How Do Credit Card Points Work for Travel (A Beginner’s Look)
In today’s day and age, we’re bombarded with credit cards everywhere we turn; from tv commercials to mailers trying to get us to sign up for the latest card, it can easily leave you with more questions than not. Are credit card travel rewards too good to be true? What’s the catch? Believe me, I totally understand the skepticism. There is so much packed into this hobby of credit card travel rewards that it can easily get overwhelming and lead you to believe that it’s all too good to be true. So, let’s demystify travel rewards a bit and make it a little less scary. If you feel like you’re ready to jump in and start choosing your first card, feel free to read this post HERE where I talk about how to get started, if not keep reading.
Getting Started
When it comes to travel rewards it can get daunting very quick, but let’s simplify things to make it less scary. Different banks have different credit cards that they offer, and they want to attract as many customers as they can to apply for and use their product. On the other side they work with different airlines or hotels and buy points in bulk which is how the bank allows you to earn points on your purchases. You then can turn around and use your points or miles that you’ve accrued to redeem for flights or hotel stays. This is travel rewards at its simplest and once you start getting into it you quickly realize that there are many ways to play the game, and the best part there is no right or wrong way. It’s simply what works best for what your travel goals are.
Before we continue, I want to share a quick story that really set me on this travel rewards journey. I remember I was taking an introductory marketing class in college and the topic of credit cards came up. I’m not sure the exact reason, but if I were to guess we were discussing the Capital One Quicksilver commercials that starred Samuel L. Jackson, as those had become very popular at that time to market those cards. Anyways, I remember the professor asking the class how many of us had a credit card. Of course, all of us raised our hands. But it was his follow up question and his response to our response that has stuck with me to this day. His follow-up question was “How many of you in here have a credit card that doesn’t give you some type of rewards?” At this point only a small handful of students in our lecture hall raised their hands. The professor looked at that handful of students and said “What’s wrong with you? These companies are willing to give you rewards for using your card the way you already are.” That stuck with me! Now you should always aim to use your credit cards responsibly and make sure you pay them off and avoid carrying balances over that accrue interest. But to the point my professor made, they are willing to give you something for free for using their product.
Ways to Earn Points
From this point I was determined to learn more about this hobby and in doing so I found that it can and does work. In this post HERE, I begin talking about my latest challenge for our next trip to Japan. But let’s address the next layer in understanding this points and miles hobby, and that’s how you earn points. Credit card companies essentially give you a few key ways to earn points/miles. The biggest and easiest way to accrue a lot of points quickly is through sign-up bonuses. Now these can vary between card issuers, but an example of a sign-up bonus could be: Earn 100,000 points when you spend $5,000 in the first 4 months after card opening. Sign-up bonuses are a one-time bonus that you can earn when you first get your new credit card (some issuers may allow you to earn another bonus after so many years but for simplicity we’ll skip over this for now). The next way you earn points is on your everyday spend. Everyday spend can be whatever you use your card to purchase on a daily basis; things like gas, groceries, eating out at restaurants, etc. And lastly, there can be bonus categories which will vary by issuer and card. But things like travel spend can be considered a bonus category, or if a card from an issuer has its own travel portal, sometimes spend on the card through the portal will trigger a bonus multiplier. Some cards offer bonus multipliers on gas, groceries, and restaurants too. So, this is where research comes into play and you can determine which spending categories are your top and choose a card that will allow you earn the maximum amount of points.
The points that you earn are your currency that can be used with the airline or hotel that your card is tied to (i.e an American Airlines AAdvantage card, Hilton Honors American Express card). Flexible points currency cards still earn a points currency, but rather than being tied to one specific brand, they allow you to transfer your accumulated points to various transfer partners, which is where the term flexible points currency comes from. Now while some credit cards allow you to use your points to get statement credits, this usually isn’t the best use of points from a value perspective so my best encouragement is to view them as a currency that you will eventually use to book a flight or hotel.
Keep It Simple
Now, all this talk about credit cards and the points they earn can start to raise many concerns. The first I can think of is “Do I need to have a lot of cards to make this work?”. I personally don’t feel like you have to have 20+ cards to make this work. You can simply have one, maybe two cards, and have a solid way of earning points. Another, “Don’t I need to travel often to make this worth it?”. You don’t have to travel frequently either. You can allow your points to build on your everyday spend, and then when you have a trip you want to take, you’ll have a healthy dose of points to use towards the trip. And one last concern could be feeling like you need to make a lot of money to make this work. I’d argue that this is not true. While yes, higher spend means you can accrue more points faster, don’t forget we all have everyday spending that we do that can be a way to earn points towards travel, especially in today’s age where most things are paid for on credit cards.
To give a real-world example, I currently use two cards primarily. For the sake of keeping things simple, I’m not going to get into specific cards but rather talk about the categories I use those cards for. Now the first card I use earns me decent multipliers on food and groceries. So, whenever my wife and I go out to eat or need to pick up something from the grocery store, card number one comes out of my wallet to make the purchase. Card number two is used primarily for gas but also as a catch all card for anything that doesn’t fall under those special categories of restaurants and groceries. Now, one of the cards is a transferable points currency card and the other is a dedicated hotel card. On the transferable points currency card I can earn anywhere from 2,000-4,000 points per month. And then on the hotel card I can usually earn around 7,000-10,000 points per month. That may not seem like a lot of points but my wife and I only really take one really big trip per year and even then I don’t always deplete all of our points every time we take a trip. Sometimes it’s using some of our points to discount the trip while saving for a bigger travel goal in the future. This gives our points can grow and be used for something like what I’m planning for our next Japan trip.
Bottom Line
Now that you have a more general understanding of the credit card points hobby, it’s time to get your feet wet. I have a couple of posts that could be helpful depending on where you feel you are.
For those that want to start from square one, I’d recommend starting with this read HERE. And then for those that feel like they want to jump to a two-card strategy to better optimize your points earnings based on your monthly spend, then you can start HERE. And at any point if you have any questions feel free to reach out to me via the contact page on the site and I’d be happy to provide any recommendations based on your needs. Best of luck on your credit card journey!
