Credit Card Tips by Curtis Arnold, CardRatings.com Founder/Public Relations Director
Savvy consumers should carefully consider the following disadvantages
and advantages of airline reward credit cards.
It may be possible to reap more benefits by trading your airline reward
credit card in for a cash back credit card.
1) Most airline
reward credit cards come with annual fees and these fees can be steep. Airline
reward cards that are associated with a particular airline, such as the
American Express Delta Skymiles Gold Card, have the
steepest fees. The Delta Gold Card, for example, comes with an annual price tag
of $85. Cash back cards, on the other hand, normally don't have any annual
fees.
High
fees can wipe out any reward benefit that you might earn from an airline reward
card. This is particularly true if you don't charge a lot on your card. For
example, if you charged $8,500 a year on an airline card, it would take you
approximately three years to earn a free domestic
round-trip ticket (assuming that you must earn 25,000 miles to get a free
ticket). During the three-year period,
you could easily have spent a total of $250 in annual fees. The $250 you spent
in annual fees could have bought you a round trip ticket on many discount
airlines.
On
the other hand, you could have earned at least $250 by spending $25,000 on a
cash back card that offers a flat 1% rebate on purchases. Tiered cash back cards offer even higher
rebate percentages based on your annual level of spending. For example, the
American Express Blue Cash Card, which has no annual fee, offers up to a 5%
cash rebate on select everyday purchases. With this card, if you spent $25,000
your cash rebate would be at least $310 and could be as high as $990 depending
on the type of purchases that you made!
2) Beyond these
rebate advantages, cash back cards have fewer restrictions than airline reward
cards. For example, you don't have to worry about seating restrictions,
the expiration dates of airline miles, or blackout
dates with cash back cards. You simply get your cash rebate check in the mail
or a credit to your account at the end of your anniversary year.
3) A final consideration is that given the current financial challenges facing the
airline industry, airline reward programs are more likely to be scaled back. Card issuers can normally scale back
a rebate program with only 15 days written notice.
Scaling back a program could result in such things an increased mileage redemption requirements or the elimination
of bonus mile offers.
In the worst case scenario, a rebate program could be eliminated entirely.
Despite such disadvantages,
airline reward cards make sense in certain situations.
1) If you have to
travel at the last minute, for example, you may end up paying big bucks for an
airline ticket. Using a free ticket that you earned from an airline card in
this situation could really work to your advantage (advance reservations
are usually required). The same is true with
seasonal price increases in airline tickets.
2) Another plus of
airline cards is that many offer several thousand-bonus miles just for becoming
a cardholder. Cash back cards usually don't offer such incentives
3) A final noteworthy advantage
of airline cards is that many are now offering reduced mileage rewards.
If you don't have enough
miles accumulated for a free round-trip ticket (usually 25,000 miles), then you often have the option
of getting discounts off a round-trip ticket price for fewer miles.
For example, you may be given the option of
getting a $100 savings voucher that can be applied toward any future ticket purchase for only 10,000 miles.
You can find a comprehensive
list of airline reward cards and cash back cards, including reviews, by visiting the "Card Reports" section of our
website, CardRatings.com.
