For savvy travelers, choosing the right travel rewards credit card is crucial to unlocking significant value and enhancing your travel experiences. The rating of a top travel card hinges primarily on its rewards value, encompassing several key factors that determine how much you can benefit from your spending. This includes a card’s average rewards rate, estimated annual rewards earnings, the value of sign-up bonuses, and the worth of reward redemption options.
To evaluate the true potential of a travel card, it’s essential to delve into how average annual rewards earnings are calculated. This begins with determining the average rewards rate, which is heavily influenced by the card’s bonus categories and how well these align with typical spending habits. Essentially, we assess if a card provides high rewards in categories where people spend the most.
We leverage consumer spending data from the Bureau of Labor Statistics (BLS) to ensure a data-backed approach to understanding spending behaviors. According to the most recent BLS data, average consumer spending in 2023 was around $77,280 annually. However, for credit card rewards, we focus on “chargeable” spending, excluding large expenditures like housing and vehicle costs. This narrows our scope to approximately $25,500 in annual spending that could realistically be put on a rewards credit card.
This chargeable spending breaks down into categories relevant to travel and everyday life:
- Groceries: $6,000
- Dining Out: $3,900
- Entertainment: $2,500
- Gas: $2,400
- Apparel and Services: $2,000
Based on this spending distribution, we assign a weighting to each bonus category offered by a travel card. For instance, rewards earned on grocery purchases are weighted at 26 percent, reflecting the significant portion of an average budget allocated to groceries. This weighted approach helps accurately reflect real-world rewards accumulation.
Furthermore, understanding the redemption value of points or miles is just as critical. We consider the value of points or miles from various issuer, airline, and hotel loyalty programs to estimate the tangible value of the rewards you earn.
By combining these weightings and rewards valuations, we can estimate the average annual rewards earnings for a travel card. This represents the approximate value in points or miles you could accumulate annually based on average spending across all purchases made with the card. This calculation, along with point valuations, also allows us to determine the real-world value of a card’s initial sign-up bonus.
Ultimately, each travel card is assigned a score based on a comprehensive evaluation of its average rewards earnings, sign-up bonus value, rewards rate, and redemption value in comparison to other travel rewards cards available. Cards that offer superior value across these metrics achieve higher scores, making them more likely to be recognized as Top Travel Cards and rank higher in recommendations.
