Credit Card Points and Frugal Travel – Ask Alex – Travel Question Wednesdays

Ask Alex - Travel Question Q and A every Wednesday

This post is part of the Ask Alex, Travel Question Wednesdays weekly series. To see previous questions click here.  To submit your own; tweet it to @AlexBerger, ask it in a comment on this post or send it in by e-mail.

A quick introductory note – When I began authoring VirtualWayfarer in July of 2007 I never expected that I’d still be blogging on travel, adventures, study abroad and everything that goes with it nearly five years later.  Over the years I’ve had a lot of questions and luckily my friends, network, and more than a few random strangers have gone well out of their way to answer those questions. While I still find myself asking questions on a regular basis I’ve found that I can also pay it forward as a resource for friends, my readers, and strangers alike.  In an effort to share what I’ve learned from my various adventures I’m launching a new Wednesday feature here on VirtualWayfarer.  Starting today I’ll be answering one reader-submitted question every week.  Anyone can submit, and all past questions will be archived and available as a resource for readers of this blog. I’m going to take a very open approach to the topics I’ll cover, so feel free to ask me just about anything  – as long as it is travel related.

This week’s travel question is from Lindsay B. she asks,

Q. “What’s the best way to use credit card points/miles to travel frugally? Recommend any cards/programs/strategies?”

A. This is a challenging one because it depends on a wide variety of different factors which vary from person to person, and are constantly changing. I’ve had a very mixed track record in the past, having gone so far as to swear off mileage plans after a particularly frustrating experience, before being lured back by Chase’s 100,000 mile British Airways signing bonus.

Let’s start with the basics.  Before you even consider getting a mileage/points card, you have to evaluate your spending and debt behavior.  Is getting a credit card something that  makes economic sense for you?  Can and will you pay it off completely each and every month? Keep in mind that if you carry a balance and are paying interest that’s airfare money going up in smoke.  You’re also going to need to tally up your monthly credit card expenses.  If you put less than $1,000 a month on your credit card you are probably not going to accrue more than 12-13,000 points a year without bonuses.  Given that many point-based cards cost $80-$150 a year and that mileage to fly internationally usually starts at 35,000 miles and is typically closer to 60-80,000 miles round trip, you may actually cost yourself money by getting a mileage card. Ultimately, this is the type of user credit companies are hoping for.  You should also keep in mind that many airlines are in the process of inflating the number of miles needed for various destinations which is in turn driving up the amount of miles you need. Others have discussed switching to a different methodology for counting how many miles are needed from destination to destination.  In general, as you might imagine, very few of these changes actually benefit us as consumers.

On the other hand if you’re flying regularly for business, have business expenses, or your monthly credit card total is over $1,000 then a mileage card might be right for you. These cards often offer airfare bonuses for frequent fliers and if you can accrue points fairly quickly that annual fee becomes less of an issue.  Most cards waive the fee for the first year and offer a hefty mileage reward for signing up for the card.  While most offer 20-40,000 miles for signing up periodic specials are offered where that can be more than doubled.  I mentioned earlier that I was lured back to a miles credit card after having sworn off of them.  Despite reservations the special that drew me back in was a super bonus through British Airways which offered me 50,000 miles for opening the card and another 50,000 miles when I spent $3,500 on the card within the first three months (be very aware that many of these cards have similar requirements).  These miles were roughly the equivalent of two round trip tickets to Europe. So far I’ve had fairly good luck with the British Airways frequent flyer program, and I was able to book my ticket to Copenhagen using these miles without any of the redemption issues I had previously.

As you might imagine, there are a subset of consumers who are focusing on accruing the signup mileage bonuses as an alternative to accruing points on a per-dollar basis.  Keep in mind that even though you may get your points through an airline branded credit card, the points themselves are actually held within the Airline’s mileage program.  So, I can technically sign up for a Chase British Airways card with a 50,000 point sign up bonus, and a Bank of America British Airways Mastercard with a 45,000 point sign up bonus giving me a collective 95,000 British Airways miles.  Many of these users then cancel the card after keeping it for most of a year (thus avoiding the annual fee) while also meeting the $3000-$4,000 minimum spend required to qualify for the points.  So far credit card companies haven’t been thrilled about these users, but have tolerated them. Given that a fair number of people no doubt read up about this way of generating miles and register for cards intending to churn them, only to end up keeping the card I imagine the banks are still doing quite well.

The verdict is still out on just how negative the impact of this type of credit card churning can be on your credit. From what I’ve read it seems that those who tend to put a fair amount of cash onto their cards each month and maintain several old cards with a long credit history haven’t had significant issues.  On the other hand, I’ve also read reports from a number of users who have been blacklisted by various credit card providers.

This space is constantly changing, and varies from provider to provider so you’ll want to do extensive research before deciding what approach you take.  To do that research there are a number of communities that are dedicated to making mileage plans work for you. Keep in mind it’s a game and a complex one at that which is structured in the airline and bank’s favor.  Doing your research, having a plan and sticking to it is fundamental if you’re going to be able to successfully use your miles as a budget travel technique.  For research I suggest reviewing Chris Guillebeau’s posts on using frequent flyer miles via his Art of Non-Conformity Blog.  Additionally FlyerTalk is dedicated to all things frequent flyer based and is a great place to find out what cards are offering the best signup bonuses, how to get the most out of your mileage program, etc.

A few final thoughts – keep in mind that frequent flyer programs may give you the flight for free, but they often do not include taxes which you’re responsible for. For my one-way flight to Copenhagen I saved around $800 BUT still paid $250 in airport taxes and fees.  Also, if your work schedule is very limited it can be extremely difficult to redeem your miles on short (less than 6 months) notice.   On the other hand if you have a very flexible schedule, mileage can be great.  Another key consideration is the quality of the card itself.  Amazingly many mileage based “travel” cards are surprisingly not-very travel friendly.  While it is changing, many older mileage cards charged a 3% international transaction fee on all purchases made outside of the US, in addition to various other fees.  That adds up quick when abroad.   Lastly, consider the possibility of using your miles for a RTW (Round-The-World) style ticket.  These multi-destination tickets can be incredible, and often only slightly more expensive mileage wise than a long-distance international ticket. Though you’ll need to have more than a week or two to properly utilize them.

Hopefully that gives you a crash course introduction to mileage cards.  Make sure to head on over to FlyerTalk for more in-depth information and to do your own research.  To be clear, I’m not providing any financial advice in this article, or suggesting you employ any of the tactics outlined within this blog post.  Only that you utilize the resources available to educate yourself and make your own decisions.

Lindsay, thank you for a fantastic question!

If you end up using these tips to book a trip I’d love to hear about it! Good luck and safe travels!

If you’re looking for additional information, you can also explore what Nomadic Matt has to say. Matt is a premium advertising partner and also one of the most well recognized and respected names in the independent travel advice community.  He has a series of guides and informative posts that cover most of the relevant topics you need to worry about when preparing for a trip.  Of particular interest based on this post consider taking a look at his guide to the best travel rewards cards.  As a long-term traveler who has circumnavigated the globe he also provides a number of insights on how best to book and research round the world tickets.

 

Travel Tip – International Credit Card Fees

It’s something you don’t hear talked about regularly.  One of those little surprises that the diligent and thorough will discover after returning from an international trip as they pore over their credit card statement.

Most travel blogs and credit card companies warn you about the importance of calling your credit card company immediately before an international trip to notify them that you’ll be out of the country and that it’s acceptable to approve international charges.  What they usually don’t talk about is currency exchange fees, transaction fees, and international ATM fees – all of which add to the cost of travel.

In preparing for my upcoming trip I made a few calls and did a bit of research.  What I have learned  is that all banks have slightly different policies and approaches to international fees and the only way to truly know where you stand is to call and ask.  Luckily, while some of the agents don’t have the rates memorized they can pull them up and let you know quickly and easily.  Just call the service number listed on the back of your credit or debit card.

As I prepared to travel I dealt with my three providers: Citi Bank, Bank of America and Chase Bank. It’s interesting and perhaps important to note that none of the banks were willing to wave or negotiate the fees (and believe me I tried).

There are two different fee structures to be aware of.  One for international Credit Card use.  The other for international debit card/ATM use. These fees are especially obnoxious because you’re probably getting hit in 2-3 areas.

Debit Cards:

Chase told me that international use of their Visa debit cards came with a 3% currency exchange fee and a $3 ATM use fee.  Then on top of that add on whatever ATM transaction fee the international bank chooses to charge for supporting an out of network bank. Unfortunately, I failed to confirm what the use fee was for retail transactions using the Chase Visa debit card. I believe they are at least 3%.

Bank of America was a bit more thorough in providing me with a breakdown of specifics.  A Visa debit card through them results in a 1% currency exchange service fee. The gal I talked to failed to give me the specifics on their out of network ATM fee, which I assume is between $2-$4.  She did note that the  B of A fee is waved if you use one of their partner bank ATMs. Unfortunately there is no escaping the 1% conversation fee. Interestingly, she did note that they have 29,000 “Visa” ATMs and 19,000 “Plus” ATMs in Spain.  If you use your debit card anywhere besides their ATM they charge a 3% currency exchange fee for retail transactions using the Vista debit card.

The only way you can get the ATM fee waved seems to be if you tie it to a rather large bank account. Definitely not an option most 20 somethings will be able to take advantage of, though it is a possibility for families or retirees looking at traveling.  You might also be able to leverage a business account to get the fees waved.

Credit Cards

For convenience reasons when traveling in Europe, I prefer to use either Visa or MasterCard. Unfortunately, Discover isn’t accepted internationally,  and AmEx  seems to have significantly less coverage.  I highly recommend researching what cards are most commonly accepted in the region of the world you’re planning to visit.

In calling, I found that both Bank of America and Chase set their Credit Card transaction fee at 3% on every transaction for their Visa cards.  Contrary to some of the material I’ve read on the web, the 3% fee seemed to be fairly common across the banks I talked to when dealing with Visa cards.  Again, despite raising a considerable fuss about the issue, neither bank was willing to adjust the rate.

I was able to confirm that B of A and Citi both place a 1% transaction fee on their MasterCard credit cards. While not positive, the way the B of A representative referred to the fee it’s set by MasterCard.  Though it’s also probably subject to the individual credit card/bank contract.

My experiences seem to line up fairly well with the following survey done by IndexCreditCards.com which found:

How do the major credit card issuers stack up? Below are the international transaction fees from each issuer (for banks that issue Visa or MasterCard branded cards, these numbers include the Visa or MasterCard fees):

  • Capital One: 0% transaction fee. (Capital One not only doesn’t impose its own fee, but it also eats the 1% fee that Visa or MasterCard impose.)
  • Discover: 0% transaction fee
  • American Express: 2% (Increasing to 2.7% January 1, 2009)
  • Pulaski Bank: 2%
  • Barclays/Juniper Bank: 2%-3%, depending on card
  • Bank of America: 3%
  • Chase: 3%
  • Citibank: 3%
  • GE Money 3%
  • HSBC: 3%
  • U.S. Bancorp (U.S. Bank): 3%
  • Wells Fargo: 3%

I prefer using a debit card for cash withdrawals over currency exchangers or travelers checks, and a credit card for the lion’s share of my other purchases.  For this trip I’ll use my 1% cash back MasterCard which – when the dust settles – should negate the 1% fee they’ll be charging on every purchase.  A side note: Don’t assume that airline miles cards have better travel rates.  From what I’ve seen they’re treated exactly the same as any other card…so as much as it may pain you, you might be better off leaving the Mileage card at home.

Tips, suggestions or additional ideas? Please share them in a comment form below. Was this post useful?  I’d love your feedback.