Airline Credit Cards: Time to Jump Off?

I am a big proponent of using cash back credit cards. Depending on how good your credit score is, you might be able to get 5% or 6% cash back on some of your purchases (groceries, gas, etc.) I have been doing this for years.

One of the most popular types of rewards credit cards are the airline frequent flier credit cards programs. There have been significant changes to these programs of late. Most recently, Delta announced that it will change from a miles based program to a cash based program for its frequent fliers. So instead of everyone getting the same amount of miles on a New York to Los Angeles flight, those who pay more will get more rewards. Here’s an article from Marketwatch on this:

As airlines continue to devalue their frequent-flier programs, travelers may want to consider switching to a new rewards credit card.

Last week, Delta announced that in 2015 it will begin rewarding consumers based on how much they pay for tickets rather than how many miles they travel. This could hurt passengers who fly longer distances for lower fares and could make round-trip tickets less rewarding, reports MarketWatch’s Kaitlyn Wells. Delta is not the only airline making changes to its miles program: At the end of March, Southwest frequent fliers will see their points devalued by roughly 14%, and United’s new miles program went into effect last month. “Miles are being devalued across the board,” says Anisha Sekar, an analyst with credit card comparison site NerdWallet.com .

It’s a trend that’s likely to continue, says Odysseas Papadimitriou, the CEO and founder of CardHub.com . Among the reasons for this, Sekar says, is that flights are already a low margin product, and there are a lot of unused points in circulation. “It would be like if the Federal Reserve dumped a ton of money into the economy — that would make every dollar worth less,” she says.

Experts say these kinds of devaluations may mean that it makes sense for some consumers to replace their airline-specific card with a general travel card. “If you’re not loyal to a specific airline, then it’s worth considering ditching your branded airline frequent flier cards,” says Charles Tran, the founder of credit card comparison site CreditDonkey.com . And if you don’t use the ancillary perks like free checked bags, airport lounge access or elite status, you may also want to ditch these cards, says Sekar. She recommends doing a cost-benefit analysis: Look at the annual fee on the card and compare that to what you’d spend if you had to pay out of pocket for checked bags, airline lounge use or other perks that you typically use. In general, people who use these perks frequently will benefit from keeping their cards.

If you’re not seeing much benefit from your branded airline card, you’re not alone. “Unless you’re a frequent international premium class flier, general travel reward credit cards tend to be more lucrative — and easier to redeem,” says Tran. “With airlines constantly devaluing miles and limited award seat availability, credit cards with travel rewards often offer the flexibility to just redeem the miles/points toward any travel.”

When it comes to general travel rewards cards, Papadimitriou, Tran and Sekar recommend the Barclays Arrival card . It offers 40,000 bonus miles when you spend $3,000 in the first 90 days (that’s enough to redeem about $400 in travel) and the ability to earn two miles for each dollar spent and 10% miles back; the $89 annual fee is waived in the first year. Sekar also recommends the Chase Sapphire Preferred card , which allows you to earn 40,000 bonus points if you spend $3,000 in the first three months, double points on travel and dining at restaurants and no foreign transaction fees. Papadimitriou likes the Capital One Venture Rewards card too, which offers 20,000 bonus sign-up miles when you spend $2,000 in the first three months, double miles on every purchase and no foreign transaction fees.

When picking a travel rewards card, Tran points out that you have to keep in mind how easy it is to redeem miles, as some cards make consumers jump through hoops to redeem them. “There’s no point earning miles or points if you can’t use them,” he says. And Sekar says you need to consider whether you’ll earn enough rewards to outweigh an annual fee. The general rule, she says, is that if you spend $12,000 to $15,000 a year on the credit card, you’ll likely earn enough rewards to pay for the fee and then some. Though this of course depends on the annual fee (the average is about $52). And consumers shouldn’t carry a balance on many travel rewards cards because they tend to have high interest rates, says Sekar; consumers also may want to consider a cash-back card if they don’t travel often.

And Papadimitriou warns that while miles accumulated on the branded airline miles cards are more likely to get devalued these days, it isn’t impossible for general travel card points to get devalued as well. So, whichever kind of card you have, “redeem early and redeem often…at least once a year,” he says. “Minimize the amount of miles you have sitting around.”

Source: Marketwatch

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