Are Travel Rewards Credit Cards a Scam?
One of my most popular posts on Making Sense of Cents is How To Take A 10 Day Trip To Hawaii For $22.40 – Flights & Accommodations Included.
Whenever I share it, half the people think it’s amazing, yet the other half think it’s too good to be true and that all travel rewards credit cards are a scam. I wanted to write an in-depth post because there are so many people that don’t believe these cards really work the way they say they do.
Note: I do know that this is somewhat of a location thing. Travel rewards credit cards are popular in the U.S. but don’t exist in most other countries.
Travel rewards credit cards are extremely popular right now. For me, I’ve been interested in them for a few years now, and it seems like everyone going on a vacation is talking about them these days.
If you haven’t done so yet, check out How To Take A 10 Day Trip To Hawaii For $22.40 – Flights & Accommodations Included for one example of how well they work.
Articles like that can make these credit cards seem amazing, and they really can be if you’re smart.
Honestly, I absolutely love travel rewards cards. In fact, I’ve gone on many extremely affordable vacations due to travel rewards credit cards, I’ve received lots of free cash back, they’ve allowed me supercheap first class flights, and more.
Actually, Wes recently went on a 3,000 mile sailing trip in Europe, and when he was done, I was able to book a last minute flight back to Arizona (where we were at the time in the RV) using travel rewards credit card points. He was able to sit in business class on a 12.5 hour flight (from London to Los Angeles, I believe) and it cost less than $100 after points. It would have cost even less if I booked it more than just a few days ahead of time. After a month on a boat sharing a bed with another crew member, we wanted to get him a roomier/comfier seat, and our travel rewards credit cards made it super affordable!
He told some of the people on the sailing trip about how much we saved using a travel rewards credit card, and they thought he was being scammed!
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As a person who regularly uses credit cards (but has never paid a penny towards interest!), I knew I had to talk further about this subject since there seems to be so much confusion.
Here are the common questions I hear about travel rewards credit cards.
Don’t you have to pay interest when you use a credit card?
Surprisingly, many people don’t know how credit cards actually work. Many people think that you always have to pay interest when using a credit card.
However, that is not true.
I use a credit card all the time and have never paid a penny towards interest, late charges, or anything like that.
The key here is that I always pay my balance in full before it is due.
Credit cards have notoriously high interest rates – USA Today reports that the average interest rates for credit cards is currently at 16.71%. But, that’s only when you don’t pay your balance.
Are travel rewards credit cards for everyone?
Using a rewards card means that you can gain points and get things for free or cheap for simply using your credit card. This means you can earn airline points, gift cards, hotels, cash, etc. If you are already going to be paying for something, then you might as well get something for free out of it, right?
Credit cards can be used to pay for many things – almost anything and everything that you can think of.
If you know you can use credit cards responsibly, then you can use them to pay for your day-to-day purchases. Paying for gas, groceries, even some utility bills with a rewards credit card means you will be earning points. And, those points are basically free money.
That’s what I like about travel rewards credit cards. I’m already going to use my credit card, so if there is a bonus, then I definitely want that as well!
And, using a credit card can also be an easy way to track your transactions. I like credit cards because I can easily track my spending and see where my money has gone. With cash, I always find myself wondering what I spent my money on.
What are the disadvantages of travel rewards credit cards?
I think there are advantages to using credit cards, but there may also be disadvantages.
First of all, like I said earlier, you have to know that you can be responsible with your credit cards. If you know that you can’t pay your balance each month, then you should probably reevaluate your spending. By spending more on credit cards than you can actually afford, you will be paying even more in interest rates, which means those rewards aren’t really rewards.
With travel rewards credit cards, one big negative is that many people find themselves spending more in order to reach a bonus. Many rewards cards say you have to spend a certain amount in a specified time to reach that reward. For example, some popular cards say you have to spend $3,000 within the first three months in order to qualify for a bonus. If you weren’t normally going to spend $3,000, then the bonus may not be worth it. Going into debt in order to qualify for a credit card bonus is probably 99.9999% of the time a bad decision (I won’t say 100% because I’m sure someone can prove me wrong, haha!).
Also, you want to make sure that you don’t hurt your credit score in the end.
If you don’t use credit cards correctly, it can lead to it decreasing your credit score and possibly even ruining it.
Want to know the simple steps to using your credit cards the right way? Here’s how:
- Always pay your bills on time.
- Pay the full balance each month.
- Watch your utilization rate.
What’s the catch with travel rewards credit cards?
The credit card companies aren’t just giving away points and cash back because they are nice, so I’m sure you’re wondering what the catch is.
Credit card companies offer these great bonuses and rewards because they are hoping that you’ll become a loyal customer. Credit card companies make money in various ways such as:
- Interest charges.
- Taking a percentage of each transaction when you use your credit card at a store.
- Annual fees.
- And more.
I think the biggest catch is not using your credit card responsibly and/or spending more in order to reach a rewards incentive. The goal with travel rewards cards is that you gain something by using your credit card – it should never be going into debt or spending more than you intend to.
Also, if you decide to look into a travel rewards card, do your research and find which one is best for you. There are some for specific airlines or hotels, there are others that let you use your points at a variety of companies, and more. The point again is that you are gaining something, not losing out.
Do you use travel rewards credit cards? Why or why not?