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Credit card travel rewards are points or miles that the bank issues in exchange for using their card. For cash back cards the points earning rate is usually a certain percentage (usually 1-5%) per dollar. For travel cards their earning rate is usually a certain number of points per dollar. The specific rate can vary depending on the credit card, issuer and purchase category. Higher earning rates are usually reserved for premium cards that include an annual fee, but usually have other exciting perks. Marshall gets flustered on the detailed earning structure of each card but he goes along because he enjoys the benefits. But continue to stick with me.
First I want to go over two terms that you may encounter when researching this topic. The first is Travel Hacking. The nickname for the hobby of using credit card travel rewards to get free/less expensive flights and hotel stays. It is a completely legal activity. I suppose it gets its name because it feels like “hacking” the system to get something for free. The other process is called Churning. This is the process of opening credit cards just to get the sign up bonus, using the points and then closing the credit card. Many issuers require a waiting period of 24-48 months from the time an account is closed before you can reopen the same card and earn the sign up bonus again.
Next let’s discuss some travel reward credit card rules. Following these will help to avoid personal financial/credit trouble.
Table of Contents
General Travel Credit Card Rules:
1. I do not recommend attempting this hobby if you have other interest-bearing credit card debt.
2. Once again, NEVER PAY INTEREST on a travel credit card as that would negate the potential rewards.
3. Never overspend in order to gain credit card rewards. It can be easy to overextend on monthly obligations and can quickly lead to financial trouble.
4. I recommend that you have a savings account that contains at least three to six months of expenses before starting.
5. Try every avenue possible in order NOT to close a credit card as doing so can lower your credit score. When an annual fee card is no longer useful, check if you qualify for a no annual fee downgrade. If all else fails, canceling a credit card should be a last resort.
6. Try to use your credit card travel rewards as soon as possible rather than holding onto them. This is because they do not gain value, rather they lose it through program devaluations. I am still learning to use the points that we have accrued, because I want to make sure I get a great redemption!
7. Before you open a travel card with a sign up bonus, make sure that you will be able to meet the minimum spending requirement in the allotted time, otherwise you could miss getting that huge sum of points.
Earning Credit Card Travel Rewards:
The basic way to earn credit card travel rewards is using a credit card which gives a certain number of points per dollar. Each issuer has at least two types of credit/charge cards: cash back and travel. The reward structure is the main difference between these two. Cash back cards usually give a certain percentage (1-5%) of each dollar spent in a statement credit or check. Travel credit cards usually award a certain number of points (1-5x) per dollar spent. Both ways are going to yield the same cash value (one cent per point) with this redemption option.
As a quick simple example:
2 points per dollar x $100 = 200 points x 0.01 (point cash value) = $2.00 cash value
2% cash back x $100 = $2.00
As you can see both ways of looking at it end up having the same result.
There are some cards that provide a flat earning rate for every dollar spent, but most have specific bonus categories which provide more. Popular ones include: airfare, travel, dining, and gas. In contrast, some cards have increased earning categories that rotate quarterly. This can quickly become a lot to keep track of when using different cards in differing categories and merchants. If you do not do well with attention to these details (as my husband Marshall will readily confess) a flat earning rate card may be the best option. In fact, when Marshall goes to the store by himself, he texts me to see which card he should use to maximize points. He hates the intricacies, but he loves the rewards! To more easily keep track of this information get your free copy of the Credit Card Index by subscribing to the newsletter.
Another way to increase the amount of points earned per dollar spent, or by getting cash back in the form of a statement credit, is to take advantage of any merchant offers provided by the issuer. For example, two entities that I have cards with, Chase and American Express, have offers for increased points earning and cash back. The offers that we have redeemed have been for 5-20% back in the form of a statement credit. We have utilized offers from merchants such as: Starbucks, Lacoste, Kenneth Cole, Ralph Lauren, Circle K, BP, and Total Wine. Thus far the offers that we have redeemed have saved us over $200 which has been great! Especially since most of that was saved on birthday and Christmas gifts. We have also taken advantage of increased points earnings through American Express at Sam’s Club and Amazon.
It’s also easy to earn increased credit card travel rewards through shopping and dining portals. When making a purchase online, start with the shopping portal, find the store you want, click through the shopping portal to the website you want and make a purchase like normal. This will result in additional points in that loyalty program. Dining portals are similar. Link a credit card with them and use that card at participating restaurants to gain more points. Make it better by using a card that has a dining bonus category. A whole post on shopping and dining portals is in the works for the near future.
Card Issuers also feature promotions occasionally that for us have included both statement credits and bonus points. One of the most recent promotions we participated in was from American Express. We had to link our card to Resy and make three reservations and pay for our bill with the linked card to get 500 bonus points for each. Chase just recently sent me a promotion to use one of my cards to use tap to pay and get 500 bonus points after three times. I have gotten bill credits on Amazon from Discover ($10 for making it my default card and $10 off of $50), American Express ($30 off of $60) and Chase ($15 off of $60).
Lastly one of the other ways to earn frequent flyer miles and hotel points is by paying for flights and hotel stays. When you use a credit card that earns bonus points for airfare, hotels or travel you earn additional card and loyalty points with the airline and/or hotel. Some hotels also run promotions. We just recently took advantage of a Hilton promotion that earned us 2x base points. We also earned 80% bonus points from our elite status provided by one of our credit cards.
As you can see by just scratching the surface of earning credit card travel rewards, there are many ways you can earn. There are also many easy avenues to stack rewards, which means that you earn points simultaneously with different programs (credit card, shopping/dining portals, airline miles, hotel points, etc.). It takes me some time to research and make sure that I am stacking and earning as many points as possible per purchase. But it is the thrill of the deal and the reward for your tediousness that makes the effort soooo fruitful!
There are several different ways that credit card points can be redeemed, and if you are willing to put in a little work and research you can get great redemption value. If you are not willing to put in time to research, you can still benefit.
Cash back is the first option. These points typically have a cash value of one cent per point. If you are looking to maximize your value per point this is the worst option. However if you are looking for convenience and do not want to have to research for the best deal then this is the best choice. This method can still provide some value as long as you pay your balance in full each month thus not paying interest then you can get “free” money each month when your statement cycle ends. Typically most issuers allow you to claim your cash back either as a statement credit toward your balance or as a check that can be mailed to you. Also American Express, Chase and Discover allow you to use your points on Amazon at the same value of one cent per point.
Gift Cards are another way that you can redeem your points. This choice typically provides a better redemption rate than cash back, but not as good as our next option. Some gift cards offer a one cent per point value, but sometimes you can find ones that offer a 10% increase in redemption value (this equates to 0.011 cents per point). So while this is slightly better than one cent per point, it is not always guaranteed and it is not the best redemption selection.
Transferring to travel partners by far provides the best redemption route if you are looking to maximize your points’ value. Each card issuer has different travel partners that their points can be transferred to including airlines and hotels. Some of these are the same for different card issuers which plays in the favor of the cardholder because you can pool your points into one travel partner from different cards. Recently, we took a trip to Asheville for two nights at the Hyatt Place and got a great points redemption. We used 24k points and got a value of 0.03 cents per point value, let me show you:
$800 (room rate plus taxes) / 24000 points = 0.033 cents per point
And we did not have to pay anything when we got to the hotel! However not all transfer partners within each issuer’s program provide a good redemption value. This option does usually take more research to be able to evaluate which transfer partners give the best redemption value. In future posts we will take a look at each of the major card issuers’ reward programs and which transfer partners provide the best value.
Other Options: Depending on the card issuer, other options can include donating points to the charity of your choice, using points towards purchases on Amazon or Apple. Typically these provide the same redemption value as the cash back redemption. If you want a higher value but do not want to hassle with transferring points, some Chase cards offer a travel portal where you can redeem points for a value of 1.25 or 1.5 cents per point (depending on the card). The Chase card redemption options will be discussed in future posts.
How to start:
The best card issuer to start with, in my opinion, is Chase. I recommend Chase as the best issuer to start with, as that is the issuer that I started out with. This option is great because Chase offers a variety of cash back, travel, business and co-branded (airline and hotel) cards. They also offer a great variety of airline and hotel partners to transfer points. Chase Bank’s flexible points are Ultimate Rewards (UR) points, which on average are worth about 0.02 cents per point.
In my opinion, the best starter travel card is the Chase Sapphire Preferred (CSP). This card comes with a $95 annual fee, has a great sign up bonus and allows you to transfer your UR points to the airline and hotel transfer partners. This card has bonus categories for travel and dining, earning two points per dollar spent in each.
Another Chase card that makes a good companion for the CSP is the Chase Freedom Unlimited (CFU). By itself, it is a cash back card that earns 1.5% (or 1.5 points) on every purchase. What makes both of these great matches is that you can combine your points from your CFU to your CSP. Transferring points to the CSP allows you to transfer your points to travel partners for maximum value.
If you are looking to apply for the Chase Freedom Unlimited. I would greatly appreciate if you would contact me so that I can send a referral link to you. I may get compensation for your use of this referral link.
The next post will discuss how I have utilized some of these strategies to gain maximum value from redemptions. I will also detail my current travel credit card strategy. In the future I will inspect the intricacies of the Chase Ultimate Rewards and American Express Membership Rewards Programs.