Everyone loves a credit card that earns points and miles – especially those with big sign-up offers and irresistible annual benefits. But at the end of the year, when you tally up your finances, are rewards card worth it?
If you’re savvy with your credit and travel, the short answer is yes. But if you’re diving in head-first because you can’t resist the idea of collecting points, then you might be prone to make one or more of these reward card blunders that actually cost you money.
To be responsible with your points-earning credit cards, make sure you avoid these four rewards card pitfalls:
1. Not meeting your card’s minimum spend – and losing out on that sign-up bonus.
Almost all credit cards that come with a great sign-up bonus require you to spend a minimum amount – usually within the first three months or 90 days of card membership. For some rewards cards this may be a single purchase (such as the U.S. Bank Club Carlson Premier Rewards Visa Signature card), but for others, the minimum spend be as high as $5,000 (the American Express Platinum card, for example) or more.
Ambitious point collectors are drawn to these offers by the promise of the big bonus, yet many fail to meet the minimum spend, and therefore never receive the points.
“I just forgot about it,” “I didn’t have as many big expenses as I thought I would,” and “I didn’t understand that the deadline was 90 days from when I was approved for the card, not 90 days from when I got the card in the mail,” are common excuses I’ve heard from people who missed getting their bonuses.
How to avoid this mistake: Have a charging plan when you get a new card to ensure you get the sign-up bonus and apply when you know you have a big expense (home repairs) or a season of spending (summer vacation or back-to-school shopping) coming up. Mark on your calendar the deadline to reach that minimum spend, and if you aren’t sure of the exact date, call the card issuer and ask.
2. Overspending to earn miles.
Take it from someone with nine travel credit cards in her wallet: Earning credit card points is addictive. We don’t just swipe or dip our cards to buy things we need these days; we pay with plastic (and increasingly metal) cards because we have visions of growing miles and points balances.
We ring up more on our cards solely because we get 5x the rewards during a quarter (Chase Freedom and Discover it Cash Rewards, for example), or we use online payment options with surcharges rather than paying cash because we really want that hit of points in our account.
The mistake is that we tend to overspend and are more prone to throw our budget out the window when our eyes are on the rewards and not on the price tag.
How to avoid this pitfall: Be conscious of how using your credit card to earn points is changing your spending behavior. If you’re justifying purchases because you’re getting points, it may be time to revisit why you’re using that rewards card. If you wouldn’t take money out of the ATM to pay for something, you probably shouldn’t be buying it with your credit card. Think before you use your card.
3. Not measuring card benefits versus annual fee.
Most of the best points-earning credit cards come with an annual fee. The cards in my wallet have annual fees ranging from $49-$550 per year.
The danger with annual fees is not doing the math to make sure that the benefits you’re getting from the card outweigh what you’re paying to be a card-carrying member.
If you’re paying $400 a year for an airline credit card that gives you free access to a club lounge, for example, but you travel only two or three times a year, you’re on the losing end. Free lounge access is only free if you’re using it for more value than what you’re paying for it. You’d be better off financially to pass on the credit card with the “free” benefit and pay $50 for a lounge day pass every time you visit the airport.
If you’re paying $49 a year for a hotel credit card that gives you a free night every year that you have the card, however, and you put that award night to use every year at a hotel that costs $300 per night, then you’re on the winning side of the annual fee. Good job, savvy traveler.
How to avoid this pitfall: Do a personal annual fee audit of your cards or the new card you are considering. Don’t let yourself be swayed by an offer that sounds too good to pass up without considering the card’s annual fee. Calculate the value of the card’s benefits that you will actually use to see if the card is worth it.
4. Not using your points.
One of the biggest mistakes points and miles collectors make is never using their rewards. Billions – if not trillions – of points and miles go unused every year. For example, I personally ended last year with 800,000 unused miles. Isn’t it strange that we work so hard to earn our points, sometimes even overspend to get them, and then we sit on them?
There are many reasons we become point hoarders. You might be saving up for the perfect trip, worried about wasting your hard-earned points on something with not enough value, or you might just like telling all of your friends that you’ve got half a million points in your balance.
The danger is that airlines and hotels frequently change the valuation of your points. The first-class ticket you’re dreaming of today may cost 80,000 points, but next month it could cost you 120,000. Plus, some airline miles expire if you don’t have any activity in your account. (Here are five simple ways to keep frequent flyer miles from expiring.)
Even if it sounds cool to be a miles millionaire, points are useless unless you’re turning them into money or experiences.
How to avoid this pitfall: Adopt the “earn and burn” terminology used by frequent flyers. Make sure you are using the points you have and always have a plan to be earning more. By taking inventory of your points periodically, you can be sure you’re turning your rewards into the best experiences that you can have.
Charge wisely, and there will be a lifetime of travel ahead of you!
See related: Rewards card reviews, Travel card reviews, Cash back card reviews, Airline card reviews