Friday, January 7, 2011

Are Travel Credit Cards Really Worth It?

You’ve probably noticed a huge surge in commercials for travel credit cards over the last few months. It seems as if every airline and hotel chain out there is trying to get you to apply for their credit card. Although these promotions are tempting, the cold hard truth is that travel rewards credit cards won't save money for most people. Let me explain…

Almost all of them have annual fees

First and foremost, very few of these travel cards are free. Sure, they may have a promotion that gives you no annual fee for the first year, but after that you will probably be stuck paying $60 to $100 or more just to keep the card. Think about it – if a credit card has an annual fee of $100 over the course of a decade you will have paid $1,000 just to have it!

Rewards/benefits are specific to one airline or hotel

Typically if you want the best benefits, you have to go with a credit card that is affiliated with a specific airline/hotel. The problem with this is that very few of us always fly the same carrier or stay at the same hotel. Most of us just go with whoever is cheapest at the moment when we are booking a trip. However if you have a United Airlines Mileage Plus card, for example, you may feel compelled to fly United even if they cost a few bucks more for a given flight. I know several people who do this – the ironic outcome is that their card that was meant to save them money is actually causing them to spend more money than they otherwise would!

You’re paying for benefits you don’t use

Personally, I believe a good chunk of annual fees are nothing but profit for the bank, but a portion of these fee do go to pay for cardholder benefits. Now if you use the benefits all the time then you could get your money’s worth. For example, my Citi Thank You Premier card makes sense for me personally because I use the travel benefits all the time... but for most people it wouldn’t be a good choice. If you have a card and you rarely take advantage of its benefits then you are definitely getting the short end of the stick.

Let me give you an example… a lot of folks sign up for the Delta credit card because of its first checked bag for free. That saves $50 per roundtrip so if you fly Delta multiple times per year it is probably worth it. On the other hand, if you only take a vacation once every year or two, you will be reaping $50 in free luggage in exchange for paying $95 per year just to have the darn card.

Rewards on regular spending are average
The typical travel rewards credit card may give double or triple points on purchases from its affiliated airline, but only one point per dollar on all other spending. If a bulk of your spending is with that affiliated airline/hotel, then great! However for the average Joe or Jane, only a tiny percentage of their spending will be on airplane tickets or hotel stays. So essentially, they will be getting closer to 1 point per dollar on average (and if that’s all they’re going to get, there’s plenty of credit cards that offer that for free).

Most travel credit cards are geared towards big spenders

With almost every airline credit card on the market, you will need to spend $25,000 to $50,000 just to earn yourself one free roundtrip ticket. For the average American, it could take years to spend that much… all the meanwhile they will be paying that annual fee. The math on a lot of these cards just doesn’t make sense unless you make a high volume of purchases.


Travel rewards credit cards only make sense for those that either (a) travel a lot, or (b) spend a lot. If you don’t fall into one of those categories, you would probably be better off with a good no annual fee cash back credit card instead.

This post was written by guest blogger Michael, the founder of CreditCardForum. On a personal note, he uses the Citi Thank You Premier card but only because he lives on the opposite side of the country as his family, and hence, flies back frequently to see them. He stresses that the card’s $125 annual fee would not make sense for the vast majority of people.


  1. My life is just too complicated for travel rewards cards - all my CCs reward me with cash. If any CCs try to charge me fees, they are canceled and out of my wallet.

  2. Hi Pat! Some good input and advice there in the article. But since I don't have to travel, it doesn't apply to me...BUT...I do appreciate those side blogs about survival and tactical intelligence...unfortnately, I believe with all of my heart we will need these precautions - sooner or later....

  3. Something for everyone, huh?! :)
    I agree that there's a very good chance of needing the information found in those blogs sooner or later.

  4. Technically speaking a Credit card is a card that allows its holder to buy goods or services on a credit. So its nothing but an unsecured loan.

  5. I'm trying to get some airline rewards for travel this fall, but I'm nervous about racking up charges on my credit card. Does anyone have any suggestions?

  6. Once I forgot to set up my credit cards for use overseas and they got totally shut down. Does anyone know how far in advance you have to notify them that you are traveling?

  7. Personally, I think they are worth it and who needs to pay the annual fee if credit card companies usually are willing enough to waive them?

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