Credit Card Pitfalls – Overestimating Benefits Part 2

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In part 1 in this series of 2 posts (Credit Card Pitfalls – Overestimating The Benefits Part 1) I wrote about how it’s easy to be dazzled by the array of benefits a travel rewards credit card offers and to forget to check just how much value you’re actually deriving from those benefits. In today’s second and final part, I’ll take a look at how it’s easy to miss the bigger picture when presented with some of the points earning benefits of a travel rewards credit card.

Credit card companies are all about getting you to spend on their credit card because every time you use your card they get paid – that’s how they make their money (mostly). The companies use a number of methods to encourage you to use their credit card but these are the ones I consider to be the main ones:

  1. Sign-up bonuses which are triggered after the user has put a certain amount of spend on the card within the first few (usually 3) months of card membership.
  2. Added benefits for hitting annual spend targets.
  3. Bonuses for spending in certain categories (dining, gas, supermarkets etc…)

Underestimating Spend For Sign Up Bonuses

The first mistake I see a lot of people making is underestimating how hard it is to hit spending targets.

Some people find it very easy to rack up $2,000 – $5,000 of spend in the first 3 months of card membership (which what is usually required to trigger a spend bonus) but those people are, usually, either manufacturing spend, charging work expenses (that they can later claim back) or they’re using their credit card to run their own business.

Amex Gold Credit Card

A lot of people aren’t in the position to do any of those things but, despite that, they rationalise getting a credit card with a hefty annual fee by placing a value on the miles/points they’ll earn for hitting the signup spending target.

There are two things that can go wrong from here:

  • People start spending more than they would have otherwise spent just to hit the signup bonus – a monumentally foolish thing to do.
  • People don’t hit the spend bonus…and are still left with an annual fee to pay.

Underestimating Spend For Annual Spend Bonuses

Another way I’ve seen people justify an annual fee is by putting a monetary value on a benefit they receive for hitting an annual spend target.

A great example of this is the Citi AAdvantage Executive Card which awards the user 10,000 Elite Qualifying Miles (EQM) after spending $40,000 in a calendar year.

Citi AAdvantage Executive Credit Card

The rationale I’ve heard is that the 10,000 EQM prevents the card holder from having to do a “mileage run” at the end of the year to achieve status on American Airlines so it’s saving the user the airfare and associated costs of that mileage run.

While all that may be technically true, it’s amazing how many people forget to consider just how hard it is to spend $40,000 on a credit card in a year. If you don’t manufacture spend it’s very hard indeed! Heck, even if you do manufacture a little spend it still isn’t easy – I know!

Overestimating The Value Of Spend Bonuses

The British Airways Cards (in both the US and the UK) are excellent examples of how this can happen.

In the UK, holders of the British Airways American Express Cards are awarded a “Companion Voucher” after spending $30,000/£20,000 on the zero-fee credit card or $15,000/£10,000 on the Premium Plus card that comes with a $225/£150 fee.

The companion voucher allows the user to redeem two award seats for the same number of Avios as a single award seat would cost (providing there’s availability). Taxes and fuel surcharges are paid on both award tickets.

British Airways Amex Credit Card UK

In the US, the Chase-issued British Airways Visa offers the same benefit after $30,000 in spend and a lot of people get very excited about this….but I have no idea why!

An Off-peak Business Class award between New York and London will cost 100,000 Avios + $1,169 in taxes and fees for one person:

Screen Shot 2015-12-11 at 18.47.00

I realise that the companion voucher would mean that two people could do the trip for 100,000 Avios + $2,338 in taxes/fees which sounds a lot better…but you still have to earn the 100,000 Avios somehow.

In the UK, earning 100,000 Avios is a lot harder since the huge devaluation earlier in the year and, in the US where earning Avios is a lot easier thanks to transfer partners like Amex and Chase Ultimate Rewards, you have to pass up opportunities to earn far more valuable miles/points to earn those 100,000 Avios.

For a UK credit card holder to earn the 100,000 Avios needed for that redemption they would have to spend $100,000/£66,666 on their Amex credit card at a minimum.

They could earn the Avios by flying but, if they booked the cheapest Economy Class tickets, it would take 57 round trip flights between New York and London to earn the 100,000 Avios needed for that award (865 Avios in each direction).


It would take over 14 round-trips with the cheapest Premium Economy fares and almost 10 round-trips with the cheapest Business Class fares.

A lot of people use the companion voucher to justify the $225/£150 annual fee on the Premium British Airways Card (in the UK) but I really can’t see the value for most.

Sure, if you run a business whose expenses you can put through the card then fine, that may well work, but most ordinary people aren’t in that position. It’s not much use having a companion voucher if you don’t have the Avios to go with it.

Bottom Line

You can earn a lot of points/miles from signup bonuses and you can gain some extra benefits from hitting annual spends but, before you use any of those things as a justification for an annual fee, you need to be absolutely certain that:

  1. You can hit the spend targets.
  2. You can hit the spend targets without spending more than you would have done normally.
  3. The bonuses for hitting the high annual spending targets are actually worth aiming for.

Once again it’s worth reiterating, it takes a lot of discipline to get the most out of travel rewards credit cards. If you carry a balance from month to month these aren’t for you. If you’re prone to overspending, these aren’t for you and if you’re prone to being overly optimistic these cards are probably not for you either.

Be honest with the value you place on any bonuses that credit cards offer you before you sign up for a card with an annual fee. Only then will you really know if you’re getting value or if you’re just adding to the credit card company’s bottom line.