Thanks to the pandemic, there’s a lot less travel taking place, and it’s affecting how people use (or don’t use) their travel rewards credit cards. With 46% of consumers carrying a travel rewards credit card, many are thinking about what will happen to their points and miles since there are no travel plans for the foreseeable future.
Based on some of the results in ValuePenguin’s recent survey of credit card users, people are indeed rethinking their credit card habits.
A rush to close cards: More than 4 in 10 millennial travel rewards cardholders say they’ve closed a card since the pandemic began, while another 34% of millennials have considered doing the same. When it comes to travel rewards cards, 30% of respondents overall have closed one.
“It doesn’t surprise me at all that many people are closing travel cards right now,” said Matt Schulz, chief credit analyst at LendingTree, ValuePenguin’s parent company. “Many Americans are simply trying to keep food on the table, and hoarding travel miles and points just doesn’t make any sense for a lot of people at this time.”
- Cashing out while they can: More than half of those who were laid off or furloughed (and 4 in 10 travel rewards credit cardholders overall) — have cashed out some of their points or miles due to the pandemic’s impact on their ability to travel. Another 23% say they have researched options to cash out, but haven’t done so yet.
- Expiration worries abound: Nearly 6 in 10 are worried about their perks or points expiring, while 45% fear they’ll lose their rewards if the airline, hotel or provider goes bankrupt. Millennials are the most worried cohort, with 72% and 54%, respectively, expressing these concerns.
- The battle for points and miles refunds is on: As unfair as it sounds, 28% of Americans who booked a trip using travel rewards and had to cancel due to the coronavirus were not able to get their points or miles refunded back to their account.
Some close or stop using travel cards, others open new ones
Survey respondents seem to fall into one of two camps when it comes to travel cards: Those who are closing travel cards and/or switching to different cards (like a grocery card) to maximize their spending while stuck at home, and those who are trying to take advantage of new deals and perks offered by travel card issuers. Deciding which points and miles strategy is best during a pandemic can be a challenge, but here’s what consumers are saying:
- Scaling back on travel spend: Of those who have a travel rewards card, 52% have been using their card less amid the coronavirus pandemic as they shelter in place. However, a little over 1 in 10 said they’re actually using their card more in order to cash in on travel deals. The remainder, 37%, are spending as usual.
- When in doubt, close it out? Three in 10 travel rewards cardholders have closed one of their cards since the pandemic began, and another 24% have considered closing their travel-related rewards card(s). Millennials are closing cards the most of any group (41% versus 30% of Gen Z and Gen X, and 5% of baby boomers).
Go all in on (future) travel: Some consumers — 28% overall and 45% of millennials in particular — have actually applied for a new travel-related rewards card since March. The majority of applicants were approved. That could be a sign of optimism, said Schulz.
“Americans love travel, and many cannot wait for the day when they can get back on a plane,” he said. “That means that many folks who are looking for that card to help them extend their budget a bit in these tough times may still opt for a card that gives them rewards points instead of a more practical cashback card.”
“Generally speaking, it is not a good idea to close a credit card,” said Schulz. “The primary reason is that it can take a toll on your credit score, mostly by affecting your utilization rate.” That’s how much debt you have compared to your available credit, and it’s the second most important factor in credit scoring after your payment history.
“Closing a card can wreck [utilization] because it reduces your available credit without shrinking your balance,” Schulz explained.
Instead of closing a card, consider leaving it open and using it for a small recurring payment like a streaming subscription, said Schulz. The one exception is if you’re carrying a rewards card with an annual fee, but no longer getting value from it. In that case, you could consider asking the issuer to downgrade your card to a version with no annual fee.
Otherwise, “the hit to your credit from closing a card won’t be so huge that it justifies paying $89 or more a year for a card you’re never going to use anymore,” said Schulz.
Cardholders consider redeeming travel rewards amid pandemic, despite reduced value
So is cashing out your travel rewards a good idea? On the one hand, the value of an airline mile is worth more than the 1 cent per point most cards offer for cash back or gift cards. Still, some cardholders feel that getting something is better than nothing, especially if the rewards help bridge the gap during a tight economic period.
Here’s what the survey revealed:
- The cash-out camp. With travel plans stalled, 4 in 10 travel rewards credit cardholders have cashed out some of their points or miles, while another 23% have researched options to cash out, but haven’t done so yet. As for who’s cashing out, 51% of male travel rewards cardholders have cashed out some of their points, versus 25% of women. Plus, more millennials (50%) have cashed out than Gen X (43%), Gen Z (42%) or boomers (10%). More than half (55%) of travel cardholders who were furloughed or laid off due to the pandemic have tapped into their travel rewards, versus 29% of those who are not experiencing income loss.
- Redemption choices. Of those who cashed out rewards, the majority (46%) redeemed for a gift card. Other options chosen by respondents included free magazine subscriptions (22%), transferring them to someone else (16%) and redeeming as a statement account on their card (15%).
“There's no one-size-fits-all answer to what you should do with your travel points right now,” said Schulz, recommending that you let your own personal circumstances drive your decision. For example, if you feel your job is stable and you have an ample emergency fund, it can make sense to hold on to your points until you're comfortable traveling again.
Many fear losing their travel rewards as some book trips to avoid expiration
Is this a legitimate fear? Among many cardholders it is.
“It's completely understandable that people would be concerned about points expiring,” said Schulz. However, he does point out that card issuers have been flexible thus far: “The truth is that no company wants to be seen as having left its customers high and dry during the pandemic.”
- Why so scared? Cardholders are most worried about their rewards expiring (58%), while 45% fear losing points if the airline, hotel or provider goes bankrupt.
- Consumers expect travel companies to step up. It’s not fair for companies to enforce expiration dates, say 68% of travel rewards cardholders, given the national health crisis impeding many from vacationing. However, about a quarter of respondents think not doing so would be unfair to the loyal consumers who continued traveling.
- Thinking ahead. About a third (32%) of cardholders booked travel for 2021 specifically to avoid their rewards expiring. Men (42%) and millennials (40%) were most likely to do this.
Nearly 30% are fighting to get reward refunds after trip cancellations
Especially early on in the pandemic, there were horror stories about how challenging it was to cancel trips and get your points or miles back, said Schulz, speaking from experience.
“I ended up spending several hours on the phone, waiting to get helped, only to get hung up on more than once,” he said. “To Chase and United’s credit, I ended up happy with how the issue got resolved, but it did take a long time and was quite frustrating.”
Along those lines, our survey found that 28% of Americans who booked a trip using travel rewards and had to cancel due to the coronavirus were not able to get their points or miles refunded back to their account.
What should you do with your travel rewards card during the coronavirus pandemic?
Anytime you have a rewards card, there is always some risk that programs may change or points will expire before you get to use them. In this scenario, you might even be wondering if the brands associated with your airline and hotel cards will still be around when you decide to cash in and travel again.
“There are so many variables and unknowns around everything involving travel and loyalty and credit cards that it is impossible to know what things will look like when this moment is in the rearview mirror,” said Schulz.
That said, here’s what you should do:
- Review your card’s terms and benefits. Some issuers are adjusting their programs to be more accommodating, knowing that people’s travel plans are limited. In other words, you may be worrying for nothing about expiration periods, as they may have been extended.
- Check your points/miles balances. Take inventory of the rewards you’ve accumulated and see if any are close to expiring. That will help you decide if you can afford to wait out the pandemic or not.
- Consider your card type. If you have a more general travel rewards card, you are safe in the sense that even if a favorite airline or hotel of yours goes bankrupt, you’ll have lots of other redemption options from which to choose. For brand-specific cards, the risk may be higher, but even so, the likelihood that an entire loyalty program will go away completely is low. If you’d rather not chance it, select a non-travel redemption option and cash in. As a last resort, you can contact the card issuer to see if they can transfer an existing points balance into another generic cashback or rewards card in their portfolio. That might not always work, but it’s worth a shot if it’s a way to keep your points and score a card that better matches your needs going forward.
- Try not to close cards, unless you have an annual fee that’s no longer worth it for you. With fee-based cards, you can call the issuer and see if they can downgrade you to the no-fee version of the card. Most will gladly do that for you. If there is no option, then go ahead and cancel the card, keeping in mind that your credit score will take a temporary hit.
- Ready to redeem? Think about your current and future needs. If you want to use up what you’ve earned, it can make sense to sacrifice a little value for some instant gratification. In other words, while you might not get as high a redemption value for cash back or a gift card as you would for booking a flight, for instance, at least that’ll be money in your pocket and peace of mind, since there’s no telling what the travel landscape will be going forward.
“If your financial world has been flipped upside down by the virus, that dream of a vacation to Paris or Thailand should probably take a back seat to using points to help pay your everyday bills,” said Schulz. Luckily, many points and miles cards offer the option to choose statement credits, cash back or gift cards — all of which can be used to offset some everyday expenses.
ValuePenguin commissioned Qualtrics to conduct an online survey of 1,243 Americans, with the sample base proportioned to represent the overall population. The survey was fielded July 10-13, 2020.
Generations are defined as the following ages in 2020:
- Gen Z are 18-23
- Millennials are 24-39
- Gen X are 40-54
- Baby boomers are 55-74
- Silent generation are 75 and older