“I used points.” “Don’t worry, I have miles.” “My trip was free because of my credit card.” You may have heard your traveler friends say something along these lines before. But, what are travel credit cards exactly? How do they work? More importantly, how do people use travel credit cards to travel for free? Well, these questions are precisely what I’m answering in this blog post.
What Are Travel Credit Cards?
First of all, what are travel credit cards? Travel credit cards are credit cards that earn points best redeemable for travel. While some credit cards offer cash back, travel credit card points are most valuable when redeemed for flights and hotels. Sometimes, these points are also referred to as miles, depending on the bank. Points and miles are two terms used pretty interchangeably, both referring to the awards that cardholders earn for putting purchases on the cards.
In addition, travel credit cards often offer benefits that cater specifically to travelers. These benefits vary greatly depending on the card, bank and annual fee, but here are a few common examples: Global Entry, TSA PreCheck, travel insurance, airport lounge access, hotel free night certificates, hotel status, airline status, travel credits to spend in the bank’s travel portal, grocery delivery credits and more.
How Do Travel Credit Cards Work?
So, how do travel credit cards work? The banks that offer travel credit cards earn money called “swipe fees” from businesses that accept credit cards, at no additional cost to the cardholder, every time the cardholder makes a purchase using the card. With the money earned by the bank with those swipe fees, the banks can reward the cardholders with points and miles, impressive welcome offers (which I’ll explain later), and enticing card benefits. That’s how travel credit cards work. The cardholders are rewarded for using the travel credit cards, and the banks earn money from the cardholders using the travel credit cards. It’s truly a win-win.
Moreover, travel credit cards typically have an annual fee anywhere from $0 to over $1000. Although, the majority of travel credit card annual fees average around a reasonable $95 per year. This is another income stream that banks acquire when cardholders open and keep the travel credit cards, further enabling the banks to offer back more points and miles, elevated welcome offers, and travel benefits. These benefits often pay off the annual fee for frequent flyers, which is why cardholders continue to pay the annual fees year after year. However, there are a wide variety of points and miles earning credit cards that have no annual fee too — or that at least waive the annual fee for the first year.
What Are Points And Miles
Now, what are points and miles? In order to fully understand what travel credit cards are, you have to understand what points and miles are too. Like I alluded to earlier, points and miles are the currency that travel credit card companies offer to encourage cardholders to make purchases with the travel credit cards so that those companies can earn swipe fees. Credit card companies buy points and miles from airlines and hotel partners, so the airlines and hotels are making a significant amount of money from points and miles too. In fact, the airline and hotel partners make billions of dollars from the points and miles that these credit card companies buy. Again, it’s a win-win.
Points and miles are an extremely valuable currency when redeemed strategically. For example, I booked a nearly $7000 business class flight with only 89,000 Capital One miles. In cash back, 89,000 miles would be worth only $890. But, because I redeemed these miles strategically, I was able to bring the fare of a $7000 Delta One flight down to $0.
Types Of Travel Credit Cards
Now that you know what travel credit cards are, it’s important to know the different types of travel credit cards. Essentially, there are bank travel credit cards and there are co-branded travel credit cards. Bank travel credit cards earn flexible points and miles that can be redeemed and transferred to a variety of airlines and hotel chains. Popular examples of bank travel credit cards are the Capital One Venture cards, Chase Sapphire cards, AMEX Gold and Platinum cards and the Citi travel credit cards.
On the other hand, co-branded travel credit cards earn points exclusive to their co-branded partner airlines and hotel chains. For example, United Airlines co-branded cards earn United miles. Hyatt co-branded cards earn Hyatt hotel points. Hilton credit cards earn Hilton hotel points. And so on. These points and miles are much less flexible. So, points and miles travelers usually prioritize earning the flexible bank credit card points and miles, unless they have a specific trip in mind that requires co-branded points.
How To Travel Free With Credit Cards
Finally, how do you travel free with credit cards? The best way to travel free with credit cards is to leverage elevated welcome offers to earn a large sum of points and miles without spending more than you typically do on a day-to-day basis. As briefly mentioned, credit card companies offer high welcome offers to encourage new cardholders to make purchases on the cards. For instance, one card’s welcome offer may be 75,000 bonus miles when you spend $4000 on the card in the first three months of opening the card. If you put all of your normal everyday living expenses on the card (and nothing more), you can probably earn that welcome bonus very easily. Then, you can repeat this process with a new card to earn even more welcome offers. That’s how points and miles travelers are always traveling for free.
However, the No. 1 rule to traveling free with credit cards is never spending above your means. Because, if you accrue interest and debt, your travel is no longer free. You can download all of the travel hacking rules for free here. Ready to jumpstart your journey to traveling on points and miles? Download my Budget Travel Bible ebook here.
More About Travel Credit Cards
How To Get Free Flights For Life
Best Travel Credit Cards For Beginners
How To Get Free Business Class Flights Step By Step
How To Get More Credit Card Points Without Spending More
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