How to Use Credit Card Rewards to Finance Your Next Vacation
March 15, 2018
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One of the marks of a good credit card is a robust rewards program. Whether you earn cash back or travel rewards, using your credit card for your everyday spending can make it easy to rack up rewards.
If you’re planning a vacation soon, those rewards can help you at least partially cover the cost. Here are five steps to fund your vacation using credit card rewards.
1. Get one or two solid rewards credit cards
If your credit is in good shape, you have a lot of options from which you can choose. If you choose a cash-back card, you can use your cash-back rewards to pay for anything, including your next vacation.
They don’t offer big sign-up bonuses, though, so consider a travel credit card if that’s what you want. There are two types of travel credit cards: general travel cards and co-branded travel cards.
General travel cards typically offer rewards that you can use to pay for most travel costs, and co-branded travel cards usually limit your redemption to a specific airline or hotel.
So, if you’re loyal to a specific airline or hotel and don’t plan on deviating, consider a co-branded card. But if you don’t care about which airline or hotel you use and just want to pay as little as possible, consider a general travel card.
The best travel credit cards offer big sign-up bonuses worth hundreds of dollars in free travel. To earn one, you usually have to spend a certain amount — often a few thousand dollars — in the first few months of owning the card.
Note that the best rewards credit cards typically require good to excellent credit, which is typically a credit score of 700 or higher. If your score isn’t quite there yet, work on improving it before you start applying for cards.
2. Use your card every day and pay it off every month
The more rewards you earn, the less you’ll have to pay out of pocket when you book your next vacation. So, the best course of action is to charge as much as you can to the card.
Opt to use your credit card for as many purchases as you can. Also, consider switching your recurring monthly charges from your checking account to your credit card. Just make sure there aren’t any extra fees if you make the switch. If so, you might end up paying more in fees than you’d earn in rewards.
Don’t mistake this step as permission to overspend. You should maintain a budget and never spend more than you can pay off at the end of each month.
Credit card interest neutralizes some or all of the value you get from credit card rewards. So, either set up automatic payments or set an alert to remind you to pay off your balance in full each month.
3. Plan your trip
Once you have a new card or two and you’re working toward the sign-up bonus, you can start planning your vacation. You’ll want to make plans based on the credit cards you got.
For example, if you got a Delta Airlines co-branded credit card, look at Delta flights only. But if you got a general travel card, you’ll have a lot more flexibility to choose the cheapest options available.
Make sure to give yourself some time to earn your bonus, too. For example, if you apply for a card in April, remember that it could take a little more than three months to earn and receive your bonus rewards. So, try to plan your vacation in the fall or winter to give yourself time to avoid last-minute bookings.
4. Check the fine print
Regardless of which credit card you use, there may be some terms that limit how and when you use your rewards. For example, some general travel cards have a minimum redemption requirement making it hard to use your rewards for smaller travel purchases.
Co-branded travel cards may have other restrictions, including blackout dates or fees if you book with rewards at the last minute.
Know these terms before you make your final arrangements so that you can avoid learning the hard way.
5. Budget for expenses you can’t cover with rewards
Depending on which credit card you get, you may be able to cover your airfare, hotel, rental car, and other major travel costs. But credit card issuers don’t consider expenses like food and souvenirs as travel costs, even if you incur them on vacation. So, you won’t be able to use your rewards to pay for them.
So, estimate how much you think you’ll spend on expenses your rewards won’t cover and start saving now to cover them. Be conservative in your estimates and consider saving a little more than you think you’ll spend because having a surplus is better than falling short.
It’s not for everyone
While irresponsible credit card use can lead to toxic debt and bad credit, it is possible to take advantage of credit card benefits without those things.
If you struggle with overspending and currently have credit card debt, these strategies might not be for you, at least not yet. Work to pay off your credit cards, then get on a budget to make sure you don’t repeat past mistakes.
If you can manage to take advantage of these rewards without incurring any costs beyond an annual fee, you may be able to save hundreds of dollars, if not thousands, on your next vacation and many more vacations after that.