Thursday, April 18, 2024

How to use a credit card to save money on plane tickets, hotels, and more

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It seems that, post-pandemic, Americans are making up for lost time and hitting the restart button on their travel plans. But it comes at a cost. 

A report by the U.S. travel association showed that travel spending hit $97 billion in December—7% higher than 2021 levels. The most recent Consumer Price Index shows that airline fares are up more than 28% year-over-year. 

With the cost of everyday goods on the rise, consumers will have to be savvy about how they plan and pay for travel. The good news—if you have the travel bug and plan to explore new places this summer, you likely have a money-saving trick right in your pocket: Your credit card

What is a travel credit card? 

A travel credit card is a type of rewards credit card that gives you the opportunity to earn rewards points or miles for your spending that you can later be redeemed for flights, hotels, and rental cars. Travel cards can also give you access to airport lounges, free checked bags and priority boarding, trip insurance, discounted in-flight purchases, and more. 

If you’re a frequent traveler or tend to favor a particular airline or hotel, travel cards can be a great way to help you earn rewards for spending you already planned to do and save on future trips. But, fair warning, a travel card could become less of an asset and more of a liability if you aren’t traveling enough. 

“Unfortunately, travel rewards cards often come with high fees and the actual value of the benefits you receive can get pretty confusing. For many people that do not travel often or have concentrated spending, a flat cash-back rewards card typically makes the most sense,” says Brian Walsh, certified financial planner and senior manager of financial planning at SoFi, a personal finance company. 

How your travel card can help you cuts costs 

While you’re planning your summer travel, it’s easy to become overwhelmed by flight prices, hotel rates and fees, and whether or not to purchase travel insurance. Luckily, your travel card can help you save on those expenses in a few different ways: 

Airfare and hotel costs: Airline tickets can often be the most expensive part of your trip depending on where you’re flying, the type of ticket you purchase, and how soon you’ll be traveling. Several credit cards have their own travel booking platforms that offer discounts on airline tickets or hotel stays and let you redeem your rewards for ticket bookings. The Capital One Venture Rewards Credit Card, for example, lets you use your miles to get reimbursed for any travel purchase—or redeem those miles by booking a trip directly through Capital One Travel. 

Rental car costs: In the top rental car markets, daily rental car rates can range from $20 to $80 per day, according to Hopper. Your travel card rewards could be redeemed for a rental car reservation. And, it doesn’t stop there. It’s not uncommon to be hit with a long list of fees at the rental car counter, but if you carry a travel card, you may already be covered. The Platinum Card® from American Express covers up to $75,000 per rental agreement for damage or theft, which applies after any claims you make with your primary insurance; and all Bank of America consumer credit cards provide secondary rental car coverage. 

Travel insurance: When you’re booking travel, you’re probably not accounting for everything that could possibly go wrong. Inclement weather, illnesses, family emergencies, you name it. In these cases, travel insurance can be a financial lifeboat. Although, It does come at an additional cost. According to SquareMouth, a travel insurance company, the average cost for a travel insurance policy stands at about $271. This amount can vary drastically depending on the length of your trip, number of travelers, total trip cost, and more.

Certain credit cards offer travel insurance that will cover the cost of trip cancellations, lost baggage, trip delays, emergency evacuation and more. The Chase Sapphire Reserve card covers cancellations or interruption up to $10,000 per person and $20,000 per trip, and when your trip is delayed more than six hours, you and your family are covered up to $500 per ticket. It also offers lost baggage reimbursement of up to $3,000 per passenger per trip, even when your luggage is damaged, and baggage delay insurance for delays of more than six hours (up to $100 a day for five days).

Foreign transaction fees: Any time you make a purchase overseas or online from an international merchant, you’ll likely pay a foreign transaction fee. This fee is split between your credit card issuer and your credit card network and is charged as a small percentage of your total transaction, usually 1% to 4%. Many travel credit cards don’t charge foreign transaction fees to help frequent travelers reduce costs while they’re using their cards abroad. 

How to choose a travel card  

Not all travel cards are the same. It’s important to read the fine print to learn more about how each card works, the interest rate offered, if the card comes with a sign-up bonus, how to qualify for any introductory offers, and more. When choosing a travel card, you’ll want to ask yourself a few key questions to help you narrow down your options.

  1. Are you prepared to pay an annual fee? Travel card perks can have a lot of value, and as a result, you may be charged a steep annual fee for using those benefits. When comparing cards, determine if the perks being offered will help you save enough money to justify paying the annual fee you’ll be charged. 
  2. Does the card’s requirements and rewards structure reward your spending habits? Some travel cards require that you spend a minimum amount to qualify for their sign-up bonus. If you’re not able to spend that amount or have to overspend just to qualify, that travel card may not be for you. You want to select a card that rewards spending you already plan to do. “You have to analyze your overall spending. At the end of the day, you may realize that you spend way more on gas and groceries or household bills than you do on travel throughout the year,” says Woroch. “With this in mind, you may be better off getting a flat-rate cash back card which will help you earn more across all spending categories and then save that money you earn to pay for your upcoming travels.” 
  3. What kind of sign-up bonus is being offered? Many travel cards offer a lucrative sign-up bonus, and while this shouldn’t be the sole reason for choosing one card over another, it’s something to consider, especially if you have upcoming travel plans. “You can earn a sign up bonus for opening a new credit card that offers you enough miles or points to pay for some of your travel expenses such as your flights or hotel stay,” says Andrea Woroch, consumer and money-saving expert. “Even if the extra rewards you get don’t cover the entire roundtrip flight, you may get enough points to cover at least one leg of the trip which can significantly reduce your travel costs.”

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