The New York Times just published an article on the true worth of frequent flier credit cards. These cards give you a set amount of frequent-flier miles in return for every dollar you spend (usually at a ratio of 1:1). These cards are one of the most popular and hassle-free ways of gaining rewards for charges to your credit card. But with all of the recent frequent flier program downgrades and added fees, are they really worth having anymore?
Now, most of the time these cards end up giving you a cash back percentage that works out to roughly 1%, which is not hard to find in a credit card nowadays. The thing is that you usually have to pay a yearly fee for the 'privilege' of owning and using these cards—anywhere from $35 to $85 and up, annually. When most of the other 1% (and up) cash- or point-back rebate cards have no yearly fee, it's hard to justify the added yearly expense.
And with the airline's recent cutbacks in frequent flier programs (free tickets? where?), these cards are becoming less and less useful. Frequent flier available seats are decreasing, points expire faster, the number of miles you need for trips is increasing, and the airlines are tacking on extra fees when redeeming miles. Suddenly your long awaited 'free ticket' isn't looking for free anymore.
These cards, including the Northwest Airlines Worldperks Visa, the American Airlines AAdvantage MasterCard, and the United Airlines Mileage Plus Visa, are still good options for some of us. Are you one of the people who will actually benefit enough from using these cards to continue paying an annual fee? Ask yourself these five questions:
DO YOU CARRY A BALANCE? If you don’t pay your bill in full each month, you’re excused from this discussion. You’ll do better by using cards with lower interest rates than frequent-flier mile cards, which generally have pretty high rates.
ARE YOUR CHILDREN IN SCHOOL? If they are, you’ll be fighting everyone else who wants to travel at the same time. The airlines, knowing your desperation to get out of town, may make fewer free seats available during school vacations, since the airline will probably sell all the seats on those flights anyway.
DO YOU HAVE ELITE STATUS? Some airlines—like American, Northwest, United and Continental —carve out additional inventory of free seats at their lower mileage levels for some or all customers with elite status. That inventory, plus the bonus miles that most airlines still offer to elite members, make a mileage credit card more attractive.
ARE YOU A BIG SPENDER? If you’re wealthy, or can run business expenses through your card, you can earn six figures in miles from card spending alone each year. A huge mileage balance gives you the ability to exchange those miles for premium-class overseas tickets, which could cost $10,000 or more if you bought them with cash. Miles are worth a lot more if you redeem them for this sort of travel.
DO YOU VALUE UPGRADES? It can be easier to get upgrades from coach using miles than it is to book free seats. Business travelers value the ability to get better seats when employers won’t pay for them, and leisure travelers may be willing to burn piles of miles for upgrades to seats they wouldn’t otherwise be able to afford.
If your answer is 'no' to most of these questions, cancel whatever card(s) you have and apply for something that gives you a better reward ratio, with no annual fee (like the Chase Freedom Card, with up to 3.75% cash back).
Additional note: I have personally owned just about every brand of frequent flier credit card in existence over the years. Although I owned my first one for many years, I soon wised up and started changing the cards on a yearly basis. Most cards come with a no-fee introductory year, so that eliminates any yearly membership payment. And, as you've probably seen in the mail at one time or another, every card comes with some sort of introductory 'free-miles' offer. Generally you receive somewhere close to enough miles for a free (inter-continental) plane ticket after your first purchase. If you switch cards every year, you get one free plane ticket yearly. It really does work—I now have enough points on four airlines for four 'free' round-trip tickets to Asia (not even including the miles I used last year and the year before to take trips overseas).
