Applying for travel credit card sign-up bonuses can be a smart move for cardholders who want to take a cheap vacation -- and can pay off balances regularly to avoid interest charges.
But before applying, it pays to know a few essentials that could help cardholders find the right travel card.
In the following video segment, Motley Fool analysts Nathan Hamilton and Michael Douglass talk about two travel credit card essentials you should know before signing up.
Michael Douglass: All right, let's talk about travel credit card bonus essentials. The first one, you've got this sort of redemption for statement credits versus points transfers and redemption portals.
Nathan Hamilton: Yeah, so it's important to know, we'll cover two essentials here, is there are two types of travel cards, and they may fit two types of travel-card holders.
Hamilton: It's a matter of how you redeem points or miles. For a select segment of credit cards, you can redeem those points through travel partners, or you can transfer to, say, Hilton Hotels, or any random airline from points that you've earned on that card. In some certain scenarios, you can stretch your rewards further, but a more hands-off approach, which may be a fit for others that aren't spending as much time, through the different travel hacking strategies, essentially, is applying those redemptions for statement credits. Now, where that helps you is you can essentially go to whatever website you normally book travel through, find a cheap deal, and then just apply a statement credit on your credit card later. Now, it's important you have to pay for that travel with that credit card, of course, but there are those two different scenarios for travel cards.
Douglass: Sure, and let's also talk about their APRs. Now, travel cards tend to have pretty high APRs.
Hamilton: Yeah, credit cards in general, but certainly any card that earns rewards is typically going to have a higher-than-average APR.
Douglass: If they're giving you something, they're going to try to find a way to make that money elsewhere.
Hamilton: Yeah, they've got to make money somewhere. Understandable, but it points out that if you are, indeed, a travel credit card holder, and this is just a very basic credit card tip for anyone that may be getting into it, is you're going to incur interest charges if you are carrying debt from month to month.
Hamilton: People that are taking advantage of that are certain savvy travel credit card holders. They are essentially paying their balances off every month, they're not getting charged interest, and they're harvesting the full value of those rewards.
Douglass: Got it. Yeah, and so the key takeaway here probably is basically, like, take a look at your potential cards, figure out what's most important for you, and then make a decision as to what kind of traveler are you, what kind of travel card holder are you going to be? Are you going to be somebody who pays off this credit card debt every month, or are you going to be somebody who's carrying a balance? If so, then a travel card may not make the most sense for you.
Hamilton: Yeah, there are other flat-rate cash-back cards that may make sense.
Douglass: Yeah, absolutely. Fortunately, we've got a lot more information about those, and the best travel credit cards, and the best cash back credit cards at fool.com/credit-cards, and a lot of free information there to help you think through how to use this really powerful financial tool to your benefit, and not to the bank's.