The 5 Major Drawbacks of Premium Travel Credit Cards

Premium travel rewards credit cards offer an enticing array of benefits like generous welcome bonuses, bonus points on travel purchases, annual travel credits, airport lounge access, and more. However, these cards also come saddled with notoriously high annual fees, often $500 or more. While the potential rewards can be lucrative for frequent travelers who maximize the cards’ benefits, there are several significant drawbacks to be aware of before applying.

The 5 Major Drawbacks of Premium Travel Credit Cards

Key Takeaways:

  • Premium travel cards have high annual fees, often $500+
  • Benefits are becoming less valuable as issuers cut costs
  • Complicated rotating credits make it hard to get full value
  • You may earn anti-travel rewards if you don’t travel frequently
  • High APRs can quickly negate any rewards earned if carrying a balance

5 Major Drawbacks of Premium Travel Credit Cards

The wealth of valuable perks and rewards attracts many luxury travelers. However, unlocking this premium travel experience comes with significant costs and complexities that must be carefully considered before applying for these high annual fee cards.

1: Difficulty Maximizing Complicated Spending Credits

To help justify their premium annual fees, most high-end travel cards offer annual spending credits worth hundreds of dollars. For example, the Chase Sapphire Reserve has a $300 annual travel credit.

However, these credits often come with convoluted terms, rotating periods, or category limitations that make it extremely difficult for many cardholders to extract the full advertised value. Some common practices include:

  • Quarterly or Monthly Rotating Credits: The Hilton Honors American Express Aspire Card has a $250 annual airline fee credit, but it is divided into $50 quarterly credits that reset every 3 months. If you don’t have $50 in incidental fees each quarter, that credit value is lost.
  • Narrow Category Limitations: The U.S. Bank Altitude Reserve has annual $325 travel credits, but they only apply to purchases directly through airlines, hotels, car rental companies, taxis, limousines, etc. Broader travel purchases like tours or Airbnbs don’t qualify.
  • Credits for Specific Brands Only: The Marriott Bonvoy Brilliant Amex has a $300 annual credit, but it can only be used at participating Marriott hotels.

Credit card issuers benefit when customers don’t maximize these complicated credits — which is exactly why they structure them this way. It allows them to advertise an inflated “annual value” while many cardholders are unable to practical use the full credits.

2: Eroding Benefits Over Time

As competition increases and issuers look to cut costs, we’ve seen a steady erosion of benefits across many premium travel cards lately, even as annual fees increase or remain at premium levels.

Card Recent Negative Changes
Chase Sapphire Reserve Reduced travel credit from $300 to $250, removed Priority Pass restaurant credits, raised annual fee
Amex Platinum Removed $200 annual Uber credits, added stricter terms to airline fee credit
Citi Prestige Removed golf benefit, raised annual fee

Instead of adding substantial new benefits, issuers often just launch convoluted new credits as discussed above to try to offset fee hikes. For example, when the Hilton Aspire card increased its annual fee by $50 to $450 in 2020, they simply added $250 in rotating Hilton resort credits — which require Hilton resort stays each quarter to utilize.

“If a card issuer is going to raise the annual fee on us, it needs to add meaningful benefits that cardholders will use. More gimmicky, rotating credits don’t really add value.” – Michael Witty, travel blogger at UpgradeTraveler.com

While premium cards can still be a good value despite some diminishing returns, it’s concerning to see benefits eroding in tandem with higher costs — especially credits replacing more straightforward perks.

3: Justifying the High Annual Fees

Speaking of those elevated annual fees, they represent one of the biggest potential drawbacks of premium travel cards. It’s not uncommon for these cards to charge $495, $550 or even $695 per year after the first year.

With such lofty annual costs, you really need to make sure you can derive enough value from the card’s benefits to justify paying that fee year after year. This requires:

  1. Understanding Your Actual Travel Spending Habits – Look at how much you spent in bonus categories like airfare, hotels, dining etc. over the past year. If you’re not a frequent traveler, those multipliers won’t provide enough value.
  2. Estimating Yearly Value of Credits and Perks – Don’t just look at the total potential value across all credits/perks. Realistically calculate how much of that you’ll actually utilize based on your typical travel patterns. Overestimating can lead to a negative expected value.
  3. Assessing If the Benefits Truly Meet Your Needs – Don’t convince yourself you’ll use perks like lounge access just because they’re advertised. If you’re not an amenity traveler, those benefits may be worthless to you.

If you can’t reasonably extract at least the annual fee amount in real value for your particular situation, a premium travel card isn’t worth pursuing. Don’t get blinded by big numbers and complicated math — make sure the benefits align cleanly to your lifestyle.

4: Risk of Earning Anti-Travel Rewards

Travel credit cards are designed to incentivize spending in categories like airfare, hotels, cruises, etc. by offering elevated earning rates in these areas — sometimes 3-5X points compared to other purchases. But what if your actual spending patterns don’t align with those bonus categories?

For example, in 2022 the average U.S. consumer spent:

  • $3,414 on transportation (includes gas, insurance, public transit, etc.)
  • $1,782 on entertainment
  • $5,107 on food/groceries
  • $2,016 on utilities/telecom

But only:

  • $805 on airfare
  • $704 on hotels/motels

(Source: U.S. Bureau of Labor Statistics)

If you don’t travel frequently for work or pleasure, you could be earning anti-optimal rewards from a premium travel card. The bulk of your spending won’t fall into the lucrative bonus categories.

For non-frequent travellers, a cash back card that earns the same high rate on all purchases could be a better fit than chasing inflated travel multipliers you can’t maximize.

5: High Interest Rates Negate Rewards

Most premium travel cards come with punitive APRs in the 20-25%+ range if you revolve a balance from month-to-month. The Chase Sapphire Reserve, for example, charges 24.99% variable APR on balances.

With such high APRs, even a relatively small amount of revolving debt can quickly outweigh any rewards earned from spending on the card. Here’s an example of the cost over 12 months of carrying different balance amounts at 24.99% APR:

Balance Interest Charges
$1,000 $208
$3,000 $623
$5,000 $1,039

Given those punishing interest costs, it makes no sense to use a premium travel card if you can’t pay the full balance each month. The rewards earned will simply be a drop in the bucket compared to the interest charges.

If you do need to revolve balances, look for a basic low APR card in the 14.99%-17.99% range to minimize the interest penalty until you can pay off the debt. Interest charges from premium travel cards will negate any rewards value quickly.

Conclusion

Premium travel rewards credit cards are highly appealing for frequent travelers, offering generous welcome bonuses, elevated rewards rates on travel purchases, yearly travel credits worth hundreds, airport lounge access, elite status, and travel protections.

The wealth of valuable perks and rewards attracts many luxury travelers. However, unlocking this premium travel experience comes with significant costs and complexities that must be carefully considered before applying for these high annual fee cards.

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