For most people, planning a vacation means saving money beforehand in order to pay for your trip and accommodations…but that may not be necessary. If you harken back to my newsletter on credit cards, you’ll see that one of the card categories listed is travel reward cards. Specifically, travel rewards cards such as the Capital One Venture X, American Express Platinum Card®, and Chase Sapphire Reserve®cards have “reward points that accumulate as you use the card that can be redeemed for airline flights as well.” As the reward point accumulate, you are able to spend them on flights and hotel stays.
To break this down further, the points accumulated on these cards come from your everyday spending. So let’s say you are shopping at a grocery store, retail store, or restaurant; at the time of purchase, you use your travel rewards card to accumulate points. As these point accumulate, you can often either go on to your credit card’s online portal to redeem these points for flights; or you can transfer points to a hotel and/or airline where you can use the points there. If you have enough points, you will be able to afford a flight and a hotel stay by using the points accumulated from your spending.
There are a couple important caveats to be aware of. First, often time travel reward cards do not have deals on all your regular spending categories. For example, a cash back card such as the Blue Cash Preferred® Card from American Express offers 6 percent cash back at grocery stores and 3 percent back at gas stations. In contrast, the Capital One Venture X card earns 2 miles per dollar on these categories and 1 point per dollar with the American Express Platinum Card® (neither card offers specific rewards for gas stations). So from a bang for your buck perspective, the Blue Cash Preferred® Card offers a better value. However since the Blue Cash Preferred® is a cash back card you receive cash, which can simply be used to fund your vacation via cash instead of points.
There is a best practice here. Ideally speaking, most travel cards provide the most reward points for spending on travel related expenses such as booking hotels and flights (often times you will need to book through the card providers online portal). So in cases where you are spending on travel related expenses, you will want to do so through your credit card portal to rack up these points. If you have a cash back card, you will want to use that card on the categories that yield the most favorable cash back. So if groceries and offer higher cash back rewards than your travel card, use your cash back card. It’s important to note the American Express® Gold Card provides reward points for specific categories like groceries, so in this case you can still rack up travel points instead of using cash back to further increase your travel spending. But in the case that you don’t use the Gold Card and/or have no card that offers a better deal than your cash back card, continue to use your cash back card for those specific purchases where cash back offers the best value.
When it comes time to book your flight, if you cannot pay for the total cost of your trip with your reward points, simply pay the difference between the point value and the remaining dollar cost with the money from your cash back card.
Disclaimer: This is not professional and/or financial advice. This content is for informational purposes only. Before making any financial decisions you should do your own research, evaluate your financial situation, and/or consult a financial professional.