Credit Card Travel Rewards: How to Maximize it

One big reason that many people sign up for credit cards is to generate rewards points that they can then use for travel. Sometimes, these rewards convert into travel benefits at a very nice rate. For example, a card might reward two miles for every dollar spent, and then those miles can be used to book cheaper flights than one can find while paying cash, or a card might be used to get free nights at a hotel chain and can be used in conjunction with a rewards program within that chain to accumulate even more free nights with frequent use.

Here are some strategies to get maximum value out of credit card rewards programs that benefit travel.

If you’re ever worried about the interest rate on a credit card, you’re probably using it wrong. You’re either looking at it because you’re carrying a balance, in which case you shouldn’t be using a credit card at all, or you’re looking at it when you’ll never be carrying a balance, in which case the rewards program is more important.

Figure out how you want to travel first.

Why are you traveling? Where do you want to go? What transportation will you use to get there? Where will you stay?

These are the types of questions you should be asking and answering before you even consider using a travel rewards credit card. Different people have very different visions of what they want out of travel.

You might be a person who wants to take one nice vacation a year, in which you fly to a city and stay at one of the nicer hotel chains for a few nights, but rarely travel outside of that. You might be someone who travels a few times a year, mostly by car, and stays at relatively inexpensive hotels. Perhaps you’re storing up rewards to pay for most of a really big trip for your whole family in a few years, like several days at Disney World.

Each of those plans would encourage the use of a different travel rewards card. Obviously, not all trips will be exactly the same, but travel rewards work well for facilitating similar trips.

For example, if you plan on staying at a nicer hotel but less frequently, you may want to look at a card that helps you stay at a Marriott, or perhaps you travel more frequently and are more budget-oriented for the frequent trips and a Best Western is a better option for you.

Similarly, if you plan on flying, you may want to consider whether an airport near you is a hub for a particular airline and then use a card that works well with that airline. For example, if you live in the Chicago area, you’d likely want to lean toward a card that works with American or United, as Chicago-O’Hare serves as a hub for that airline, and Atlanta is a hub for Delta.

The key thing to remember is this: you’re better off when it comes to credit card rewards to pick a few chains related to your travel needs and stick with them. Have a preferred airline, a preferred hotel chain, and a preferred car rental agency. If you’re planning on specific destination travel, you may want to consider a card affiliated with that destination, as it will usually rack up rewards for that destination at a nice rate.

Join customer rewards programs for the businesses you select.

Before we get around to using credit card rewards for travel, it’s a good idea to sign up for the customer rewards programs for the travel-related businesses you prefer. Since you’re already committing to regular use of those businesses anyway, their customer rewards programs will often amplify the value of using them frequently.

For example, some hotel chains will offer a free night of lodging after staying with that chain for several nights, and that can stack with credit card rewards. So, if you earn rewards from your credit card that enables a free night at a hotel in that chain, it will also effectively give you a fraction of an additional night.

It’s a good idea to sign up for these programs first because many such programs will actually link your credit card and your customer rewards account, making everything stack together nicely.

If you travel very infrequently and inexpensively, a travel rewards card probably isn’t worth it.

It can be tempting to get a travel rewards card if you always stay at the same hotel, but the truth is that if you accrue rewards faster than you can use those free hotel nights or airline miles, you shouldn’t use a travel rewards card and should use a cashback rewards card or a card that gives you a discount.

For example, if you travel perhaps once a year and only stay at a hotel for one or two nights, you will probably get more value with a rewards card that offers rewards associated with the retailer you use most frequently rather than a card that offers travel-related rewards. For someone who rarely travels but buys a lot of items on Amazon, for instance, an Amazon Visa will generate a lot more value than a travel rewards card.

For many cards, “miles” can be used with a variety of airlines and hotels, but there’s a catch.

For example, Capital One travel reward cards have several airline partners and multiple hotel chains that you can use your points with. These transfer directly into the rewards programs for those individual airlines and chains at some exchange rate— for example, 1,000 rewards points might mean 500 points in a particular hotel’s rewards program.

These cards tend to offer a lot of flexibility, but it comes at a cost. The exchange rates for cards that offer lots of airlines and chains tend not to be as good as cards associated with a specific airline or chain, as a general rule.

In other words, you should get a more general travel rewards card if the specifics of your travel change a lot and you’re not often able to use the same airlines or hotels. If you’re able to very consistently use one airline or one hotel chain or are aiming for one specific destination, you should use a card associated with that airline or chain or destination.

For example, if you intend to stay at Marriott hotels often, you should strongly consider a Marriott Bonvoy card, but if you intend to stay at a Best Western frequently, consider a Best Western card. These cards will just put points into your rewards account with those hotels, helping you to easily get free nights. You would then use those specific rewards programs for your hotel bookings.

Similarly, if you know you’re going to usually fly for travel using a specific airline, use a card associated with that airline.

You should choose a card that’s geared toward where most of your spending will be. If you’re going to regularly be buying airline tickets for two or three or four people but all stay in one room, an airline rewards card is better, but if you’re often traveling solo and for longer periods, the hotel rewards will almost always give you more value.

Focus on what you actually do or what you have concrete plans to do, rather than what you might do.

A final tip: rather than thinking about what you might do in the future, think only about what you’ve done in the past or what you’ve strongly committed to doing going forward.

For example, if you rarely travel but have a vague notion about traveling more, don’t get a travel rewards card quite yet. Instead, use a different rewards card and see if your travel actually increases in the next year or two.

If you’ve vaguely thought about a Disney vacation, don’t jump on board with a Disney rewards card yet. Instead, use a different rewards card and see if that plan starts to turn into something concrete, and then switch to the card when you start to think about actual dates and plans a year or two in the future.

If you do these things, you’ll get maximum benefits out of travel reward credit cards. Just remember the fundamentals: don’t use a credit card just to get rewards. Instead, use it as a tool to build credit and always avoid carrying a balance; consider the rewards program to merely be an extra perk for good behavior. Not sticking to that plan will cause the costs of the card to quickly exceed the benefits of the rewards.

Your First Credit Card: What You Should Know

Credit cards are a fantastic tool for building credit that can make shopping — particularly online shopping — more convenient and secure. However, credit cards come with significant risks. I should know — during college, I racked up a lot of credit card debt that haunted me for many years and drained tens of thousands of dollars from my pocket.

Credit cards are like chainsaws — they’re incredibly efficient and useful tools, but they can also be incredibly dangerous.

As my own children approach the age where they may choose to have a credit card of their own, here are 10 key pieces of advice I’ll give them before they get their first credit card.

1. Carrying a balance means credit card companies are taking cash from your pocket, and you get nothing in return.

When your bill arrives, the credit card company will certainly allow you to pay less than the full balance. You only have to make a minimum payment, which seems like a good deal at first glance.

Here’s the problem: they’re going to charge you interest on every cent that you don’t pay off, and that interest rate is high.

Let’s say you get an $800 credit card bill in the mail and the minimum payment is $28 (interest plus 1% of the balance). If you just make the minimum payment, that leaves $772 on the card. If you have an APR of 30% on the card, you just got dinged with (roughly) $20 in interest. Your balance just went up to $792. Yep, next month you still owe $792, even though you threw $28 at the card.

Not only that, you now have that $792 debt hanging over your head. Add more to it and the interest will grow, too, month after month. Minimum payments barely even scratch the balance, and that’s by design. Credit card issuers make real money off of you continually paying interest. You get nothing out of it, too. All you got was the ability to make an impulsive purchase, one that you’re paying off for months or even years, and you’re paying a lot more than that initial cost, too.

How bad is it? If you have $800 on a card with a 30% APR and a minimum payment of the interest plus 1% of the balance, it will take you 113 months to pay it off and you will have paid a total of $1,261.04. Yep, $461 just vanished out of your pocket, for nothing.

2. Never put anything on a credit card that you won’t be able to pay in full when the bill arrives.

If you’re putting something you can’t actually afford on your credit card, you’re making your first mistake. Eventually, you will have to pay for that item, and when that bill comes around, it’s going to cut into your budget for next month. You may be buying something cool now, but you’re making things very tough on yourself next month.

Rather than using your credit card to buy things you can’t afford, just treat it as a convenience that helps keep your identity and bank account safe, while also giving you some rewards. If you don’t have that cash sitting in your checking account right now, don’t buy whatever it is you have in mind. Wait.

3. Pay your bill in full every month. If you can’t, stop using the card until the bill is fully paid off.

The best approach for keeping a credit card under control is to pay off the balance in full each month when the bill arrives. This keeps interest charges from accumulating on your bill, something you really don’t want. If you’re buying things you can’t really afford, it’s going to be impossible to pay the full bill when it comes in, and that’s when the trouble begins.

If you ever find yourself in a situation where you can’t pay off the full bill, put the credit card down for a month or two and live off of your checking account until you have the card paid off in full. That way, your mistakes don’t compound on themselves.

4. If you keep the card paid off, the interest rate on a credit card doesn’t matter as much as the rewards.

If it’s not clear yet, the fundamental rule of credit cards is to never put anything on there that you can’t pay off in full when the bill arrives, and pay it off in full when the bill arrives. Doing anything else is a very costly mistake. Let’s say you do follow that rule, though. If you do, don’t worry about the actual interest rate on the card, because it means little to you. Rather, focus on the rewards offered by using the card.

5. Choose a card that earns useful rewards at a high rate based on how you currently live, because a card should not change your spending habits.

You want a card that will generate rewards based on how you already currently spend. A good rewards card should not alter your spending in any way. Rather, it should reward you for what you already do. Those rewards should be flexible and useful to you. Even if a card offers a nice rate of rewards, if those are rewards that aren’t convenient and useful for you to spend, they don’t really matter. In general, cards that offer direct cashback or offer direct discounts at the retailers you already use are the best options, particularly for new users who aren’t trying to game the system.

6. If you don’t pay your bills, there are real consequences that last.

What happens if you just don’t pay your credit card bill? First and foremost, you’ll wind up with some nasty marks on your credit report that will last for up to seven years. Not only will that make it much more difficult to get any kind of loan or credit card going forward, but it can also raise your insurance rates, make it harder to get an apartment, and even hurt you in a job search. All of those things are made much easier if you have good credit, and not paying your bill means that you have bad credit.

Not only that, they will hound you for years, and eventually turn the debt over to a collection agency, who will also hound you for years. You’ll get phone calls and letters using all kinds of strategies, some of them really nasty in tone, to get you to pay.

While it seems like an immediate solution to your problem to just throw the credit card bills in the trash, they don’t just disappear. The problem festers, and it builds into other consequences that can really hurt your career and other areas of your life. Just stick to the advice above: pay off your card in full every month.

7. A credit card is not an emergency fund, and it will fail you in many types of emergencies.

First of all, if you use a credit card in an emergency, that bill is still going to arrive, and if you’ve paid for something that you can’t actually afford, you’re not going to be able to pay off the card. You’ll be carrying a balance, and the interest will keep devouring your money while you get nothing in return.

Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it.

8. If you can’t get approved for your first card on your own, ask for a trusted person to co-sign with you.

If you apply for a card and are declined, it’s not the end of the world. There are other routes to take that will help you get a card.

The first option is to look for someone who will co-sign on a card with you, probably a parent or another very close friend or relative. Their willingness to do that is a major extension of trust because by co-signing, they’re saying that they will pay for the balance on the card if you fail to or unable to do so, and you are hanging debt on them if you don’t take care of things yourself.

Another approach is to ask if they will add you to their current card as an authorized user. In that situation, they’ll likely just cut up the card that comes in your name, but it can provide a starting point and a small boost to your credit that will help down the road when you get your own card.

What if those aren’t options?

9. If you can’t get someone to co-sign, visit a credit union and look into a secured credit card.

Many financial institutions offer another option for people who really need to build credit in the form of a secured credit card. A secured credit card is one in which you pay a certain amount upfront as a “deposit” of sorts on the card. As long as you use the card normally, it’s fine, and if you cancel the card after normal usage, you get that deposit back. However, if you stop paying the bill, they’ll use the deposit to pay it for you.

Because of that deposit, financial institutions will issue a card to someone who might not otherwise qualify for a card because of their bad or nonexistent credit. After all, they’re at reduced (or zero) risk of someone not paying their bill because of said deposit.

10. Use your credit card bill as a tool to identify your worst spending choices, so you can correct them.

Your credit card bill isn’t just a downer. It’s also a useful tool for figuring out your worst spending decisions and also a way to check for identity theft. Each month, when your credit card bill comes in, go through it, item by item. Take note of anything that seems wasteful. If you look at a purchase and it didn’t either cover something necessary or fill you with genuine lasting joy, it’s probably a wasteful expense.

Keep those wasteful expenses in mind. Turn them over in your head, again and again. Knowing that those things aren’t good uses of your money will help you cut back on things that don’t really matter. Also, while you’re looking through your bill, look for expenses you don’t recognize. They can potentially be signs of identity theft, where someone has access to your credit card information and is making charges you didn’t approve of. If you find any, contact your credit card issuer immediately to get it fixed.

Credit cards are powerful tools if used correctly.

They can build your credit, make shopping easier and more secure, and give you rewards for your normal spending. However, they make it quite easy to start accumulating debt, which can haunt you for years. Treat credit cards like a sharp knife or a chainsaw. They’re powerful tools, but if you don’t use them well, they can really hurt you.