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Posted on: 06 Sep 2023
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For frequent travelers, the allure of racking up frequent flyer miles, enjoying priority boarding, and snagging free flights with an airline credit card is undeniable. But are airline credit cards truly a smart financial move for everyone? This comprehensive guide explores the pros, cons, and crucial considerations to help you determine if an airline credit card aligns with your spending habits and travel goals.
Understanding Airline Credit Cards
Airline credit cards are co-branded credit cards offered in partnership with specific airlines. They function like regular credit cards, allowing you to make purchases and build credit. However, they also offer unique travel-related rewards and benefits, primarily in the form of frequent flyer miles or points that can be redeemed for flights, upgrades, and other travel expenses.
How Airline Credit Cards Work
When you use an airline credit card to make purchases, you earn miles (or points, depending on the program) for every dollar spent. The earning rate typically varies depending on the card and the spending category. For instance, you might earn more miles per dollar spent on airline tickets or dining than on other purchases. These accumulated miles can then be redeemed for flights on the partnering airline or, in some cases, with partner airlines within the same alliance.
The Pros of Airline Credit Cards
Airline credit cards can offer significant advantages for frequent travelers who are strategic about their spending and redemption habits. Here's a breakdown of the key benefits:
1. Earning Frequent Flyer Miles Quickly
One of the primary benefits of an airline credit card is the ability to earn frequent flyer miles at an accelerated rate. Every purchase you make contributes to your mile balance, bringing you closer to your next free flight or upgrade. Many cards also offer bonus miles for specific spending categories, such as travel, dining, or gas, further boosting your earning potential.
2. Sign-Up Bonuses
Airline credit cards often come with generous sign-up bonuses, offering a substantial number of miles after you meet a minimum spending requirement within a specific timeframe. These bonuses can be a quick and effective way to accumulate a significant mile balance and potentially redeem for a free flight almost immediately.
3. Travel Perks and Benefits
Beyond miles, airline credit cards often include valuable travel perks, such as:
- Free Checked Bags: Save money on baggage fees every time you fly.
- Priority Boarding: Enjoy a more relaxed boarding experience and secure overhead bin space.
- Lounge Access: Relax and unwind in airport lounges with complimentary food, drinks, and Wi-Fi.
- In-Flight Discounts: Receive discounts on in-flight purchases, such as food, beverages, and entertainment.
- Travel Insurance: Some cards offer travel insurance coverage, including trip cancellation/interruption insurance, baggage delay insurance, and rental car insurance.
4. Elite Status Qualification
Some premium airline credit cards offer benefits that contribute to earning elite status with the airline. This might include bonus miles that count toward elite status qualification or even a direct path to a certain elite tier. Elite status offers even more perks, such as upgrades, priority check-in, and bonus miles on flights.
5. Flexibility in Redemption
While airline credit card miles are primarily designed for flights, some programs offer flexibility in redemption. You might be able to redeem miles for:
- Hotel stays
- Car rentals
- Merchandise
- Gift cards
- Experiences
However, it's crucial to note that the redemption value for non-flight options is often lower than for flights.
The Cons of Airline Credit Cards
While the rewards and benefits of airline credit cards can be enticing, it's essential to be aware of the potential drawbacks before applying. These cards are not a one-size-fits-all solution, and certain factors might make them less suitable for some individuals.
1. Annual Fees
Many airline credit cards charge annual fees, which can range from a modest amount to several hundred dollars. These fees can offset the value of the rewards and benefits if you don't travel frequently enough or don't maximize the card's perks. Carefully consider whether the annual fee is justified by the value you expect to receive.
2. High Interest Rates
Airline credit cards typically have higher interest rates compared to other types of credit cards. Carrying a balance on an airline credit card can quickly negate the value of any rewards you earn, as interest charges accumulate rapidly. It's crucial to pay your balance in full each month to avoid interest charges and maximize the benefits of the card.
3. Limited Redemption Options
While some programs offer flexibility in redemption, airline miles are primarily designed for flights on the partnering airline. This can limit your travel options if you prefer to fly with different airlines or travel to destinations not served by the airline. Consider whether the airline's route network aligns with your travel preferences before committing to a card.
4. Blackout Dates and Availability
Redeeming miles for flights can sometimes be challenging due to blackout dates and limited award seat availability. This means that you might not be able to book flights during peak travel seasons or on popular routes, even if you have enough miles. Planning your travel well in advance and being flexible with your travel dates can increase your chances of finding award availability.
5. Potential for Overspending
The desire to earn more miles can sometimes lead to overspending, as you might be tempted to make unnecessary purchases just to accumulate rewards. It's essential to stick to your budget and avoid spending more than you can afford, regardless of the potential rewards. Treat your airline credit card like any other credit card and use it responsibly.
Key Considerations Before Applying
Before applying for an airline credit card, consider the following factors to determine if it's the right choice for you:
1. Your Travel Frequency and Habits
How often do you fly, and with which airlines do you typically travel? If you only fly a few times a year, an airline credit card might not be worth the annual fee. If you are loyal to a specific airline, an airline credit card might be a great fit. If you prefer the flexibility of using different airlines based on price and convenience, a general travel rewards credit card might be a better option.
2. Your Spending Habits
Do you typically pay your credit card balance in full each month? If not, the high interest rates on airline credit cards can quickly negate the value of any rewards you earn. If you tend to carry a balance, focus on paying down your debt before applying for a new credit card.
3. Your Financial Goals
What are your financial goals? Are you trying to build credit, save money on travel, or earn elite status with an airline? Consider how an airline credit card fits into your overall financial plan.
4. The Card's Terms and Conditions
Carefully review the card's terms and conditions, including the annual fee, interest rates, earning rates, redemption options, and any other fees or restrictions. Make sure you understand the card's features and limitations before applying.
5. Alternative Travel Rewards Options
Explore other travel rewards credit cards, such as general travel credit cards that offer points or miles that can be redeemed for travel with any airline or hotel. These cards often provide more flexibility and can be a better option if you are not loyal to a specific airline.
Comparing Airline Credit Cards
When comparing airline credit cards, consider the following factors:
- Sign-up bonus: How many miles can you earn after meeting the minimum spending requirement?
- Earning rate: How many miles do you earn per dollar spent on different spending categories?
- Annual fee: How much does the card cost per year?
- Travel perks: What travel benefits are included, such as free checked bags, priority boarding, and lounge access?
- Redemption options: How flexible are the redemption options? Can you redeem miles for flights, hotels, car rentals, or other expenses?
- Interest rate: What is the card's interest rate?
- Foreign transaction fees: Does the card charge foreign transaction fees?
Example Scenario: Determining if an Airline Card is Right for You
Let's say you fly United Airlines 4 times a year, and each round-trip ticket costs approximately $400. You also typically check a bag on each flight, costing $35 per bag, per direction ($70 roundtrip). You also value priority boarding, as it saves you time and hassle.
You are considering the United Explorer Card, which offers:
- 50,000 bonus miles after spending $3,000 in the first 3 months
- Free checked bag for you and one companion
- Priority boarding
- Annual fee of $95
Analysis:
- Bag Fees Savings: 4 trips * $70/trip = $280 savings on baggage fees.
- Priority Boarding Value: While subjective, let's say you value the time saved and convenience at $25 per trip, totaling $100.
- Total Value (Excluding Bonus Miles): $280 + $100 = $380.
Even *without* considering the bonus miles, the card's benefits outweigh the $95 annual fee. The 50,000 bonus miles could potentially be redeemed for one or more free flights, further increasing the card's value. In this scenario, the United Explorer Card would likely be a good choice.
However, if you rarely check bags and don't value priority boarding, the annual fee might not be justified, and a different card or no travel card at all might be a better option.
