that uses a “statement credit” method of redemption and some travel credit card loyalty rewards can only be used for flights with that airline. As a general rule it is good to be able to have a certain amount of flexibility in your travel loyalty points. If you only are going to have one loyalty card you may want that card to be flexible but if you plan to have multiple cards with each card fulfilling a specific need in your travel strategy then flexibility in a given card’s loyalty rewards may be less important.
In certain circumstances, like Charlie’s in our example above, the number of specific flights your bonus can get may be more important then the dollar value of those points.
How to look at “spend”:
Like bonus points “spend” can be analyzed in a quick and dirty way by simply looking at your yearly budget and seeing which card will generate the most value for you over a year of your normal credit card spend. As an example if the budget you will spend with a travel credit card is $25,000 and the point value for that cards loyalty points is 2 cents the value of your “spend” for a year is $500.
In making a spend calculation the waters are muddied a little because many cards offer bonus points for certain purchases. An example would be 3X points for groceries. In the grocery example if your total credit card spend was $25,000 a year but $10,000 of that was money spent on groceries the value of your spend would be $700 (the 3x’s bonus is worth an additional $200 over the year based on the $10,000 spend). The message here is that you will have to generate some kind of a break down in your budget to find the card that will generate the most value for you.
Like the discussion on bonus’s, the flexibility of your points and the way you will actually use the points once you redeem them are also factors in finding a best card.
How to look at card benefits:
Card benefits are tough to calculate and very personal in nature.
Motel and airline upgrades are a huge benefits but read the fine print. Some airline cards offer great upgrades on paper but never have any seats available. Charlene and I have 8 – 500 mile upgrades with a certain airline that in 6 years we have not been able to use. A good way to spot future problems with card’s benefit packages is to read the reviews and forums on that card. With a little digging you can get a lot of feedback from people who have used the benefit you are trying to get.
Free bags for frequent travelers can amount to thousands of dollars a year but if you usually only make day trips or only fly twice a year it may not be a high priority asset for you.
Some of the more expensive cards designed for frequent travelers have travel credits which can often defer all or part of the annual fee. Motel branded cards may offer a free room each year. An airline card may offer a buddy pass each year. Some cards offer up to $200 travel credits and one card offers a $200 Uber credit. Again none of these benefits are completely straight forward so reading the fine print and reading user feedback in forums and reviews may give you an idea of the actual utility of these types of fringe benefits.
Airport lounges are a huge value for many frequent travelers. Compare 3 hours of buying food and drinks at the airport terminal to sitting in a quiet lounge and eating and drinking for free and it’s not hard to see the value of free airport lounges. Some factors in evaluating this benefit are: How many people can I bring? How many lounges are really available world wide (or where I frequently fly)? How good is the food and and beverages being offered? Can I get a shower at these lounges or a sleeping room or even a free massage? A lounge improves the quality of you life when you travel and the better the lounges are the better your quality of life.
Most travel credit cards offer various forms of insurance which can range from very valuable to worthless depending on the fine print. Again you can rely on forums, blogs and reviews to get an idea of the value of these cards insurance benefits. Rental car insurance and travel cancelation insurance are both often offered but every cards benefit is different.
Another bonus that Charlene and I love is Concierge service. A travel credit card Concierge can get you into the concert that is sold out or the restaurant that is booked for months. Do not underestimate the power of the travel credit card Concierge.
Every day some Exec in some credit card home office is thinking up a new benefit to keep their card first so we would be here all day trying to discuss all of the benefits.
I like to call these benefit cards “bells and whistle” cards. They can be very valuable but generally have high annual fees and only work for people that travel a lot. In analyzing benefit cards look at the things that will improve the quality of your life and focus on the cards that fit you best.
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