Points to Consider with Travel Rewards Credit Cards

I’m currently trying to find a travel rewards credit card to help us save money when we book the flight to our destination wedding.  Since the fiance and I are both committed to paying off credit card balances in full every month AND we won’t be applying for any loans in the next year or so, a rewards credit card is a reasonable option.  My favorite Well-Heeled blogger saved over $2000 on her honeymoon airfare by cashing in on a British Airways credit card offer!  That’s incredible, isn’t it?!  The best part is that most of these cards waive the annual fee for the first year, which gives you enough time to use the promotion and cancel the card without ever getting hit with a fee.

United Airlines and American Airlines both sent me credit card offers in the mail this month.  Both are offering 50,000 mile sign up bonuses and are waiving the annual fee for the first year.  After going to each website directly and using their ‘Redeem Miles’ sections to see what flights I can book for free, it looks like I can save between $400 and $600 if I wanted to use the bonus miles on my airfare home later this year.  I also checked to see if both airlines serviced the airports at my potential wedding destinations, and they did.

I’m going to research airline cards a little bit more, but here are some things to consider if you’re doing the same:

1. Only sign up for a rewards card if you pay your balances in full every month.  Rewards cards can be notorious for having higher interest rates than non-rewards credit cards.  If you subtract the amount you pay in interest from the sign-up or annual bonus, your overall reward can decrease significantly or even end up as a loss.
2. Consider the annual fee.  Many rewards cards (including popular ones like the Costco American Express card) come with a large annual fee.  My Costco AmEx costs me $100 every year, but my rewards last  year were $250 so I netted $150 in cash.  If you’re signing up with an airline or other travel card strictly for the bonus with the first year fee waived, you may consider marking your calendar so you can cancel the card before you get hit with the charge.
3. You’ll take a hit to your credit score when you sign up for a new card, and a second hit if you decide to cancel it.  Your credit score is an important number that lets lenders know how financially responsible the credit bureaus think you are.  Every time you ask for a new credit card or a new loan, the credit bureaus see your request for additional credit as a liability so your credit score decreases temporarily.  You also see a hit when you cancel a card because you technically took a hit to how much money you’re able to borrow from lenders which somehow raises concern.  (I know, it’s ridiculous.)  Good news is that it goes back up if you practice good credit card usage, but it may hurt your ability to request any other type of loan in the short-term.
4. Miles on one card don’t equal miles on another  card.  United Airlines and American Airlines both offered me a 50,000 mile sign on bonus, but what does that mean?  The miles are arbitrary and specific to each company.  I can fly round-trip from LAX to Washington DC on 50,000 miles (~$500) on both airlines, but American Airlines will also give me the option of a “super saver” seat for only 12,500 miles on the exact same flight.  That means, I could potentially fly twice as far with my American Airlines miles than I could with my United Airlines miles.  Along with that point, the total cost of the flight in dollars doesn’t always have a correlation to rewards miles.  You may be able to book a domestic flight for the same number of miles as an international flight despite the international flight being geographically farther away.
5. Does the rewards card benefit you for the trips you plan to take?  If I’m going to sign up for an airline specific credit card, I want to make sure the destinations I visit most are serviced by that particular airline.  That way, I can maximize my rewards and get the most bang per dollar spent.  If I sign up for a more generic travel card like the CapitalOne Venture card or even just use my AmEx card on travel, then this point becomes less important.

There are definitely a ton of factors to keep in mind when evaluating rewards cards, so I say take your time and don’t rush into it.  I like cash rewards cards because it’s so simple to make a dollars to dollars comparison, but travel rewards could end up saving you and me so much more money in the long run!  I’m going to keep evaluating the card offers I have, but I’ll let you know which one I choose in the end 🙂

 Are any of you in love with your travel rewards credit cards?  Are there any promotions going on that I should know about?