NEW YORK, NY – As Americans pack their luggage and head off on summer vacations, there is one thing they are leaving home: their hotel and airline rewards points. While a majority of Americans (58 percent) say that using their credit or debit card to earn travel reward points makes financial sense, few of them are actually taking advantage of those perks to save on their hotel and airline costs. That’s according to a new telephone survey of 1,012 U.S. adults conducted in June by Harris Poll on behalf of the American Institute of CPAs.
In fact, the survey found that Americans are just as likely to incur additional expenses from their vacations as reap the rewards of the points they’ve earned. In their lifetime, 15 percent of Americans have paid for part or all of their trip with rewards points, compared to 14 percent who say they’ve taken a trip that has resulted in a credit card balance that could not be paid off by their next statement.
Given the rise of websites that offer tips and tricks for “travel hacking” – the art of collecting rewards points in hopes of traveling for free – it’s no wonder that some Americans are going the extra mile in search of free nights and flights. A total of 12 percent say they have opened a credit card in order to obtain hotel or airline rewards while six percent have selected a more expensive flight or hotel to earn travel rewards points and six percent have taken a trip just to maintain or upgrade a rewards level. Despite those efforts, only seven percent of all Americans used rewards points to pay for any part of their last vacation – with only one in a hundred (one percent) paying for their entire trip using points.
“When chasing after elite status with hotels and airlines, it’s important to not lose sight of the fact that miles and points often have a dollar value associated with them,” said Gregory Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission. “Spending extra money in hopes of earning free nights and flights has the very real potential to leave Americans feeling like they’ve been travel hacked when their credit card payments are due.”
Indeed, in the last year alone, 14 percent of all Americans have suffered the negative financial consequences from their vacation travel, with 12 percent carrying a balance or paying interest on their credit card, three percent missing a payment or being charged a late fee and two percent going over the spending limit on their credit card while on vacation.
The survey also found a disconnect between the card features people said were most important and their knowledge of those features. A low annual percentage rate or APR was cited by 37 percent as being the most important feature, with 28 percent saying their priority was a card with a low or no annual fee. However, despite the declared importance of these features, Americans were woefully unaware of the values of the cards they owned with less than half (43 percent each) saying they knew even the approximate APR or annual fees. Even fewer (37 percent) knew the approximate finance charges they paid to their credit card company in the past year.
This cavalier attitude towards the specifics of their credit situation may be the reason why nearly one-in-ten of Americans (nine percent) have been denied a loan or paid a higher interest rate on a loan due to a poor credit score in the past year alone.
“While it’s encouraging that Americans are looking for credit cards with a low APR and low or no annual fee, these rates and fees fluctuate and it’s important to monitor them and make sure the features that drew you to apply for the card are still in place. Often, even one missed payment can cause an APR to skyrocket,” added Anton.
The National CPA Financial Literacy Commission offers the following advice to take advantage of credit card rewards:
Don’t overspend to earn travel rewards. While a free flight or hotel room can be tempting, the rewards may not be worth the pain if you end up paying interest and penalties on unpaid balances. Even if you pay your balance in full, you could be wasting money on unnecessary items just to earn the travel reward. In addition, if you earn a free flight, for example, keep in mind there are vacation-related expenses such as hotel, meals, and sightseeing that could strain your budget.
Pick a card that fits your needs. Before applying for a credit card for travel rewards, determine what is most important to you. If flexibility is your goal, seek cards which allow users to transfer points between companies, such as hotels and airlines, and/or between family members. In that same vein, cards that offer cash back give you great flexibility to use the cash however you want. If you frequently travel internationally, cards that waive foreign transaction fees, which are often as high as three percent, could be helpful for you.
Look for cards with big sign-up bonuses. Your credit score could take a hit if you open too many credit cards in a short period of time, so choose carefully when applying for cards. Likewise, many cards waive an annual fee for the first year, and your credit score can be lowered if you close several cards after only a year. Therefore, try to find cards that have large sign-up bonuses, which is increasingly important since many programs are requiring more points to earn rewards. It’s even better if you earn rewards with one purchase or a fairly low spending threshold. If you have to sign up for several cards to earn bonuses, you may have to overspend to earn them.
In addition, the AICPA strongly recommends that all Americans do an annual check of their credit report and follow up on any errors as a way to protect their credit score.