Credit cards can provide tremendous value for responsible borrowers. You should never view a credit card as a blank check that allows you to purchase whatever you want. But if you have the means and discipline to pay off your purchases every single month, you can leverage credit cards to garner tremendous benefits. This has become especially true over the past few years, with credit cards issuers offering more and more generous perks to entice consumers to outmaneuver their competitors. During the height of the coronavirus pandemic, many of these cards were simply not worth their annual fee, as the world was essentially in lockdown. But now that the world economy has nearly fully reopened, it might be time to take a closer look at these travel-related cards once again. To determine which credit cards are worth the annual fee as travel picks up, here are some of the main calculations and variables you should take into account.
To determine which travel credit cards make sense for you, you’ll have to remove emotion from the equation and rely on simple math. At the end of the day, the dollar value you derive from your card has to exceed the amount you pay in annual fees to make it worthwhile.
To make this determination, start with the most obvious, easy-to-calculate benefits. For example, if a credit card charges a $395 annual fee but provides $300 in annual travel credits – as the Capital One Venture X Card does, for instance – your immediate “actual” cost drops to $95, assuming you spend at least $300 per year on travel (and you should if you are planning on using a travel card). However, using this card as an example, you’ll also receive additional benefits during the first year that further reduce the cost. After you spend $4,000 in the first three months after opening the card, the Capital One Venture X Card offers a 75,000-point bonus, which is worth at least $750, depending on how you use it. You’ll also get 10,000 points every anniversary you hold the card, which is another $100 in value. Net-net, just from these initial bonuses, you’ll run at least $705 to the good, assuming you meet all requirements.
In addition to the headline benefits that can help reduce the actual cost of a travel card there are many ancillary benefits that can make a card more valuable to some than others. While nearly everyone signing up for a credit card can benefit from things like a travel credit or a points bonus, many ancillary benefits only apply to specific situations that not all card holders may experience.
Some of the most commonly used ancillary benefits include the following:
- Free checked bags
- Priority check-in
- Priority boarding
- Lounge access
- Lost baggage protection
- Trip cancellation/interruption insurance
- Rental car insurance
- Bonus points for booking travel through linked portal
- Global Entry/TSA PreCheck credit
Most card holders won’t use all of these ancillary benefits, but for those who travel a lot, some of these benefits can result in big savings. The commonly offered free checked bag perk, for example, can save hundreds of dollars in fees on every single trip. Those traveling frequently can literally enjoy thousands of dollars in savings per year. Lounge access can also save $25 or more per airport visit, while other perks, such as a Global Entry/TSA PreCheck credit, can be worth another $100.
The bottom line is that if you plan on using any of a card’s ancillary benefits, you should calculate how much you’re likely to save and deduct that amount from the card’s annual fee.
If you intend to use a credit card as a financing option, you’ll want to pick one that has a significant promotional period. In an effort to win customers, many credit cards offer 0% interest rates on balance transfers and/or purchases for at least 12 months, with some extending that period to 18 months, 20 months or even longer in some cases. While a credit card isn’t always the first option that comes to mind for financing, it can make a lot of sense if you are absolutely certain you can pay back what you borrow before the end of the promotional period.
Another Popular Travel Card Option
In addition to the aforementioned Capital One Venture X, there are a host of other valuable travel rewards cards that charge moderate-to-high annual fees. However, the best of these also offer a tremendous host of benefits as well. Here’s one of the most valuable travel rewards cards to consider in addition to the Capital One Venture X card.
Chase Sapphire Reserve
The Chase Sapphire Reserve card is the premier travel rewards offering in the Chase portfolio. The card carries a hefty $550 annual fee, but $300 of that is typically offset every year by users who avail of the annual travel credit perk. In addition to 80,000 Chase Ultimate Rewards points issued after spending $4,000 in the first three months of card ownership, the card offers the following primary benefits:
- 5x points on flights booked through the Chase Ultimate Rewards portal
- 10x points on hotels and car rentals
- 3x points on all other travel
- 10x points on dining with Chase Dining
- Complimentary enrollment in Priority Pass Select
- $100 Global Entry or TSA PreCheck credit (once every four years)
- 50% more redemption value when using Chase Ultimate Rewards
In addition to these signature benefits, the card offers a wide array of ancillary perks covering auto rentals, lost luggage, trip cancellation/interruption and more. The card also comes with no foreign transaction fees.