6 mistakes to avoid when using a travel credit card

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Travel rewards, especially those earned through credit cards, can fund flights, hotels, rental cars, and more at a steep discount — or even for free. 

You can rapidly accumulate a stash of points and miles by charging your everyday expenses to a rewards card. Combine that with generous credit card sign-up bonuses, and you'll be jetting off on your dream vacation in no time... right?

Not so fast. While rewards can help stretch your budget and upgrade your travel experience, there are plenty of traps to watch out for. Try to avoid these seven common mistakes to ensure you're getting the most bang for your rewards buck. 

1. Overspending to earn a welcome offer

Big credit card welcome offers, which often require spending several thousand dollars within the first few months, can be oh-so-tempting. But as financial coach James Beckett of Money Stocker warns, it's too easy to get caught up in the excitement and buy beyond your means just to check that "minimum spend" box.

For example, if a card requires you to spend $4,000 in three months to earn the bonus, that breaks down to over $1,300 monthly. This may lead you to make unnecessary purchases or splurge on items you wouldn't normally buy to reach the spending requirement. If you're unable to pay off your balance, you may face interest and accumulating debt. This negates the value of the welcome offer.

The solution? Only apply for a card with a welcome offer that aligns with your normal spending habits. Create a budget and track your expenses to ensure you're not overspending to earn the bonus.

Beckett's pro tip: Time new card applications around major planned expenses, like booking a vacation or replacing a household appliance. That way, you'll hit the bonus threshold effortlessly.

2. Not knowing the true value of your points 

Not all points are created equal. The value can vary significantly depending on the program and how you redeem them. Depending on the card, a point could be worth anywhere from 0.5 to over 2 cents. 

Failing to research the value of your points can lead to suboptimal redemptions and wasted rewards. Many people redeem their points for less valuable options, such as statement credits or gift cards, without realizing they could get much more value by using them for travel.

"Whether it's booking through a card issuer's travel portal, transferring points to airline or hotel partners, or redeeming for statement credits, knowing the most valuable redemption methods can significantly increase the value of your rewards,” says attorney and personal finance expert Erika Kullberg.

For example, Chase Ultimate Rewards offers a baseline value of 1-1.5 cents per point, depending on the card. However, points could be worth up to 2 cents per point when transferring rewards to travel partners. On the other hand, points used at Amazon.com or when you checkout with PayPal offer only 0.80 cents per point. 

Familiarize yourself with your credit card's rewards program and available redemption options. Use reward guides to determine the average value of your points. Aim to redeem points to earn the highest possible return, such as airline tickets, hotel stays, or transferring to partner programs. 

3. Ignoring credit card annual fees

Kullberg cautions against ignoring the annual fees that come with many travel cards — especially premium ones. While travel cards might charge less than $100 annually, luxury cards can set you back anywhere from $395-$695 annually. 

Those fees take a direct bite out of the rewards you're earning, so it's crucial to weigh the benefits against the cost. Perks like travel credits, lounge access, and elite status can more than offset a hefty annual fee, but you'll need to run the numbers to ensure you're coming out ahead.

It’s also essential to re-evaluate your card's value year after year to avoid wasting money on fees for benefits you’re not using.

4. Earning inflexible rewards

Some travel cards earn rewards tied to specific airlines, hotels, or other travel brands. But pigeon-holing yourself into a single airline or hotel loyalty program can come back to bite you.

People often choose co-branded cards based on loyalty to a particular airline or hotel chain without considering the limitations of earning brand-specific rewards. 

They may accumulate many points or miles with a single brand, only to find that they can't use them for their desired travel plans due to lack of availability, blackout dates, or other restrictions.

The solution is to diversify your rewards stash. While keeping a co-branded card open may make sense, consider adding a flexible rewards card that allows you to book with various travel partners. 

5. Signing up for a card based on branding 

Branded airline and hotel credit cards can offer outsized value — but some are more lucrative than others. 

Many people sign up for co-branded cards solely based on their affinity for the associated brand, without comparing the card's benefits, rewards, and fees to other options. This can lead to earning subpar rewards, paying higher annual fees, or missing out on more valuable perks other cards offer.

In many cases, general travel rewards cards (think: Chase Sapphire Preferred® Card, Capital One Venture Rewards Credit Card) outshine their co-branded counterparts.

A good example of an inferior card is the Disney® Visa® Card from Chase. While this card has no annual fee, it offers only 1% in Disney Rewards Dollars on your purchases. 

This pales in comparison to no-annual-fee cash back cards that offer 2% back on everything (like the Wells Fargo Active Cash® Card), which could be redeemed as a statement credit to offset Disney purchases.

Don't let brand loyalty blind you to potentially better options. Analyze the underlying reward structure and benefits to determine whether a card is truly worthwhile.

6. Paying credit card interest

The benefits that come with travel cards are quickly negated if you carry a balance and pay interest on your purchases.

No amount of points or miles is worth the double-digit interest rates you'll face as a result, says consumer finance expert Andrea Woroch. The average credit card interest rate is around 21%.

To avoid falling into this trap, commit to paying your credit card bill in full every month, without fail. If you're worried about your ability to do so, you're better off foregoing travel rewards entirely until you can get your spending under control.

The bottom line 

When used properly, travel rewards can help you save money and travel for less. But to reap those benefits, it's critical to sidestep the pitfalls that can undermine your efforts.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.