Choosing the best travel card can feel overwhelming, especially with so many options available. When determining the value of a rewards-earning travel card, the primary factor is its rewards value. This encompasses several components, including the card’s average rewards rate, estimated annual rewards earnings, the value of its sign-up bonus, and how much value you can get when you redeem those rewards. Understanding these elements is key to finding a travel card that truly works for you.
To estimate a travel card’s average annual rewards earnings, we first need to understand its average rewards rate. This is calculated by looking at how much the card offers in different bonus categories and how well these categories align with typical spending habits. Essentially, we want to know if the card gives high rewards in spending areas where people spend the most.
We use data from the Bureau of Labor Statistics (BLS) to get a clear picture of average consumer spending. According to the most recent BLS data, average total spending in 2023 was around $77,280 per consumer. However, not all of this spending goes onto credit cards to earn rewards. We need to subtract expenses like housing, vehicle purchases, and education to focus on “chargeable” spending. This leaves us with an estimated annual spend of about $25,500 that could realistically be put on a travel rewards card.
This “chargeable” spending breaks down into categories such as:
- Groceries: $6,000
- Dining out: $3,900
- Entertainment: $2,500
- Gas: $2,400
- Apparel and services: $2,000
Based on this spending data, we can weigh the bonus categories of a travel card. For example, since a significant portion of the average budget is spent on groceries, a travel card’s rewards rate for grocery purchases is given a higher weighting, around 26 percent. This weighting helps us understand how valuable a card’s bonus categories are for the average consumer.
Furthermore, the redemption value of points or miles earned with a travel card is crucial. The value of these points can vary significantly depending on the issuer, airline, or hotel loyalty program. Understanding points and miles valuations is essential to accurately assess a travel card’s worth.
By combining these weightings and rewards valuations, we can estimate a travel card’s average annual rewards earnings. This tells you approximately how many points or miles you could earn in a year if your spending aligns with the average consumer and you use the card for most of your purchases. We also use these point valuations to calculate the real value of a travel card’s sign-up bonus.
With all these calculations in place, we can score each travel card based on its average rewards earnings, sign-up bonus value, rewards rate, and redemption value compared to other travel rewards cards. Cards that offer better values in these areas will receive higher scores. Ultimately, understanding these components of rewards value will help you determine what the “best” travel card is for your specific spending habits and travel goals.
