Travel Credit Card Pitfalls: Experts Warn Beginners Against Common Mistakes
Newcomers to travel rewards cards are urged to prioritize flexibility and avoid costly fees to maximize benefits.
Beginners entering the world of travel rewards credit cards risk making costly errors that could leave them with unusable points or excessive fees, according to experts. The allure of free flights, hotel upgrades, and lounge access can be a powerful draw, but choosing the wrong card can lead to a surplus of points that are difficult to redeem.
Brian Kelly, founder of the advice site The Points Guy, advises newcomers against concentrating all their spending with a single airline. He likens this strategy to investing retirement savings in only one company's stock, calling it a risky approach. Kelly recommends opting for cards that earn transferable points. These points can be moved to various participating airline and hotel loyalty programs, offering greater flexibility when booking travel. This approach provides more options when flight prices, schedules, or hotel availability do not align with a traveler's preferences.
Susannah Streeter of Wealth Club echoed these sentiments, emphasizing that the initial welcome bonus should not be the sole factor in choosing a card. She suggests that travelers first assess whether a card aligns with their spending habits. While co-branded cards tied to specific airlines or hotels can be beneficial for loyal customers, beginners who are still exploring their travel destinations might find cards offering transferable points more advantageous.
Some cards, like the Chase Freedom Unlimited, allow points to be redeemed across various airlines via Chase Travel or transferred to 10 partner airlines, often with no annual fee. Before applying, it is crucial to research which airlines and hotel groups are transfer partners and if they serve desired destinations.
Understanding Annual Fees and Overseas Charges
Premium travel rewards cards can come with substantial annual fees, sometimes reaching hundreds of dollars, in exchange for perks like airport lounge access and hotel credits. The American Express Platinum card, for instance, carries an $895 annual fee. To justify such costs, cardholders must ensure the benefits outweigh the price. This can be calculated by subtracting the value of perks one would have used regardless from the fee. However, it's important not to be swayed by dining, streaming, or retail perks that might encourage unnecessary spending.
A travel card that performs well domestically may not be the most cost-effective for international use. Some U.S. credit cards impose foreign transaction fees on overseas purchases, increasing the cost of meals, shopping, and hotel stays. Cards such as the Capital One VentureOne rewards credit card offer points on travel spending with no foreign transaction fees and no annual charge. Streeter also noted that some debit cards now offer competitive international spending deals, urging travelers to check their existing bank card options before seeking new ones.
When spending abroad, travelers should examine the entire fee structure, not just exchange rates. This includes checking for foreign transaction fees, ATM withdrawal charges, and currency conversion costs before departing. A small but significant tip is to always opt to pay in the local currency when presented with the choice at a point of sale. While paying in U.S. dollars might seem straightforward, the merchant's conversion rate may be less favorable than the rate provided by the card network.
Additional Precautions
Streeter also recommends carrying a backup debit or credit card, stored separately from the primary card, in case of loss, theft, or a blocked card. It is also advisable to check with the card issuer about setting travel notifications before a trip. For all rewards cardholders, paying the balance in full each month is a golden rule. Interest charges can quickly diminish the value of accumulated points and miles. Some credit cards offer additional purchase or travel protections, which can vary by issuer and card terms. Kelly shared an instance where his credit card issuer reimbursed him for a lost item, highlighting the benefit of purchase protection.