Credit Cards Miles and Points Thoughts

Do we overrate travel credits on high annual fee credit cards?

I thought long and hard about getting the new US Bank Altitude Reserve card. The card definitely looks like a potential big winner. People (not me) who can maximize the 3X mobile payments bonus might really have something on their hands. Ultimately, I decided to pass on the card for now. One of the main reasons for this is my belief that I’ve begun to overrate credit cards travel credits. I’ll present my reasons why and I’m also curious to hear what others think in the comments below.

This post serves as a bit of a corollary to my post on all the credit card annual fees I theoretically need to pay. Readers, you’ll be happy to know I’ve canceled/downgraded 3 cards since then with 2 more planned for this month. 🙂 

You still pay a huge annual fee 

I’ve long believed that getting, for example, a $300 travel credit on the Chase Sapphire Reserve means I’m essentially paying a $150 annual fee. This kind of language often gets used when people try to sell you credit cards. As my thinking about the game evolves, I’m not sure I quite believe that anymore.

Bottom line, you still pay $450 a year. Yes, you potentially get $300 of that back, but you still need to drop the cash up front. But if your finances are tight, you still need to front a significant amount of money. While that may not be my particular circumstance, the high annual fee that I actually need to pay in cash flows into all the reasons I am starting to find travel credits overrated. For my particular circumstance, of course.

When you have multiple travel credits, they become harder to redeem

While we just took a big trip to Hong Kong, for one reason or another we plan to travel less than usual for the remainder of 2017. (Related: two 15 hour flights with two little kids). We booked our Hong Kong flights on points and stayed in a relative’s apartment. That means the only travel credits useful to us on this trip came from Chase Sapphire Reserve. Admittedly, we have two of these, so that’s $600 in reimbursements, but we didn’t use all that up for our taxis and trains. (Hmm, should have tried to buy my Hong Kong Disney tix to test…woops).

Meanwhile, my three $200 AMEX Platinum airline credits and one $250 Citi Prestige airline credit lay dormant and useless. Now, if you state that you have $1450 in travel credits, that sounds great! But in reality, especially for a family that is cutting back on travel for a bit, that’s not particularly useful.

But you can buy airline gift cards with your travel credit! (But then you need to keep track of them)

So admittedly, my $600 in AMEX airline credits actually are no longer available to me. That’s because like any good travel hacker I redeemed them for airline gift cards way back in January. Now, again, I used to use this to justify the annual fee – I’m only paying annual fee minus travel credits total!

Well, you only get value from the travel credits if you actually use them. And between canceled Jetblue flights, United compensation, Delta compensation, and AA and DL travel credits from AMEX, I’m sitting on like $800-$1000 of travel credits. Credits that I likely will only use on domestic flights, which I’m taking very few of this year.

So, suddenly I need to keep track of all these credits that will not be used for awhile. It’s easy to make a mistake and just lose that “money”, which actually was never really money to begin with. So one thing I’d recommend is for you to ask yourself whether travel credits fit in with your travel goals. If not, you might find yourself losing flexibility or buying flights just to buy them and less because they fit in with your goals. 

Travel credits and points can become mutually exclusive

If you’re traveling 10+ times a year this probably won’t be an issue for you. But I keep running into this problem where I can either use travel credits to pay for travel or use points. So I naturally opt for using my travel credits first, but then why did I earn all these points?

Basically, this comes back down to “resources you aren’t using are wasted.” You can hoard travel credits just like you hoard points and there are only so many rainy days. So make sure travel credits aren’t getting in the way of redemptions that you want to make. Which brings me to my most important point.

When you use travel credits, you are paying cash for travel

I think Free-quent Flyer said this somewhere awhile back (Update: he did! Further proof I am just three years behind his curve), but it never clicked with me. Travel credits = paying cash for your travel. You paid cash for your annual fee, and some of that cash went to pay for your travel. If I use $200 in AA gift cards that I got from AMEX Platinum, I paid $200 for those flights!

But what’s even worse is this. When I said above that I need to decide between using travel credits or points, what I’m actually deciding between is using money I already spent or points. Which is why using the travel credits is a no brainer.

But if your whole goal is to save the amount of cash you pay on travel, travel credits run counter to that. They force you to pay cash for your travel! And remember, you can’t invest points in your kids’ college education or your retirement, only cash. So if you pay cash for your travel in the form of travel credits, that’s less money into those accounts. Makes me think.

Final Thoughts

So yes, in the end, I think travel credits are a bit overrated. (Update: Dustin agrees with me too.) Don’t get me wrong, they are great, but from this point forward I’m not going to let them be a selling point in getting a credit card. A credit card must bring good value to me regardless of the travel credit, because the travel credit forces me to pay cash for my travel. Obviously this year is a bit of extreme for our family due to lighter travel loads (I hope to ramp up again in 2018), but I think I’ve learned a valuable lesson from it.

What do you think, are travel credits overrated or an important part of deciding whether to get a card? Let me know! 

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I've been wondering whether I overrate high annual fee credit cards travel credits. Do they really offset and justify the high annual fees?

Just an average joe trying to fly his family for less

28 thoughts on “Do we overrate travel credits on high annual fee credit cards?

  1. Most of the time I agree with you, but there are a few instances where the travel credits are a really nice addition to the card. Here are the ones that I think are the best in order from best to worst:
    1) Ameriprise Amex Plat. I got mine with a 25k MR signup bonus (admittedly not currently available). But you get essentially $400 worth of airline GCs for free since the AF is waived the first year. Plus all the benefits of Amex Plat for free. Side note: the hotel status that this gets you ends when you cancel the Plat, so only signup for this one when you know you’re gonna use that status OR when it comes with the 25k signup bonus.
    2) WF Propel comes with 40k signup bonus, plus a $100 travel credit. I used mine for an AA GC. And b/c the AF is waived the first year, the travel credit is truly free. Also, due to their AF refund policy it should be possible to get 2 $100 travel credits (Flyertalk has positive data points, and I plan to test this out in early July). That’s $200 in airline GCs ON TOP of the signup bonus which is worth at least $400.
    3) CSR. First off, you get it twice so that is $600 worth of travel credit for $450 (25% off). Second, this by far the easiest to use (as you’re aware of). But I’ll also throw out that it counts for Viator bookings. That can get you into a decent number of attractions….making it even easier to use and not mutually exclusive with airline/hotel miles/points.
    4) Prestige. As with CSR, you get this twice, but it’s not nearly as useful as CSR. Also, because of the way Citi does their AF refunds, I was able to get this 3 times by signing up close to the end of the year (check Flyertalk). Plus if you time this with a late in the year Citi checking account signup bonus, you can make a couple hundred bucks off of that and get the reduced AF. I signed up for the Citigold, earned $300 cash for that. Then got the reduced $350 AF on the Prestige (net of $50). And for that I got $750 in airline GCs plus 100k (now 50k) points. Even if you look at the Citigold as cash (and not as an offset of Prestige), you’re still paying $350 for $750 worth of airline GCs (55% off).

    1. Good points. Definitely if the annual fee is waived you’re not fronting any cash which is great! That changes everything, though I still have more gift cards than I know what to do with…

  2. That’s why I’ve argued that the best airline travel credit is on a card like the AMEX Personal gold card bc it is actually free when there’s no annual fee the first year.
    As for a card like the sapphire- annual fee charges $450. You now owe $450. You then spend $300 on an airline ticket. Your balance is temporarily $750! The travel credits kick in and now you’re back to $450.
    When did your annual fee become $150? It didn’t.

  3. You said “Readers, you’ll be happy to know I’ve canceled/downgraded 3 cards since then with 2 more planned for this month”. So which ones are cancelled and which ones are in the pipeline?

  4. If I 1) got approved for the Sapphire Reserve, 2) paid the $450 annual fee, 3) purchased a $300 round trip airline ticket from the West Coast to Chicago, and 4) got a credit of $300, then I received a free airline ticket to Chicago. That free airline ticket is worth $300 to me and therefore, the way I see it, I paid $150 for the use of the credit card. Yes, I still paid out of pocket the $450, but I got a free plane ticket to Chicago that I would not have received if I didn’t pay the fee. Or the way Joe sees it, I paid $300 cash for the plane ride to Chicago and $150 for the use and benefits of the credit card. If I had so many credits from other sources (like other credit cards with travel credits and travel credits directly from the airlines), then maybe I would not have the opportunity to use them all. For the person who travels once in a while, the Sapphire Reserve is worth it to me and the travel credits do make a difference.

    1. Definitely. I think the travel credits make a difference, but they don’t factor in as much in my personal thinking as they used to

  5. Forgive me as I am still quite new at the points/miles game, but isn’t this a case of pay now / fly later? If you pay a fee (up front) in January, but don’t fly/travel until July, you’ve given a $300 advance (as part of the fee). That money has lost any potential for earning intrest (for you) over those 6 months and you’ve given that ability over to the CC/Bank (I get it, that’s their game).

    So technically, the longer you wait to use the ‘credit’ the greater the potential loss to the user is right? I know it’s, a minor sum, but if you’ve multiple credits across cards that could add up right?

    Am I thinking about this from a wrong perspective?

    Do these high end travel cards still award points when you make purchases that qualify for travel credit reimbursement?

    Thanks for any and all insight into this. 🙂

  6. YES! Travel credits are overrated.

    If you wouldn’t have paid $300 cash for a flight, then it’s wrong to value the $300 credit as a $300 discount to your annual fee. There’s a good chance you could have generated enough points/miles for the $300 flight at a cost far below $300.

    If, on the other hand, you redeem the credits for something that couldn’t be otherwise discounted (taxis and airbnb come to mind) then you’ve got a case for counting the credit at face value.

    Unfortunately most people I’ve heard from aren’t using their credits for items in the latter set.

  7. I think you need to distinguish between types of credits. Amex credits are less flexible, and lead to gift cards rather than reimbursement. They aren’t functionally useful for use with taxes and fees, for instance. I’ll take them of course, but I agree they should not be valued as if they were cash. Prestige credits seem different to me, the additional flexibility makes them useful in ways that gift cards are not. I personally value Gift Card credits at 30-50% of value, whereas reimbursable credits are more like 90% of face value. I feel OK subtracting the latter, but not the former.
    That said, the absolute best credit was the MPX credit via United and Amex. That was truly as good as cash.

  8. My husband’s CSR had his travel credit used up on a hotel stay for work, which his employer reimbursed. So, in his case, his annual fee got knocked down.

    But in other cases, I agree you are paying for it

  9. The overratedness of travel credits depends on the card it is coming from. CSR? No, definitely not overrated. The credit is incredibly flexible and it’s almost as good as cash. Meaning, that $300 is most likely going to be spent regardless if you have the card or not (public transport, parking, Uber, etc.) Not to mention, you’ll get 900 UR points out of it.

    The Prestige travel credit is debatable. Just depends on your travel habits and how often you need to pay for airfare. Even if you only fly on award flights, there are almost always taxes and fees involved, so the Prestige travel credit can definitely come in handy there. If you’re transiting through Heathrow on an award, with a family in tow, you’d wipe out that credit in one shot, just on the taxes and fees.

    When it comes to the Amex travel credit, I think that’s the one where you could make a strong argument that it is overrated. You’re limited to one airline, it’s in the form of gift cards, and there’s no guarantee that gift cards will even trigger the credit, since they could kill that loophole at any time. Basically, you’re taking a gamble every year.

    1. You definitely have the credits pegged in the correct order. I’ll probably consider canceling CSR for like 5 seconds before deciding to keep it come August. But Prestige and Platinum are definitely potentially gonna get the chop

  10. Only using points and never paying cash for flights is mathematically unsound. Depending on the ¢pm sometimes cash is absolutely the better choice, in which case the credits come into play. And spare me the nonsense about being points rich/cash poor, everyone who dabbles in this hobby is firmly middle class or better.

    1. I def agree most ppl are middle class or better, but I’m pretty sure FQF is not, to give a prominent example. You can definitely get better cpm by paying cash, my only point is points can’t always be exchanged for cash, but cash can always be used to buy things points can buy.

      Also, even for middle class people, cash can be invested into the stock market, points cannot. It’s not like I said they were useless, I just said they can be overrated. Thanks for commenting!

  11. Any thoughts on the Ritz Carlton travel credit and how to use it up? I have about $200 and can’t travel for the remainder of the year. Thanks!

  12. You have raised great points. I will raise one exception, reimbursed business travel. My husband travels sometimes for work, and he puts expenses on his CSR, and is later reimbursed. The $300 travel spending/credit is essentially paid for by the company, and he earns 3x per dollar (even on that $300 reimbursed), so his effective annual fee becomes $141 in this scenario.

    My own CSR, however…it is paid with our own cash travel. So. Yah.

    1. Oh yeah…if I was a business traveler I’d be all over this! Also, to counterpoint myself a little bit, since I wrote the post I have discovered that CSR does reimburse some really random things – like my parking tickets/parking permits in my town. So, that sort of is a net gain.

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