“65% of global travelers turn to loyalty programs to help fund vacations. 37% organize entire vacations using points alone”
Points from credit cards and other loyalty programs are a big deal.
Chances are you’re saving points of some sort to help pay for your travels.
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, you can make a simple apples-to-apples comparison to find the right travel rewards credit card for yourself.
Create a Shortlist of Travel Rewards Cards Based on Your Lifestyle
Credit cards vary greatly in terms of their costs and benefits. Before creating a shortlist of cards to consider you need to understand a bit about your lifestyle. Ask yourself these questions:
- What are your monthly expenses?
- Which of those expenses could be put on your credit card? Look at everything from your cell phone bill to your daily coffee. You need to know how much money you’re likely to run through your credit card.
- On what kind of purchases do you spend the most money? Is it gas for your car, groceries, clothes, travel…?
If you won’t be putting thousands of dollars onto your card every month you are likely better to choose a cash-back credit card. With a cash-back card you can apply the cash to anything you want, including paying your credit card bill. With travel rewards or points you are restricted in terms of what you can spend the points on.
In general, I prefer a cash-back card because companies can change the cost and value of a point easily and it can go unnoticed. With a cash-back card there is no cost per point so it cannot be changed and changing the percentage of cash back is difficult to hide.
Now that you have an idea of what to look for in a credit card based on your lifestyle, click through to your country and choose two or three recommended cards that suit you. I suggest that you choose at least one card that has an annual fee so that you can determine whether the fee is worth it.
- NerdWallet.com in the United States
- CreditWalk.ca in Canada
- uk.CreditCards.com in the United Kingdom
- Mozo.com in Australia
Do a Simple Credit Card Analysis to Choose the Right Credit Card
For every card you’re considering…
- Identify the fees. Look for annual fees, foreign transaction fees and late payment fees.
- 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.
- 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. If I redeem them for travel through their service the value is $450. However, I don’t like the supplier of their service so I need to analyze this in terms of 3 points/dollar spent.
- Card B – Gives me .75% cash back on all purchases or $225 in a year.
- Card A is worth $225 – $120 = $105
- Card B is worth $225.
A few more things to consider.
- 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. Consider your spending patterns when choosing a credit card. A single person who drives two hours per day will benefit from a card that gives extra points for gas purchases where as a family that uses public transit but feeds four will benefit more from a card that gives extra points for grocery purchases.
- 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 most ATMs in the world. This likely adds up to about $90 as I travel
- I get a free US$ bank account, a US$ credit card 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 $225 plus savings on international ATMs. I also use the car rental insurance from the US credit card which has saved me a bundle.
- 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.
The Fundamentals of Using Your Credit Cards
Winning at the points game is not a focus of my life. That’s what travel hackers do. But I do want to benefit from points and keep my life simple. So I suggest…
- Decide which are your go-to credit cards. I suggest that you have three credit cards for travel. Read: Happy Birthday, Your Debit Card’s Been Hacked.
- 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. I also carry the US credit card should I have a problem with either of the others.
- Pay off the cards every month thereby eliminating interest and the need to consider the interest rate in your choice of card.