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It always pains me to see people not maximizing their credit card spend. I’m not just talking about friends and family who have sub-optimal strategies, but even just being out-and-about I sometimes see the credit cards people use, and I can’t help but want to have an intervention. Oh well, I guess any credit card is better than paying with a debit card or cash (assuming you’re financially responsible and can pay off your balance in full each billing cycle).
One of the most common mistakes I see people make for their credit card spend is that they use an airline credit card. Airline credit cards serve a purpose, but in general that purpose shouldn’t be that it’s your go-to card for everyday, non-bonused spend. In this post I wanted to share:
- Reasons you shouldn’t use your airline credit card for everyday spend
- Under what circumstances you should have & use an airline credit card
- What credit cards you should use instead
Let’s get started with five reasons you (generally) shouldn’t use an airline credit card for your everyday spend.
Airline credit card points devalue
Airline miles devalue over time. Hoarding airline miles is like saving money without earning any interest. The reality is that airline miles can devalue really, really quickly. A couple of years ago, American charged 67,500 miles for a Cathay Pacific first class ticket between the US and Hong Kong. Now that ticket costs 110,000 miles. That’s an overnight cost increase of over 60%.
The cost of AAdvantage redemptions in Cathay Pacific first class have increased significantly
This isn’t just a one-off, but rather it’s reflective of an overall trend we’ve seen. If you collect miles with a specific airline and they have a devaluation, you have no recourse. The good news is that I think for now airline award chart devaluations have slowed down, as airlines have reached a turning point where members are becoming less engaged.
When you consider there’s an opportunity cost to your credit card spend, you shouldn’t settle for earning a currency that can so easily be devalued.
Airline credit cards don’t offer flexibility
This is along the same lines as the above, though there’s an important distinction. Not only do airline miles devalue quickly, but they offer very little flexibility.
If you used a cash back card, you could spend that cash however you wanted whenever you wanted. That gives you a lot more flexibility.
If you used a card earning transferable points, you could transfer those points to all kinds of airline and hotel partners, which allows you to shield yourself from any particular program devaluation. When one partner’s award chart devalues, that doesn’t hugely devalue your points. Furthermore, transferable points can also typically be redeemed as cash towards the cost of a ticket. You’re getting the best of both worlds.
Airline credit cards don’t have great bonus categories
Not only are you earning miles that devalue when using an airline credit card, but they also typically don’t offer great bonus categories. In other words, you’ll earn one mile per dollar spent on most purchases, and then there are very limited bonus categories. For example, a couple of airline credit cards are making some improvements, where we’re seeing the following bonus categories:
- As of June 1, 2018, the United Explorer Card will earn 2x miles on hotel purchases and 2x miles on United purchases
- As of July 22, 2018, the Citi AAdvantage Platinum Card will earn 2x miles on restaurants and gas stations
But the reality is that you can achieve a much better return on spend using other cards:
- The Chase Sapphire Reserve® offers 3x points on dining and travel
- The Chase Sapphire Preferred® offers 2x points on dining and travel
- The Citi ThankYou® Premier Card, offers 3x points on travel and gas stations, and 2x points on dining and entertainment
- The Blue Business℠ Plus Credit Card from American Express, offers 2x points on the first $50,000 spent annually for all purchases
These returns are significantly better.
Airline credit cards rarely average a return of over 2%
As I said above, this is all about opportunity cost of spend. Earning some airline miles on a credit card is better than earning nothing, though on the most basic levels there are plenty of cards that offer a return that’s equivalent to 2% or more. I’m going to go out on a limb and say that a vast majority of people using airline credit cards for their spend aren’t averaging a return of over 2%.
Transferable points currencies sometimes have transfer bonuses
Not only do transferable points cards often have better bonus categories, but they sometimes even offer further bonuses when you transfer points. This isn’t something we see very often with Chase Ultimate Rewards, but it’s common with Amex Membership Rewards. For example, in the past year we’ve seen Amex Membership Rewards offer a 25% bonus when transferring points to Air France-KLM FlyingBlue, a 20% bonus when transferring points to Aeroplan, a 40% bonus when transferring points to British Airways Executive Club, a 30% bonus when transferring points to Virgin Atlantic Flying Club, and more.
Not only are you earning transferable points at an accelerated rate, but then there’s sometimes a further bonus when you transfer those points, meaning you could be earning an average of several miles per dollar spent on these cards.
Why SHOULD you have an airline credit card?
While I’ve said that it typically doesn’t make sense to spend money on an airline credit card, that’s not true for everyone. Furthermore, there are plenty of other reasons to get an airline credit card aside from the value of everyday spend.
When could it make sense to spend money on an airline credit card? Typically if you’re going for elite status. Several airlines offer waivers of certain elite requirements if you spend a certain amount on a credit card. For example, with Delta and United, spending $25,000 on one of their co-branded credit cards will eliminate the revenue requirement for the three entry level elite tiers. Furthermore, some airline credit cards give you opportunities to earn elite qualifying miles through spend. I spend money on a co-branded American Airlines credit card so that I can earn 6,000 elite qualifying dollars and 10,000 elite qualifying miles per year, which helps me requalify for Executive Platinum status.
But even if you’re not going for elite status, it could make sense to apply for and hold onto one of these credit cards. Why?
- Airline credit cards often have excellent welcome bonuses
- Airline credit cards often offer perks like priority boarding, priority check-in, free checked bags, and more
- They sometimes offer additional perks, like some of American’s co-branded credit cards offer a 10% refund on redeemed miles, which can quickly pay the annual fee on the card
Having one of these cards could quickly pay for itself. But that doesn’t mean you should put your actual credit card spend on it.
Which credit cards should you spend money on instead?
There are two paths you can take here — either get a cash back card, or get a transferable points card.
If you’re going to get a cash back card, get one that offers a return that’s equivalent to a minimum of 2%. For example:
- The no annual fee Citi® Double Cash Card offers 1% cash back when you make a purchase, and another 1% back when you pay for that purchase
- The Capital One Venture Card offers 2x miles per dollar spent, and each mile can be redeemed for one cent towards the cost of a travel purchase; while the card has a $95 annual fee (waived the first year), it offers a big welcome bonus of 50,000 miles upon completing minimum spend that more than justifies that annual fee for many years
Alternatively, get a card that earns points that can be transferred to airline or hotel points, and that offer generous spend bonuses, as these will give you the most flexibility:
- You can earn Chase Ultimate Rewards points with the Chase Sapphire Reserve®, Chase Sapphire Preferred®, or Ink Business Preferred℠ Credit Card, and you can supplement the earnings on those cards with the Ink Business Cash℠ Credit Card, Chase Freedom® Card, and/or Chase Freedom Unlimited®
- You can earn Amex Membership Rewards points with The Amex EveryDay® Preferred Credit Card from American Express, The Platinum Card® from American Express, The Business Platinum® Card from American Express OPEN, Premier Rewards Gold Card from American Express, The Business Gold Rewards Card from American Express OPEN, The Blue Business℠ Plus Credit Card from American Express, and more
- You can earn Citi ThankYou points with the Citi ThankYou® Premier Card
There’s potentially value in having an airline credit card, for the great sign-up bonuses, generous benefits when flying that airline, and possibly even for spend if you’re going for elite status. However, for the average person you shouldn’t be using an airline credit card for your everyday spend.
Very few people will get over 2% back with an airline credit card, in which case a cash back card could make a lot more sense. If you do want to earn miles, use a transferable points card that will earn you points that are more flexible and more valuable, and will typically even earn you points at a faster rate. Starting with a card like the Chase Sapphire Reserve® or Chase Sapphire Preferred® is typically your best bet.
Does anyone have a different take, and think an airline credit card is actually best for everyday spend if you aren’t going for status?