Get to the Point: How to Make Travel Rewards Work for you
I don’t always get mail, but when I do it’s usually a credit card offer. And these cards are often tied to a particular hotel chain or airline. Many of these offers tout initial low-APRs, a waived annual fee and, increasingly, an obscene amount of rewards points – enough for a ROUND TRIP flight!!!! - if I only spend a few thousand dollars in the first couple of months.
However, my wife and I have been diligent about putting all of our charges on a credit card with a rewards program for a particular hotel chain and booking rooms at this brand whenever possible. The last thing I want is to lose our status with that chain by spreading ourselves too thin. This approach is working for us; over the past few years alone, we’ve paid for hotels in Denver, Boston, Puerto Rico, Baltimore and New Orleans using our rewards points. I’m by no means an expert travel hacker – that is, someone who has mastered collecting rewards points to earn free travel – but I’m making sure the money I spend on my card and the trips I take is working to my advantage. Seems simple, right?
A new AICPA survey on credit card rewards points and travel found that a majority of Americans (58 percent) agree with me that using their credit or debit card to earn travel rewards points makes financial sense. However, few of them are actually taking advantage of these perks to save on their hotel and airline costs. Only seven percent of all Americans used travel rewards to pay for part of their last vacation with only one in a hundred (one percent) paying for their entire trip.
In fact, the survey found that Americans are just as likely to be unable to pay for their vacations in full as reap the rewards of the points they’ve earned. In their lifetime, only 15 percent of Americans have paid for part or all of a trip with rewards points, compared to 14 percent who say they’ve taken a trip that has resulted in a credit card balance that could not be paid off by their next statement, causing them to pay interest charges.
Some Americans are going to greater lengths to earn free hotel rooms and flights as they pursue elite status. A total of 12 percent say they have opened a credit card specifically in order to obtain hotel or airline rewards, while six percent have selected a more expensive flight or hotel to earn travel rewards points and six percent have taken a trip just to maintain or upgrade a rewards level. I definitely sought out my credit card for the hotel rewards and I’ll admit to occasionally paying a little bit more to fly on my preferred airline and earn the points – but I draw the line at taking a trip solely for the sake of earning status with a hotel chain or carrier.
Gregory Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission has advice for Americans to help keep credit card spending on travel for rewards in perspective. “When chasing after elite status with hotels and airlines, it’s important to not lose sight of the fact that miles and points often have a dollar value associated with them. Spending extra money in hopes of earning free nights and flights has the very real potential to leave Americans feeling like they’ve been travel hacked when their credit card payments are due,” Anton said.
Indeed, in just the last year alone, 12 percent of all Americans admit to carrying a balance or paying interest on their credit card because of vacation travel, with three percent missing a payment or being charged a late fee and two percent going over the spending limit on their credit card while on vacation.
Personally, my goal is to come home from my vacations with a nice tan, good memories and maybe even a cheesy souvenir or two – not a credit card balance. If you follow the advice from the AICPA’s National CPA Financial Literacy Commission, you too can make travel rewards work for you.
3 Ways to Make Credit Card Rewards Work for You:
Look for cards with big sign-up bonuses. Your credit score could take a hit if you open too many credit cards in a short period of time, so choose carefully when applying for cards. Try to find cards that have large sign-up bonuses, which is increasingly important since many programs are requiring more points to earn rewards.
Don’t overspend to earn travel rewards. While a free flight or hotel room can be tempting, the rewards may not be worth the pain if you end up paying interest and penalties on unpaid balances.
Pick a card that fits your needs. Before applying for a credit card for travel rewards, determine what is most important to you. If flexibility is your goal, seek cards that allow users to transfer points between companies, such as hotels and airlines, and/or between family members.
In addition, the AICPA strongly recommends that all Americans do an annual check of their credit report and follow up on any errors as a way to protect their credit score. Additional credit card resources are available at on the 360 Degrees of Financial Literacy website.
James Schiavone, Senior Manager – Public Relations, American Institute of CPAs