From free flights to stays in luxurious hotels, many people are paying for vacation every year with the benefits earned on the best travel rewards cards. Top travel rewards credit cards offer the ability to collect points or miles with every swipe, putting cardholders closer to a free vacation of their dreams with every purchase they make.

In the article below, we'll walk you through the most important things to consider when picking a travel credit card for your wallet.

1. How do you shop for travel purchases?

Credit card rewards are not created equal. A card that rewards one point per dollar spent may actually be a better choice than a card that rewards at a rate of two points per dollar. It all has to do with how rewards are redeemed and the value of each point or mile.

There are two types of travel rewards redemptions: statement credits and travel portal redemptions. Here's how they work and how to decide which is better for your needs.

How statement credits work

This type of redemption is rather straightforward. Cardholders charge a travel purchase to their card, then request that their rewards be used to credit the amount of the purchase. For instance, you might pay for a hotel or car rental at a cost of $200 with your card and then redeem your accrued travel rewards for a credit against the purchase. In effect, the credit eliminates the charge from your statement.

The advantage of statement credit redemptions it that you have more options when it comes to booking travel. Generally, purchases through online travel agencies (Expedia or Booking.com, for example) and travel purchased directly through a hotel or airline qualify. Cardholders can usually stretch rewards further by comparison shopping or by using coupons or discounts (AARP discounts, for instance) to reduce the purchase price before having the statement credit applied.

Woman with backpack, overlooking a valley from a cliff

Cardholders who use travel rewards credit cards intelligently can score thousands of dollars in free travel. Image source: Getty Images.

How travel portal redemptions work

Many banks have their own travel portals through which rewards can be redeemed. Think of these portals as a bank's "catalog" of potential travel options. Points or miles are redeemed at the prices shown in the portal. A hotel at a cash price of $200 per night might come at a cost of, say, 20,000 points or miles.

The advantage here is that these redemptions make for simple travel shopping. You simply use your points, miles, or travel cash to book travel at the price shown on the bank's portal. The disadvantage, however, is that there are frequently fewer choices, and prices may be higher than prices offered through other booking methods (online travel agencies, or prices for direct booking), making your rewards less valuable than statement credit rewards.

If you're an exceptionally thorough travel shopper, a statement credit travel card may be ideal. Those who prefer not to spend too much time shopping for the absolute best possible deal may prefer travel portal credit cards.

Credit Card

Rewards Program

Redemption Type

Chase Sapphire Preferred

Two points per dollar on travel and restaurants, and one point on all other categories

Travel portal

BankAmericard Travel Rewards®

Flat 1.5 points per dollar

Statement credit

Barclaycard Arrival Plus World Elite MasterCard

Flat 2.1 miles per dollar*

Statement credit

Data source: Card issuers. *Note: Rewards for Barclaycard Arrival Plus World Elite MasterCard include the 5% redemption bonus when rewards are redeemed. 

Ultimately, which is better frequently comes down to personal preference and behavior, but a rule of thumb can be helpful. I break it down as follows: Cardholders who have the freedom to travel on their own schedule, and thus plan around available discounts, might be better suited for a statement credit travel card. On the other hand, cardholders who don't have as much freedom to travel (due to work schedules, etc.) might be better off with a card that uses its own proprietary travel portal for redemptions.

2. How much do you spend each year?

Depending on your annual spending habits, it may be worth paying an annual fee on a card to get better rewards. Below, we'll compare the rewards of a no-annual-fee card to one with an annual fee, to show why it may be advantageous to pick a card with an annual fee.

Credit Card

Rewards

Effective Travel Value

Annual Fee

BankAmericard Travel Rewards®

1.5 points per dollar

$0.015 per dollar of spending

None

Barclaycard Arrival Plus World Elite MasterCard

2.1 miles per dollar*

$0.021 per dollar of spending

$89, waived in the first year

Data source: Card issuers.

Using the data above, I calculate that cardholders who spend more than $14,834 per year would be better fit for the Barclaycard Arrival Plus World Elite MasterCard because of its higher rewards rate.

The math is as follows: Take the differences in the annual fees ($89) and divide it by the difference in rewards rates ($0.021 minus $0.015) to determine the breakeven level for annual spending. $89/($0.021-$0.015)=$14,833.33.

As a general rule of thumb, cards with annual fees are generally a better bet for cardholders who spend $15,000 or more per year. In addition to the increased rewards rates, annual fee cards typically have higher new cardholder bonuses for qualifying cardholders.

In this case, the Barclaycard Arrival Plus World Elite MasterCard has a new cardholder bonus worth $525 in travel with the 5% redemption bonus kicker added in versus a bonus of just $200 in travel for the BankAmericard Travel Rewards® credit card. The up-front new cardholder bonuses offered by the best travel cards are really extraordinary, frequently topping $500 for qualified cardholders.

3. How often do you use rental cars?

Renting a car is a serious financial hazard -- seriously. Any damage to a rental car, even if the damage is purely cosmetic, can result in thousands of dollars in losses that become the responsibility of the renter and the renter's car insurance.

One of the best benefits of travel cards is that many offer protection for rental car damage. The same protection costs as much as $15 per day when purchased from a car rental company, so a good travel credit card can more than pay for itself with this benefit alone.

In addition to charges for damages, the car rental service can charge for "loss of use," billing the renter for every day the car is in the shop and out of use as it waits for repair. Thanks to this "loss of use" provision in the contract, a seven-day rental can easily turn into a 10-day rental if it takes three days to repair the car. Serious damage can further multiply the price of a rental.

Credit Card

Rental Protection Type

Chase Sapphire Preferred

Primary coverage

BankAmericard Travel Rewards®

Secondary coverage

Barclaycard Arrival Plus World Elite MasterCard

Secondary coverage

Data source: Card issuers.

Cards that provide primary coverage are ideal for frequent renters. This coverage steps in before the renter and the renter's car insurance. If the car is damaged, the primary coverage takes care of it. You won't have to notify your car insurance company, and you'll avoid higher premiums that result from a claim on your insurance.

Secondary car insurance typically only covers what the renter's car insurance will not cover, and thus it typically only covers the renter's deductible. Because secondary protection requires the renter's car insurance to pay out, those who return a damaged car will likely see their car insurance premiums jump as a result. 

For brevity, I've skipped over some of the fine print. Always read your card benefits agreement before using a credit card to rent a car. Typically, credit cards only provide coverage for standard or economy cars, not luxury rentals or large trucks, for example. In any event, depending on how often you rent cars, this alone could ultimately be a deciding factor in which card is best for you.

4. How often will you redeem your rewards?

Travel doesn't necessarily mean a long vacation overseas. It can be as simple as an Uber ride or a stay in a hotel when visiting family. Therefore, I personally like to prioritize cards with low redemption requirements, so that rewards can be used quickly after they are earned. 

Credit Card

Minimum Redemption

Chase Sapphire Preferred

No minimum. Points can be used for partial purchases, with the remainder of the purchase charged to the card. 

BankAmericard Travel Rewards®

$25 (Multiple purchases apply; for example, five $5 Uber trips qualify for redemption.)

Barclaycard Arrival Plus World Elite MasterCard

$100 (Can be used for multiple transactions, but only those worth more than $100 each.)

Data source: Card issuers.

These travel cards vary significantly in their minimum redemption requirements. The BankAmericard Travel Rewards® card has a much better policy for small-dollar redemptions than the other statement credit card, Barclaycard Arrival Plus World Elite MasterCard. Chase Sapphire Preferred has a no-minimum redemption policy, allowing its cardholders to use points for partial travel purchases through its portal. 

Picking the right travel credit card for you

The three cards that were highlighted in this article were not picked at random; each earns a top spot in Fool.com's rankings of travel rewards credit cards. And the truth is that each could be the "best" card for any given traveler, depending on their annual spending habits, preferred methods to shop for travel, and the cardholder's preference for minimum redemption requirements.

If you don't have a strong preference, then new cardholder bonuses may be the factor that tips the scale. The table below compares the immediate benefit -- new cardholder bonus -- available on each card, as well as the spending requirement for getting the bonus.

Credit Card

New Cardholder Bonus

Required Spending to Get the Bonus

Chase Sapphire Preferred

50,000 points (worth $625 in travel value)

$4,000 in the first 90 days after account opening

BankAmericard Travel Rewards®

20,000 points (worth $200 in travel)

$1,000 in the first 90 days after account opening 

Barclaycard Arrival Plus World Elite MasterCard

52,500 miles (worth $525 in travel value)*

$3,000 in the first 90 days after account opening

Data source: Card issuers. *Note: Rewards for Barclaycard Arrival Plus World Elite MasterCard include the 5% redemption bonus when rewards are redeemed. 

As you can see, all of these cards offer a fast start to accumulating rewards, with up to $625 of travel value for qualifying cardholders who open a new account and meet the minimum level of spending to qualify for the bonus. Not surprisingly, all of these cards also top Fool.com's list of the best credit card sign-up bonuses.

Ultimately, the choice is yours, but it's better to start sooner rather than later. Each time you pay for a purchase without getting a reward, you're missing out on valuable benefits that could pay for your next vacation.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool has a disclosure policy.