Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions — in 15 minutes or less.
This week’s question is from Janelle. She asks, “I’m brand new to the whole game of credit card points and rewards, and I’m planning a trip for next month. I’m trying to figure out my best option for how to pay for the trip and maximize the points that I earn. Do I open a new card to purchase my plane ticket? I’m considering a number of different airlines and credit card companies, and I’m going to have to rent a car. How do I plan my travel to maximize points?”
Janelle probably doesn’t have enough time to earn points to use for this trip, but there are plenty of ways she can maximize how much she earns on it.
If you fly a specific airline regularly, it may be worth considering that airline’s credit card. You’ll earn more points when you use the card to book flights, plus you typically get other perks such as free checked bags and priority boarding.
If you’re not particularly loyal, a general travel rewards card probably makes more sense. These cards allow you to redeem points for all sorts of travel costs, including airfare, hotel stays, rental cars and even cab fare. Some travel cards even let you transfer points to airline and hotel partners, which gives you even more flexibility.
Travel credit cards can have a learning curve, since each has its own “earn” rates (the point value of different types of spending) as well as “burn” rates (how many points are required for different types of redemptions). Plus the cards may have different perks, such as airport lounge access or travel insurance. If you don’t spend a lot on travel or want to keep it simple, a cash-back card may be a better option.
Also, if you carry credit card balances, you’re better off with a low-rate card since the higher interest rates on travel rewards cards will wipe out any benefit. Once you pay off that debt, though, you can start playing the travel rewards game!
Apply at the right time. Most people book travel weeks or months in advance of their trip. The card itself may take 7 to 10 days to arrive. So you need to apply for a travel rewards card well ahead of your departure. If you hope to use points from a new card to help pay for the trip, plan to apply at least five months in advance so you have time to earn the sign-up bonus.
Earn and burn. Think of each trip as an opportunity to either redeem rewards or earn rewards for a future vacation. Most travel cards offer extra points on certain travel expenses, so you’ll want to know what those categories are and use the card for them.
Don’t go overboard. Be mindful of how much you spend just to earn those signup bonuses and other rewards. Overspending and going into debt will wipe out the value of any points you earn.
Liz Weston: And I’m Liz Weston. As always, be sure to send us your money questions. Call or text the Nerd hotline at (901)-730-6373. That’s (901)-730-NERD. Or email us at [email protected]
Sean: Let’s get to this episode’s question from Janelle. She says, “I’m brand new to the whole game of credit card points and rewards, and I’m planning a trip for next month. I’m trying to figure out my best option for how to pay for the trip and maximize the points that I earn. Do I open a new card to purchase my plane ticket? I’m considering a number of different airlines and credit card companies, and I’m going to have to rent a car. How do I plan my travel to maximize points?"
Liz: Travel rewards, this is something we love. It’s right in our nerdy wheelhouse.
Sean: Yeah, and it’s such a fun game to play, and it can also be kind of as complicated or as simple as you want it to be. So Janelle, in this episode of the NerdWallet SmartMoney podcast, we’re going to talk with travel super Nerd, Sara Rathner, to help you figure out how to maximize the points you can get while traveling, and then we’ll give you some of our favorite travel tips that don’t involve using a credit card. At the end of the episode, we’ll leave you with the takeaway tips so you can put all of your newly acquired knowledge into action.
Liz: All right, let’s get to it.
Sean: Hey Sara, welcome back.
Sara Rathner: Thank you. Glad to be here.
Liz: Hey Sara, what are Janelle’s options? It sounds like she’s just getting started when it comes to credit card rewards, and she has this looming deadline of a trip.
Sara: Well, Janelle, I have good news and bad news, so let me just start with the bad news and get it out of the way. If you’re planning on taking a trip next month and you have not yet applied for any type of rewards credit card, or you’ve just gotten a new rewards credit card, you’re still working on earning that signup bonus, then you probably won’t have the points available when you’re ready to book, because your trip is coming up really soon. It takes like three months to earn the bonus in the first place. Most credit cards give you the first three months to hit that spending minimum, and then it can take at least a billing cycle or two for those points to even show up in your account, so then they’re available to use. So that’s why we generally recommend that you get a rewards credit card at least five months before you book travel with points.
Liz: And if it makes you feel any better, Janelle, a lot of people don’t know this. NerdWallet did a survey a few years ago, and it showed that 83% of consumers apply for cards at the wrong time. They’re forfeiting something like 15,000 miles or points. So Sara, is she totally out of luck?
Sara: Not totally. Like I said, there’s good news and bad news, and so let me share the good news. Janelle, you can use this upcoming trip’s expenses to earn points on a rewards card that you could apply to an even later trip down the line. And that’s, especially when you travel, you tend to spend more on a day-to-day basis than you’d spend at home. You’re spending money on hotel stays every day, renting a car, you’re probably dining out for every meal, and so you can use that higher daily spending to perhaps get closer to earning a signup bonus or even earn a higher rewards rate on certain types of spending, like travel expenses or dining out.
Sean: Yeah, it does seem like a good opportunity for her to jumpstart her points game. As you said, Sara, there are all these expenses that she’s going to have to have, but that said, since she hasn’t chosen a specific card yet, I’m wondering if you have any guidance for the kinds of cards she might want to consider.
Sara: So if you fly a specific airline regularly, it may be worth considering that airline’s credit card, because you earn more points when you use that card to book flights. But you also get other perks, like free checked bags, which could save you about $60 round trip in bag fees. Sometimes you also get things like priority boarding, or if you want to treat yourself to an in-flight snack or beverage, some airline cards will give you a discount on in-flight purchases. So that could be a really good option if you are really loyal to one airline.
Liz: OK. How about those of us who are not loyal? We’ll fly any airline as long as the price is right.
Sara: Yeah, I tend to be more like that myself. General travel rewards cards would probably make more sense in that situation, because they allow you to redeem points for all sorts of travel costs, so not just airfare, but hotel stays, rental cars, and some cards have a really broad definition of what counts as a travel expense, so you can cash in points for train tickets, bus tickets, even cab fare, and that allows you to really, you know, even redeem for some of those smaller travel expenses that you incur day to day. Some travel cards even let you transfer points to airline and hotel partners, so you can still use those cards sort of like the way you would use an airline or hotel card, but with a little bit more flexibility built in.
Sean: Another thing Janelle should be thinking about when shopping around for a card is where she spends her money. If you don’t travel more than say five times a year, she might actually be better off with a general cashback card that can help you get more points where she spends her money most often. That happened to me when I was first getting into the points game myself. I thought that travel credit cards were the way to go, but I realized that I spend way more money on everyday expenses like groceries and gas, so I got a different card that gave me points for those things.
Sara: That’s kind of like the center of the Venn diagram you want to find. You want to be rewarded more where you spend the most money.
Liz: But you also need to think about where you are going to redeem those points. Sara, how do you decide between a travel card or a cashback card?
Sara: A NerdWallet study found that if you spend about $8,000 or more per year on travel or you take one international trip per year, you’ll get more value out of a travel rewards card, and otherwise you may find cashback cards to actually be a better fit, and you can always use the cashback you redeem to pay for travel, which makes it kind of like a different type of credit card in a way.
Sean: I don’t know about most folks, but to me, spending $8,000 a year seems like a lot of money. Hearing that figure makes me wonder if all of this hype around travel credit cards might just be the result of super-effective marketing and all of the travel influencers on social media and maybe not actually based on how most people spend their money or how much they actually travel.
Liz: Cashback is a heck of a lot simpler on top of that. There’s a real learning curve when you’re trying to figure out travel cards. You have to understand where you’re earning your money, what your earn rate is, how you spend it, what the burn rate is, which is basically a term for how you’re using your points, and cashback is simply you get a certain percentage back either as a statement credit or as an automatic rebate. Now, our family travels a lot and we get a ton of value out of our travel cards, but they don’t make sense for everybody.
Sara: You know, Sean, you mentioned that $8,000 sounds like a lot of money, but if you think about your typical international trip, especially if you’re traveling as a family or you have your family of four or more and you travel a couple times a year domestically to visit relatives in other states, that could be a week or two of restaurants for every meal, hotels every night, a car rental, even like tickets to tourist attractions and museums. And that’s before you buy four roundtrip flights. And if you’re looking at an international trip or even a cross country trip, you could be spending a few hundred or even over $1,000 per ticket, and travel rewards cards can help offset those costs by hundreds or even thousands of dollars. Oftentimes, your trip may not be completely free, but it could be subsidized.
Sean: Yeah, I guess it depends on folks’ individual circumstances, which is why it’s important to map out your travel and estimate how much you might spend on a given trip beforehand, so you can figure out which card might be best to use. So let’s say Janelle does decide to go with a travel card. Many of them charge an annual fee, and some can even be hundreds of dollars. Sara, how do you think about when and if an annual fee is worth it?
Sara: So if the value you get out of the card is higher than the cost of the annual fee than yes, it can be worth paying that fee. So when you think about what counts as a value, so that includes the dollar value of all the points that you earn that year, not just through your spending but also through earning a signup bonus if the card offers one, plus the dollar value of any additional benefits the card provides that you also use.
Liz: Now, this can get so complex that some of us have spreadsheets where we actually track these things, and those extra perks are really important. That can include something like an airline lounge membership, which is really important to our family. It could be getting free Global Entry with a card.
Sara: Right. You know, Global Entry for example, is worth $100, and then the membership lasts about five years. So the thing to remember, though, is you actually have to use the perk to get value. So for example, if your card offers Global Entry, which you should totally get by the way, because it’s awesome, if you didn’t use it then technically you didn’t get that $100 perk, so you can’t, if you’re looking at what you spent and what you used at the end of the year, you can’t really offset that $100 from your total annual fee in that case.
Liz: And I’m going to go off on a little tangent here, because there are some perks that are really tough to value, like some credit cards offer trip cancellation insurance or trip interruption insurance, or they might offer primary insurance on a rental car, which means your insurance company doesn’t have to be involved if you get into an accident. I personally find those perks really super important, but I’d have trouble putting some kind of dollar value on them.
Sean: Another thing I’m wondering about here, Sara, is timing. Janelle said that her trip is coming up in a month. Do you think that’s enough time to apply for a new card, get approved, and receive the card in the mail, and what options does she have if the card doesn’t get to her by the time she leaves for her trip?
Sara: Yeah, that unfortunately can be an issue, because once your application is approved for a new card, it generally takes 7 to 10 business days for that card to arrive in the mail. There are some cards that actually provide your new number immediately so you can begin using them the moment you’re approved. But usually, I mean, providing a credit card number is generally only helpful if you’re buying something online. It’s not necessarily, you know, you can’t just like give a waiter at a restaurant your credit card number and expiration date and hope that they’re like, “Yeah, fine. That works."
Sean: Or don’t pocket it for later.
Sara: So that’s why it’s important to time credit card applications really carefully. Obviously, sometimes you have to book travel at the last minute, especially if it’s work travel or for a family emergency, but normally people book trips at least six weeks in advance, if not longer. And so if you think that you’re about to book a trip, then it’s time to apply for a credit card.
Liz: And something we need to mention always when we’re talking about travel cards and rewards cards in general, is that you can’t be carrying a balance. You need to watch your spending, make sure you don’t blow your budget, and make sure you’re not charging more than you can pay off in full every month.
Sara: Absolutely. That is, more than anything about rewards cards, that’s the most important lesson to take away. If you currently have credit card debt, these travel rewards cards do have pretty high interest rates. And so what you’re paying in interest on a revolving balance is going to wipe out any benefits of any points that you’re going to earn.
Sean: If you do carry a balance, try to get that on a low rate card so you’re not paying a ton in interest. But one last thing I want to touch on is that some of the most creative travel tips don’t involve using a credit card. So just for fun, after that brief stint into the credit card debt realm, I want to hear your favorite travel tips. What are your number one travel hacking tips that don’t involve a credit card?
Sean: I can go first. I’m really all about traveling in the off season. Florida in February is great. Scotland is beautiful in the middle of winter, and since most people don’t want to be there at that time, I’ve saved a ton on travel over time.
Sara: Yeah, I’m also a huge fan of off-season travel, because not only do you save a pretty substantial amount of money, but also most places are way more pleasant to visit when you’re not dealing with huge crowds. So I went to Italy this past October. It’s not their high season. Most people tend to go in the summer. A lot of their cities are kind of over touristed, especially Venice. Venice is a small city, and it doesn’t really have the capacity to handle the kinds of tourist crowds they get in the high season. But we practically had the city to ourselves, and it was magical.
Liz: I love home exchanges. We’ve done this a few times, and we’ve saved a ton of money, because that’s really probably one of the biggest areas where you’re spending when you travel. Everybody focuses on the airline tickets, but if you stay for an extended period of time, you’re going to spend a lot more money on that hotel.
Liz: And Janelle, to answer your question, to maximize points, it’s all about using the right card at the right place. So we hope you have a great trip. Let us know how it turns out for you.
Sean: Yeah, please do, Janelle. Thank you guys for sharing your tips, and thanks, Sara, for talking with us.
Sara: Thank you for having me back.
Sean: All right, let’s get to our takeaway tips. First, apply for a travel rewards card at least five months before the trip you plan to redeem points for. That will give you enough time to earn and receive the signup bonus.
Liz: And think of each trip as an opportunity to either redeem rewards or earn rewards for a future vacation.
Sean: Lastly, be mindful of how much you spend just to earn those signup bonuses. Overspending and going into debt will wipe out the value of any points you earn.
Liz: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901)-730-6373. That’s (901)-730-NERD. You can also email us at [email protected] You can even email us voice memos of your questions. However you want to send them to us is fine. Also, visit nerdwallet.com/podcast for more info on this episode, and remember to subscribe, rate, and review us wherever you’re getting this podcast.
Sean: And here’s our brief disclaimer, thoughtfully crafted by NerdWallet’s legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz: With that said, until next time, turn to the Nerds.