With travel rewards credit cards, you can earn amazing perks that amount to free nights at glamorous hotels, flying the best business class seats for next to nothing, and generally making the world of travel more streamlined and accessible.
But, like most things in life, there are strings attached. Most of these cards charge an APR anywhere from 17 to 25.99 percent, and the majority promote big welcome offers to entice new customers by giving them hoards of points after meeting a spending minimum—usually a few thousands dollars over several months. These bonuses are usually an amazing deal, and leave most travelers to think What could go wrong? Well, a lot, if you’re not strategic with your spending on these cards.
Joshua Barnes knows this firsthand—he went into debt planning his honeymoon in Australia and New Zealand on a travel rewards credit card. Barnes and his wife, Suzy, signed up for a few rewards credit cards with the intention of meeting the sign-up offer’s minimum spend when they booked their multiple long-haul flights for the trip. They put most of their spending on the Chase Sapphire Preferred. Eventually, after opening the card and meeting the spending requirement, they were able to transfer some of their Chase points to the IHG Rewards program, which let them book a few nights at the InterContinental Sydney—a savvy redemption.
With the help of credit card points, the couple was on their way to a wonderful and discounted honeymoon. They were careful planning other financial aspects of the trip, too, writing a budget that included $8,000 in cash set aside to pay for transportation, food, and fun. They even planned to camp three nights during their vacation to save money.
But things started to go awry when they missed one of their connecting flights to Cairns, which resulted in a 24-hour stay at the Tokyo airport, which wasn’t remotely enjoyable. This also meant that, by the time they got to Australia, they were ready to let loose and have some real fun. “It’s easy to make a plan but hard to stick to it once a wrench is thrown in,” Barnes says. They ditched their budget and started splurging—swiping their cards at expensive dinners—and justified it because they were earning more points.
After two weeks enjoying Oceania and celebrating their new marriage, the couple arrived home with a worrisome souvenir: $2,500 in lingering credit card bills.
Not only is this debt bad for obvious reasons, but when you carry a balance on travel cards, the high interest cancels out any value of the points you’ve earned, negating the entire process. Fortunately, this story has a relatively happy ending. By cutting superfluous expenses once they returned home—like eating out at restaurants—the couple was able to pay off their debt. But it still took them three months to climb out of the red.
Barnes would do some things differently the next time around. “It’s counter to my goal of building credit card reward points, but when you are spending money on things and not sticking to your budget, then you should switch to cash to curb your spending habit,” he says. “It’s more difficult to fork over cash than it is to swipe a card.” Barnes and his wife now have a better idea of what it takes to plan a rewards-fueled trip without returning home to a huge credit card bill.
Here are some guidelines to help you avoid carrying a balance (which again, negates the purpose of earning points!) while pursuing points and miles.
Keep your rewards strategy simple
Don’t overdo it by signing up for too many travel rewards cards. It’s easy to get overwhelmed when you’re trying to meet multiple minimum spending requirements within a few months, and it’s also possible to wind up paying too many credit card annual fees. You’ll do yourself a big favor if you select one or two of the top travel credit cards and focus your efforts on them and them alone. Remember, the best vacation is basically any trip that lets you arrive home debt free.
Utilize regular bills and expenses to earn rewards
Most people are better off earning rewards by utilizing their everyday bills. That means earning sign-up bonuses and ongoing points and miles by using your credit card to pay for utility bills, groceries, gas, and everything else you actually need to buy. By using plastic for regular purchases you need to make anyway, you can stick to your normal budget and pay off your credit card each month.
Track your spending
Another helpful habit to get into is tracking your spending. Most credit cards make this easy due to their helpful online interfaces that let you track purchases, payments, rewards, and more. By tracking your spending, you can make sure you’re not overspending to earn more rewards or racking up purchases you can’t afford to pay off. You can even pay your credit card bill more than once per month if it helps you stay on track.
Create a realistic travel budget
Barnes says he and his new bride made several serious mistakes with their travel rewards plan. The first one was being overly optimistic about how little they would spend on their honeymoon. If they would have thought it over more, they should have known dining out and having fun would require higher spending.
You can help yourself by being realistic when you create a travel budget that includes all the expenses you can dream up: food, fun, lodging, transportation, and even a little extra padding for other charges that pop up as you go. Save up the cash to pay before you plan your trip, and you’ll set yourself up for a zero balance when you get home.
The Cardinal Sin of Travel Rewards Credit Cards—And How to Avoid It – Condé Nast Traveler