If you are going to be using a credit card to make purchases, it’s a no-brainer that you’ll want to earn some kind of reward in return.
For many people, the obvious choice is an travel rewards credit card. Unfortunately that credit card choice may actually be costing them more money to use.
People are just too excited by the allure of ‘free’ flights that they overlook how their credit card is creating higher expenses. Let’s look at some of the ways that an airline credit card costs you more.
Taking More Vacations Than Normal
The biggest way that an airline miles credit card costs you more money is the increased frequency of taking vacations. Previously you may have taken a big vacation every 2 or 3 years. When you know your credit card purchases are helping with the price of the flight, you might increase that to an annual vacation.
The problem is that the plane ticket is only part of your vacation expenses. Don’t forget how much everything else adds up…hotels, car rentals, dining, entertainment, souvenirs and sometimes even extra time off work. Plus you may go on vacation before the points cover the full price of the flight.
I felt the true brunt of this a few years ago. As a performance bonus at my job, my boss gave me and my girlfriend round trip tickets to wherever I wanted to go. We chose Australia and it ended up being an awesome trip. Still, it turned out to be a fairly expensive vacation even though our airfare was covered. We spent a lot of money and my online business was essentially put on hold for 2 weeks. We also used up vacation time at work that we would’ve probably cashed out at the end of the year instead.
With airline credit cards, people tell themselves that they’ve earned the vacation since they racked up so many miles. What a convenient excuse to spend more than necessary. It’s like justifying any other expensive purchase just because it’s on sale.
Credit Card Annual Fees
While more and more credit cards have no annual fees these days, airline credit cards are one exception. It is rare to find an airline miles credit card that doesn’t come with an annual fee.
The more attractive the rewards program, the higher the annual fee. Several of the better cards charge upwards of $400 annually. That’s a lot of money! Since the potential rewards calculation can be quite tricky, some people go with one of these cards just assuming that the high annual fee is worthwhile. That’s not always the case though. You have to charge a significant amount each year to offset that fee.
The few airline cards that don’t have an annual fee tend to earn mileage at a very slow pace. With those cards you also have to watch out for various travel restrictions such as blackout dates, limited ‘unpaid’ tickets per flight, few airlines to choose from and unexpected redemption fees. Also, your points may eventually expire if you don’t use them in time. Even when paying an annual fee you may not be immune to some of these limitations.
Monthly Interest Charges
If you are a responsible cardholder, you make a point of paying off your credit card balance in full each month. This is normally quite easy to manage when you aren’t using your card frequently.
What happens when you are suddenly putting every possible expense on your credit card? Can you maintain that same level of commitment when you start getting 4 figure credit card bills? With that high balance and high interest rates, carrying over a balance results in a hefty interest charge.
Some people may be especially excited about future free flights, to the extent that they use it as an excuse to spend even more than normal. They may justify that it is time to replace that couch since they’d be earning miles now. Maybe they’d cover the dinner bill when out with friends knowing full well that not everyone will remember to pay them back. Just the thought of that upcoming vacation may cloud their judgement.
I’m not saying that everyone gets the short end of the stick with airline credit cards. It is just very common to get less benefit than you had anticipated. You just have to decide if your spending and travel habits truly make it worthwhile. If you’re unsure, it might be better off to just keep it simple and opt for a cash back card instead.
Do any of you currently use an airline credit card? Is it costing you more money in any way?
Or if you chose to avoid airline credit cards, what was your reasoning?