How To Know If a Travel Credit Card Is Worth It For Your Lifestyle

You’ve probably seen the blogs, commercials or online articles talking about people taking extravagant and luxurious vacations with travel credit card rewards. We’re talking first-class flights with Dom Perignon, and five-star overwater bungalows, all for “free”. As you might expect, the truth is a bit more complicated. While it is possible to use rewards credit cards to travel, it may not be the right choice for everyone. Here are a few things to keep in mind to help determine if a travel credit card is right for you.

What are Credit Card Rewards and How Do They Work?

One of the ways that credit card companies make money is by charging the merchant a small percentage of each transaction. So to incentivize you to use their credit card as much as possible, many card issuers will share some of that money with you in the form of credit card rewards. The most important thing to do is to make sure that you are always paying off your bill in full, each and every month. Otherwise, any interest and fees that you pay will end up being much more than the rewards that you earn.

How Do Travel Credit Cards Work?

There are many different kinds of travel credit cards, and each one works in a slightly different way. Some of the most popular travel credit cards include ones that earn airline miles or hotel points. For example, American Express offers several different Delta Skymiles credit cards and Chase offers Hyatt credit cards. The American Express Delta credit cards will earn Delta Skymiles with each purchase, while the Hyatt cards earn World of Hyatt points. There are also travel credit cards like the Chase Sapphire Preferred or Capital One Venture card that earn more flexible bank points that can be used for any kind of travel.

Many co-branded travel credit cards also offer benefits and perks related to the specific airline or hotel program. This might include a free hotel night stay each year on your cardmember anniversary, elite qualifying nights, free checked bags or priority boarding. If you are a frequent traveler that always flies a specific airline or stays with a particular hotel chain, these credit card travel perks may hold quite a bit of value for you.

4 Reasons to Get a Travel Credit Card

Here are 4 reasons it might make sense to get a travel credit card:

For the initial welcome offer — many travel credit cards have initial welcome offers worth hundreds or even thousands of dollars.
You travel with a specific airline and get value from the airline-specific perks like elite qualifying miles, checked bags, airport lounge access or priority boarding.
You stay with a particular hotel chain and get value from hotel-specific benefits like elite qualifying nights, lounge access, room upgrades or elite status.
The ongoing perks (like a free hotel night) are worth more to you than the annual fee on the card.

Consider a Cashback Card

On the other hand, your lifestyle may mean that it makes more sense to get a cashback card. There are several credit cards that earn 2% on all purchases with no annual fee. Many travel credit cards only offer 1 mile or point per dollar spent on most purchases. So if you’re not getting value from the other benefits and perks that come with your travel credit card, a cashback card might make sense. This is especially true if your travel credit card comes with an annual fee.

Watch Out For Fees

One other thing that you will want to watch out for is annual fees that come with many travel credit cards. It is not common for a travel rewards card to have a fee around $100 that is due each year on your cardmember anniversary. Some ultra-premium credit cards have annual fees of $500 or even more. It is also common for cards to waive the annual fee the first year and then start charging it each year after the first.

While it is still possible that it’s a good financial decision to pay an annual fee on a travel rewards credit card, you need to be careful. Many credit cards charge these annual fees hoping that you will just pay them without truly calculating whether you’re still getting enough value from the card, as compared to a 2% cash back card with no annual fee. Make sure to look at the perks and benefits you get each year from your travel rewards credit card. Put an estimated monetary value on them, and make sure that they are more than the card’s annual fee. If they aren’t, then it makes sense to cancel or downgrade your card to one with no fee.

The Bottom Line

Smart use of credit card rewards can be an excellent financial decision. When used correctly, credit card rewards can add hundreds or even thousands of dollars to your bottom line net worth each year. It’s important to consider the different kinds of credit cards available to you to truly maximize their benefits. While first-class flights and 5-star hotels sound glamorous, there are other options besides travel credit cards. Check out our list of top credit cards to find one that is right for you.

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Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller