The Advantages and Disadvantages of a Travel Rewards Credit Cards
The biggest advantage of a travel rewards card is that you can spend your way to a free vacation. Using your travel rewards card instead of your debit card, you can earn your way to free flights, hotels, cruises, car rentals etc. Another advantage, is that some accountants will let you earn rewards using your personal credit card and have your own personal business reimburse you as long as you are not converting the reward points into cash.
The disadvantages of a travel credit card is that you can't get straight up cash back and there is typically an annual fee. Both points are not that big of a deal though. Travel rewards are easily converted to credit card credits and the annual fee can quickly pay for itself even on relatively modest budgets.
Who should apply for a travel rewards credit card?
For the most part you will need to have at the very least fair to good credit depending on the travel rewards card.
Most travel rewards cards give out exceptional rewards per dollar spent, the downside is some have a decent size annual fee. This is okay as long as you are thinking of using the travel rewards card as your primary card, which you should.
Some travel rewards cards sometimes have additional insurance perks that can make your annual fee worthwhile even with a relatively modest budget.
Who shouldn't apply for a travel rewards credit card?
If you have no credit or if you have bad credit, then you will most likely be declined for a travel rewards card.
You may also might not want to apply for a travel rewards card if your primary motive is to find a credit card with a lower interest rate. Travel rewards cards typically have a 19.99% interest rate and a 21.99%+ interest rate for balance transfers.
FAQ on Travel Rewards Credit Cards
Do I have to use the bank's travel agent?
No, but maybe yes. At Scotiabank you can use your credit card at another travel site and claim a credit on your credit card for the travel expense. Other cards may require you to book through their travel service provider.
Are travel rewards credit card a good choice for me if I carry a balance?
Generally no, but most credit cards would be bad for you. Even if you carry a small balance that is equal to your monthly spending budget, you will be getting charged on average 1.7% per month on your balance. The interest alone will eat up all but the greatest rewards that you can earn with a travel rewards card. If you have a habit of carrying three or more months worth of spending on your credit card, even the best six month promotional offers would have you paying more on interest than you get back in rewards.
Can I use my unused travel rewards to pay this month's credit card bill?
No. Although if you do have travel related expenses you can have a credit added to your account for the amount you spent on travel.
I have been using a different credit card for a while now, should I cancel it when I get my new travel rewards card?
No, but maybe. If the other credit card is your only other credit card, then I would keep it active. If not, then I would consider cancelling it, but only if you already have a good credit score and if your other remaining credit cards have a long payment history, and neither of them have a balance.