The Art of Travel: Picking a Credit Card that Gets You There|
Picking a credit card isn’t usually the top on anyone’s list of fun things to do. But there’s an art to navigating the increasingly complex set of APRs, cash rewards, balance transfers fees, and airline mileage partnerships. Levo’s resident finance expert Emily Ramdehaul steps in with a few basic perspectives to help you understand what you’re signing up for if you’re in the market for your first or second card.
Before asking yourself “Do I want cash back or airline miles?” you should ask yourself 1) how you spend on your credit card, and 2) how you plan on paying it back.
Credit cards are tailored towards different types of spending and spenders. Knowing that you use your credit card to fund travel splurges, to fuel an online shopping addiction, or just to pay for everyday gas and groceries can give you a pretty realistic picture of what areas you have the best shot of earning the most points as well as the flexibility of payment options you might need. Depending on whether you’re paying your credit card bill monthly or over time, is saving money on interest more important to you than the ability to earn more rewards points? After all, it’s not which card has the best features: it’s which has the best features for you.
Cash = King?
First things first: an inescapable mantra that resounds all the way back Finance 101 is the saying that “cash is king.” It sounds promising-even exciting- to earn points towards airline miles, concert tickets or online shopping; but do you know what else airlines, Ticketmaster, and retailers also readily honor? Cash, turns out.
When reading the fine print on a credit card offer, make sure you understand what purchases are eligible for cash-back programs. For example, if a card offers 3% cash back on groceries, 2% cash back on gas stations and 1% on “other eligible purchases,” it may not be the best card for you if you live off Seamless Web and take cabs everywhere. An easy way to think of it: credit cards are only better than cash in theory if you can earn cash back on purchases, while paying your credit card bill in full, without incurring serious interest charges.
Let’s talk about airline miles.
For airline partner credit cards, the terms are generally that you earn a ratio of $1 to 1 mile on everyday purchases, and 2 miles for every $1 spent on airline-carrier-specific purchases. This is for all, intents and purposes, a loyalty program with credit card capabilities. To clarify further, a long term loyalty program.
A friend and I were talking about his parents going to India on vacation using their airline miles. After trying to guess how many points equated to a free trip to India for two, he made a very obvious but important comment: “You know, you really have to spend a ton of money over many years to accumulate those kinds of points.”
It’s also not just the sheer volume of points needed; some cards also offer restrictions like a “minimum 10,000 miles for redemption.” If hoarding points could be your thing, or if you spend a lot on airline carrier specific purchases (i.e. if you’re not big on making price-sensitive flight choices via Expedia or Kayak)– or even if you just aspire to travel a lot-airline partner cards could be for you.
If you’re going to use your credit card anyway, why not make the most out of it and earn some points? The possibility of getting extra (I’m hesitant to say free) stuff can be exciting, especially in the otherwise mundane experience of being an adult and paying your bills on time. But just as with anything else, a little online research goes a long way.
Although it’s probably not nearly as interesting, in the same time it would take you to check out pictures that someone you barely know posted on Facebook, you can click into the terms, conditions, and restrictions of a credit card offer online and do some appropriate due diligence.
As common sense dictates, the more flexibility and options the better. Things you want to make sure you have a handle on are: 1) how do you earn points within the program? 2) What time windows apply (i.e. do you get double points for only the first six months)? 3) Is there a maximum amount of points you can earn? and 4) Will your points expire over time?
If you want to compare which rewards programs offer the most bang for the buck (or points), most websites allow you to poke around at the different redemption offers and point levels.