More specifically, how to use travel points credit cards wisely. To me, this is probably the most important page on this entire site. Owning and using a travel rewards card responsibly can open up the world to you – but using it irresponsibly can devastate your financial life for years to come.  

Of all the travel rewards blogs out there, I have seen very few posts that warn or advise on the use of responsible credit. I believe many bloggers would rather bank ad revenue than err on the side of caution. If you have bad credit, no credit or are unsure how to use credit, I urge you to please read on. 

Credit Cards Are NOT Free Money 

If you don’t pay off your entire balance at the end of the statement period, you will owe that money back plus a crazy interest rate.  

It’s easy to hand over your shiny new card and swipe away for a TV. It’s all good until the bill comes in and now you are in debt plus interest, and that interest adds up. You could be paying off that TV for years to come, even after you’ve tossed it and upgraded to a newer model. 

Putting It Into Perspective 

Let’s say that new TV you bought cost you $1,000. Your credit card has an average interest rate of 19%. Assuming you make the minimum payment (interest + 1% of your balance = $25.83), it would take you 115 months to pay off your card to a $0 balance. THAT’S 9 YEARS & 6 MONTHS!!! Let’s not forget about the compound interest (interest charged on the interest you’re paying) which would cost you an added $989.49. 

Cash Advances 

Don’t. Just don’t. Rather than tacking on interest for the previous billing cycle, the interest on a cash advance is instantly added to the card’s balance. Usually the cash advance interest rate is even more ludicrous than the purchase rate. This is because banks see cash advances as a sign of desperation. For once, I’m in agreement with the banks on this point. 

How A Travel Rewards Card Works 

A travel rewards card (or travel points card) is just like any other credit card with one added advantage. You earn points for every dollar spent. You can earn 1-5 points per dollar spent depending on the type of rewards card and the circumstances of the purchase. Typically 1 point is worth $.01. For some programs 1 dollar could garner $.05 towards travel. I know 1-5% for every dollar spent doesn’t seem like much, but it adds up. 

Some credit cards offer signup bonuses – some people apply for the card and take advantage of the promotion, then close the card later. If you make use of this technique, just be sure to remember to cancel it in time to avoid paying the annual fee. 

The Secret To Using A Travel Rewards Card 

It’s more common sense than a secret. 

  • Pay Your Card Off Before Your Statement Due Date 

For most credit cards, if you pay the full balance before the statement date or the previous billing cycle, you owe 0% interest. That means all the points you accrued are absolutely free. That is paramount to making travel rewards cards pay off for you. It makes no sense to pay 11-19% compound interest every month only to earn 1-5% in travel points. That’s just crazy math. 

  • Treat Your Credit Card Like A Debit Card

I know. We’re going against common convention for responsible credit, but we’re trying to earn points here. We’re also going to pay the full balance of that card before interest accrues, right? RIGHT???   

In essence, if you maintain a zero balance on your credit card and never pay interest, it is a debit card. Use it for gas, food, movies, groceries, repairs or anything you would normally pay for with a debit card. The points will add up and you’ll have a nice chunk of points saved up for your first or next adventure. 

  • The Exceptions

Mortgage companies typically don’t allow credit card payments, and those few that do charge a percentage rate greater than your points rate. It is possible to pay your rent using a credit card, but watch out for a percentage increase. If there is one, it’s not worth it as you will be losing money. Many storefronts will practice this if the purchase is low (usually under $10). The rule of thumb here is: don’t lose more money than your points will be worth. 

Discipline 

That’s all it amounts to. You need to be disciplined financially before applying for and using a credit card. If you don’t think you will be disciplined enough to responsibly manage a credit card, please stay far away until you feel you can set rules and boundaries for yourself.  

There are so many resources on how to use credit wisely, rebuild your credit or repair your credit. Research, learn and teach yourself to be responsible with credit. Don’t do it merely for the travel rewards, but do it for your financial health. Your wallet will thank you. 

Remember that credit is a tool, and how you use credit will determine your financial security for years to come. Please use it wisely. 

If you can think of anything I missed or if you want to correct me on a point, please let me know!