Save your first—or NEXT—$100,000!

Money Under 30 has everything you need to know about money, written by real people who’ve been there.

Get our free weekly newsletter and MoneySchool: Our FREE 7-day course that will help you make immediate progress on the money goals you’re working toward right now.

No, thanks
Advertising Disclosure

The Danger of Airline Rewards Cards: How A “Free” Flight Cost Me $1,400

Your fave airline offers a free flight just for getting their credit card. What’s the catch? Fees, sky-high interest rates, and points that get you less and less as time goes on. Learn more about the dangers of airline rewards cards.

Airline credit cards and free flights: What's the catch?It’s easy to love free things, and of all the freebies that tempt us, none make a wandering spirit more weak in the knees than the promise of free airfare.

It’s about a million degrees below zero in Chicago for the third straight week, and I’d love nothing more that to hop on a jet, head to L.A., and leave the $500 airfare behind at the gate.

Over the years I’ve accumulated several frequent-flyer miles rewards credit cards, and yes, I’ve racked up quite a few free flights. But a couple of years back, I decided to clean house financially like never before. First, my wife and I paid off a mass of credit cards in one fell swoop—we couldn’t kill them all, but we decided to start with the cards that had the highest interest rates.

Our targets included my Chase United Mileage Plus credit card with a not-so-hot APR of 13.24 percent.

To cop a bit of airline lingo, 2013 brought some financial turbulence to the Carlozo household. So we carried balances on our credit cards longer than we’d planned. (Yes, we know better, but in the ups and downs of life, sometimes credit cards are the only way to weather difficult times).

Before I hit “confirm” on the payment that wiped them out, I took a long, hard look at how much I paid in interest on just one card in 2013:


Now, adding $95 in annual fees for the card, that comes to just a few dollars shy of $2,800. And in 2013, I earned enough in frequent flyer miles to take two “free” flights—that is, free if you overlook the $75 “close in” booking fees I paid both times.

Now, let’s do the math, and try hard not to laugh.

I paid $1,400 apiece for the privilege of taking two “free” flights via my Mileage Plus card.

I suspect I’m not the only one in this post-recession environment who’s fallen into this trap of my own devising. And so I’ll declare it here, with my own numbers to back it up: If you carry balances on your credit card for more than the occasional month or two, frequent flyer credit cards are simply a ripoff—and the enticement of free air travel masks mighty unfavorable APR terms and annual fees. 

This also brings up a larger and definitely related issue: Frequent flyer miles ain’t what they used to be, kids.

Knowing the true value of a credit card mile is the first step in profiting from airline credit cards, but one thing’s for sure — the game is getting harder to game.

In the past year, Delta has significantly upped its redemption rates (devaluing customers hard-earned points), and by a lot. International flights that used to top out at 175,000 points now top out at 375,000! And, just a few weeks ago, they slyly upped the redemption rates for their partner flights—historically, some of the most reasonably priced flights.

Now it’s still possible to game these airline credit cards, even with their sky-high fees and bad interest rates. And it’s not as if they don’t come without some perks: signing up, for example, usually scores you enough miles to book a free flight. Here’s a list of current sign-on credit card promotions, and you’ll notice that the travel rewards cards are among the most generous with their freebies.

But you’d better know what you’re doing, according to Brian Kelly, founder and CEO of ThePointsGuy.com.

“The beauty of airline credit cards is banking valuable miles and scoring money-saving perks like free checked bags and priority boarding,” Kelly said. “If you can maximize those benefits, it can more than make up for the annual fee. However, it’s critical that you pay your cards off in full each month because in general their APRs tend to be higher than non-airline and non-rewards cards.”

I enjoy Kelly’s columns; he dispenses savvy advice on how to collect enough hotel points, airline miles and the like to make you a most happy traveler. And he’s right. But one phrase in his response puzzled me: “in general.”

I asked Kelly if he could name one airline credit card with a super-duper APR, and off the top of his head he couldn’t. In fact, a few have fees so high, you might want want to consider a second mortgage, or hiding in a very large suitcase, in lieu of booking a seat.

“For some, the $450 annual fees on the Citi Executive AAdvantage World MasterCard and Delta Reserve cards are way too high,” Kelly said. “But those looking for the club access and the ability to earn elite-qualifying miles, paying that premium can be worth it.”

That said, the high-APR question is not likely to go away where airline credit cards are concerned. “Even if you get 10 cents back for each mile you redeem—and you’d have to find some truly high-priced international premium tickets to get a return like that—if you carry a balance and pay 19 percent APR, you’re literally losing half your value,” he said.

Meanwhile, consider this trick that I tried recently with another creditor, a Barclay’s MasterCard that earns miles on US Airways. For this to work (and it’s a toss up whether it will), you should be in a position to pay off the credit card balance immediately. That’s your leverage.

My US Airways card carried an astonishing APR of 18.24 percent. So I called customer service, asked for a manager, and told her that the APR was simply too high, airline card or no. If she couldn’t lower my APR on the spot, I’d pay off the balance, close the account and Barclay’s would lose me as a customer permanently.

It took them about 90 seconds to shift my balance at a new rate of about 14 percent. That saved me a lot of money in interest payments for the next year. Of course, I’d save even more if I just paid the whole thing off and stopped paying interest, entirely.

Will I keep my airline credit cards? Perhaps, if I can figure out a system for paying off the balances at the end of every month before interest accrues.

But I also know myself. And the temptation in a lean month to let one balance slide, then another, then another, is the financial equivalent of boarding a flight for the heart of the Bermuda Triangle at the height of hurricane season.

Published or updated on February 7, 2014

Want FREE help eliminating debt & saving your first (or next) $100,000?

Money Under 30 has everything you need to know about money, written by real people who've been there. Enter your email to receive our free weekly newsletter and MoneySchool, our free 7-day course that will help you make immediate progress on whatever money challenge you're facing right now.

We'll never spam you and offer one-click unsubscribe, always.

About Lou Carlozo

Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with DealNews.com, and a former managing editor at AOL's WalletPop.com. Contact him with story ideas for Money Under 30 at feedbacker@aol.com, or follow him via LinkedIn and Twitter (@LouCarlozo63).


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Ap999 says:

    I just found the title of this misleading. The free flight cost you because of mistakes by the user of the card not the credit card or anyone else, other than that if one plays by the rules reward cards can get you ahead wether it’s free flights, miles, upgrades, gift cards, cash back etc.

    But yes your right, even though I have never fallen into carrying a credit card balance. I know many who have, and they believe they are earning rewards points or miles. When in reality the interest charges negate all reward earnings and then some.

  2. Good for you telling this story. I know a lot of people say “I use this card for XYZ perk” but continue to carry a balance.
    Rewards programs only make sense when you pay off your balance every month.
    And once you get to that point, the rewards can be very REWARDING. I made $2,710 in rewards back in 2010. No interest paid.

  3. Kemkem says:

    This is one of the most realistic pieces l have read. Thanks for the honesty . What l do know is that credit card companies do not give anything away just for the heck of it. It has to benefit them in some way. There are so many blogs pushing these travel hacking cards. Most people seek out blogs to help them manage money, pay down debt etc. it kind of sucks to then say, charge it all on this card, and you can go on amazing vacations for free or for very little. It’s like telling a shopaholic to get a credit card, spend on it, oh..but pay it all at the end of the month, when most live paycheck to paycheck..before you know it, one slipup and you are deep in debt. The trip might be free, the hotel room might even be free, but what about the tips, the shopping, the food etc. it is not for everyone. I hope anyone who is serious about saving money thinks twice before doing it. Perhaps if you are trying to catch up and grow your money, Bali is not for you right now.

  4. Mike says:

    Let’s be honest, if you are carrying balances on credit cards (no matter what the APR) you are so far away from being able to come out ahead on rewards perks this analysis is irrelevant. It is shocking to me that someone giving out financial advise could admit to carrying credit card debt from month to month. Carrying credit card debt is a sign of living beyond your means and you should focus on cutting costs not on luxury rewards travel. I would suggest reading mr money mustache for personal finance advice or the points guy for travel but not this.

    • David Weliver says:

      You’re right; anyone in credit card debt should be focused on living below their means and not earning points. That’s why we publish articles like this, because many of us need gentle reminders that so-called ‘deals’ from the mouths of marketers aren’t deals at all if you’re paying credit card interest.

      In a recent study we commissioned (full results in a few weeks), 42% of adults under 30 carry credit card debt with an average balance of $2,700.

      If you’ve been fortunate enough to never carry credit card debt, count your blessings instead of lashing out at others for not being in the same boat.

      Avoiding credit card debt altogether is often no small thanks to an upbringing that was privileged enough to at least instill some financial values in you. Many do not get that. Others hit hard times and must choose between credit card debt and keeping the lights on. Others simply mess up because — let’s face it — easy credit is plentiful and tempting in the United States.

      So when we, as financial bloggers and contributors tell these people “you are so far away from [insert financial goal here]” we alienate the people who need our help most.

      This site may not be for you; it’s for everybody else who’s tired of being judged because they once got into credit card debt or went to a private school or majored in liberal arts or like cars and sometimes buy them new [God forbid] even though they know it’s a losing financial play. Living cheaply, saving huge amounts, and retiring early are all noble goals, but you shouldn’t be written off if you aren’t doing all three. Everybody’s goals are different. Personal finance is personal. Money Under 30 is committed to affirming that notion and giving advice relevant to people in as many stages of life (and financial know-how) as possible.

  5. 100K says:

    Appreciate the honesty. I finally got out of airline cc debt 3 yrs ago and haven’t gone down that painful road since. High taxes on business class award tickets is a real killer (e.g. Miles & More int’l flight I recently priced on BRU would cost me $1,000 in business and $670 in economy). Why I ever saved up Miles & More miles I’ll never know.

  6. Speak Your Mind