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“65% of global travelers turn to loyalty programs to help fund vacations. 37% organize entire vacations using points alone”
Yes, chances are you’re saving points of some sort to help pay for your travels.
At the beginning of this trend, the benefits of accumulating points were reserved for those who flew a lot.
Now there are dozens of loyalty aggregator programs from which everyone can benefit. The most common of these are credit cards that allow you to accumulate points on absolutely every purchase and spend those points in a variety of ways. But there is a maze of credit card options.
I receive another credit card solicitation in the mail every other week. The bonus and rewards are tempting but it seems like so much work to decide whether or not they are any better than what I already have. Fortunately, there are simple steps to take for an apples-to-apples comparison to find the right travel rewards credit card for you.
How to Choose the Right Travel Rewards Credit Card
Winning at the points game is not a focus of my life – that’s what travel hackers do. I want to benefit from points but I prefer to keep my life simple. So I suggest…
- Decide which are your go-to credit cards. You may want to do this once every year or two.
- Determine how you want to use your go-to cards. I work with two primary cards. One is for all my expenses at home. Its primary purpose is collecting points. The other is for travel outside of Canada because it has no foreign transaction fee.
- Pay off the cards every month thereby eliminating interest and the need to consider the interest rate in your choice of card.
For every card you’re considering, determine…
- Identify the fees. Look for annual fees, foreign transaction fees and late payment fees.
- Is it worth paying a fee for higher rewards? That will depend on the fee, the rewards, your lifestyle and the cards you’re comparing. I suggest you compare two cards
- that have the type of rewards you want
- one with a fee and one without a fee
- Calculate the value of points relative to fees. I’ll use myself as an example.
- Card A – I pay a $120 annual fee for my premium travel points card.
- Card B – My comparison card offers cash-back and is free.
- I run about $2,500/month through my card – this figure is important because in a small household the amount may not enough to earn the points necessary to compensate for the fee.
- Card A – Gives me 3 points/dollar on most items and triple that if I buy travel through their service. Based on 3 points/dollar I’d earn 90,000 points. If I redeem them for cash I’d make $225. Hmmm… But if I redeem them for travel through their service the value is $450.
- Card B – Gives me .75% cash back on all purchases or $225 in a year.
- Card A is worth $450 – $120 = $330 (based on trading the points for travel. It could be more if I fine-tuned this calculation to account for the occasions when I earned 9 points per dollar booking travel)
- Card B is worth $225.
- Two-tiered point systems. Like my card above that offers triple points for travel purchases, many credit cards offer more points for groceries, gas or other specific types of purchases. Again, consider your spending patterns when choosing which cards to evaluate.
- Is it worth getting a premium bank account? Premium bank accounts bundle benefits and often include the premium credit card fee. The $120 fee in my example above is actually waived at my bank because I leave a balance in my account of $5,000. Seems like a lot. I borrow this money from a line of credit. Borrowing the money costs $167 – yikes. But I save:
- $120 annual credit card fee
- $3 for every non-TD ATM in the world. This likely adds up to about $90 as I travel
- I get a free US$ bank account and other services
- So, in fact, the $120 fee mentioned above is not an issue for me and the value of my card in the example is the full $450.
- What other benefits does the card offer? Look at the insurance coverage and other benefits associated with the cards. Are the additional benefits enough to sway your decision.
- How flexible is the card? Does the card let you transfer points to another loyalty plan? This feature may be helpful as it could help you use your points in the most beneficial way possible.
To scan what cards and their perks are available where you live click on your country below:
- NerdWallet.com in the United States
- CreditWalk.ca in Canada
- uk.CreditCards.com in the United Kingdom
- InfoChoice.com.au in Australia
As I write this, I’ve just received yet another credit card solicitation by mail. But this one is interesting. It’s from my bank (therefore easy to manage) and offers 30,000 Aeroplan Miles (which I can use for a round-trip domestic flight with Air Canada). That’s worth something. So, I’ll play the game. I’ll purchase enough to get the points (there are always requirements to get the signing bonus) and then I’ll do the analysis again and decide whether this card bumps my current go-to card.
I hope this helps!
See you next Friday.