TL;DR: Paying annual fees on travel credit cards actually saves budget travelers money and improves quality of life. 

Why I Keep Travel Credit Cards with Annual Fees

There are three certainties in life: death, taxes, and a horrible Spirit and/or Frontier Airlines experience. I had the privilege burden of flying both Frontier and Spirit for the first time last year.  Both flights were delayed, uncomfortable, and charged a fee for everything.  On one occasion, Frontier bumped my Sunday flight from 2:00 p.m. to 10:00 a.m. without notifying me.  I went to check the status of my flight at 10:00 a.m. and to my shock—my plane had left without me.  I called Frontier and calmly discussed infuriatingly berated the representative who told me a refund was not possible. 

Needless to say, I never intend to fly either airline again and that is only possible because of travel rewards credit cards.

Disclaimer: Who Should and Shouldn’t Read This Post

This post is written for the infrequent flyer, regardless of income. It is ideally intended for individuals who (1) book less than ten flights per year and (2) meet one of the following criteria:

  • Has never considered applying for a travel rewards credit card or
  • Does not currently have a travel rewards credit card due to fear of annual fees.

This post is not intended for expert trolls or for individuals who are saving points for a specific award redemption in the future.

Spirit Airlines and Frontier Airlines Are Objectively the “F*cking Worst

Man, I love The Onion.

The Airline Quality Rating (AQR) measures performance and quality of the largest United States airlines.  The AQR is released annually by researchers at the Embry-Riddle Aeronautical University and Wichita State University.  It ranks the airlines based on several factors including:

  1. Mishandled Baggage
  2. On-Time Performance
  3. Involuntary Denied Boardings 
  4. Customer Complaints (e.g., ticketing issues, flight problems, fares, refunds, customer service, animals, etc.).

Spirit or Frontier Airlines have ranked dead last for four consecutive years.  It has become a running joke.  If that weren’t enough, there are rumors of an eventual Spirit-Frontier merger.  God help us all.

Why We Choose the Worst Airlines Anyways

We have all done it.  I knew both airlines had poor reputations before I booked.  I knew I was going to have a bad experience.  I knew I had other options open to me.  I chose the budget flights anyway.

Why did I do it?  Why do any of us do it?  Are we subconsciously punishing ourselves?  That can’t be it.  We want nice things.  Are we conditioned to always pick the cheapest option?  That can’t be the full explanation either (i.e., no one here is buying single-ply toilet paper to save a buck).

Travelers Who Have a Rewards Credit Card With No Specific Award Redemption in Mind.  I’ve done it.  You would rather pay cash for the dirt cheap fare rather than use your precious points on a poor cents-per-point award redemption.  All I can say if this applies to you is—point devaluation is a certainty.  If you have no redemption in mind, then all you are doing is hoarding points.  Don’t forget why we sign up for these cards.

Travelers Who Don’t Have a Rewards Credit Card.   I get it.  The budget airlines roll out some absolutely dirt cheap fares and if the next cheapest alternative is hundreds of dollars more, it only makes fiscal sense to choose the cheaper option.

The Economics of Happiness: How Rewards Credit Cards Improve Quality of Life

“Happiness”

Let’s start with a few basic assumptions about “happiness.”

First, I’m happier when I don’t have to choose the cheapest option.  If I can afford to eat something other than unbranded mac and cheese or top ramen, I’m happier.  If I can afford to not fly Spirit or Frontier, I’m happier.

Second, I’m happier when I can stretch my income beyond what is typical (i.e., buy one, get one free).

Third, I’m happier when I’m not in a stressful situation.  Looking at you, Frontier.

Why You Need a Rewards Credit Card

Yeah, yeah.  I know. This is getting a little heavy—but I’m serious.  To reiterate, this post and its recommendations are intended for all people of all incomes.

The following examples assumes that (1) an individual has budgeted for one vacation including four round-trip tickets [$800]; (2) the individual will encounter two unexpected flights this year not budgeted for; and (3) the individual has a family of four with a total annual household income of $40,000 with the following monthly expenses:

Best Card: American Express Gold Card

I cherry-picked the above expenses to show why the American Express Gold Card is a no-brainer for the family described above.  Let’s call them the Reeves family.

Let’s start with the elephant in the room: the annual fee.  The annual fee for the Gold Card is $250. However, this fee shouldn’t matter to the Reeves family.  Consider the following.

Membership Rewards Value: $1,051.20

The American Express Gold Card earns 4x Membership Rewards at supermarkets and restaurants.  The entirety of the $13,140 expenses listed above can earn 4x Membership Rewards with the Amex Gold.  How, you ask? Gift Cards. I currently pay my utilities, internet, cell phone bill, and gas expenses with gift cards bought at my local grocery store.

The Reeves would earn 52,560 Membership Rewards points annually ($13,140 x 4) from the budget above.  The Points Guy currently values each Membership Rewards point at 2 cents-per-point totaling a value of $1,051.20.  The total value at 1 cent-per-point would be $525.60.

Annual Credits Value: $220

The Gold Card gives an annual $100 airline credit for incidentals but has historically applied to airline gift cards too.  Additionally, the Gold Card provides an annual $120 dining credit (disbursed at $10/month) at Grubhub, Seamless, The Cheesecake Factory, Ruth’s Chris Steak House, Boxed, and participating Shake Shack locations.

Insurance and Protections Value: ~$100

If the Reeves family is anything like my mom, they will buy cell phone insurance (“purchase protection”), travel accident insurance, and car rental insurance.  The Amex Gold card covers all of these at no additional cost. Notably, other cards such as the Chase Ink Preferred includes benefits like cell phone insurance with a $100 deductible.  The Amex Gold has no no deductible or will pay the deductible on your primary insurance. To learn more about additional benefits, click here.

Sign-Up Bonus Value: $800

Finally, the sign-up bonus.  The current public sign-up bonus is 35,000 Membership Rewards points after spending $2,000 in three months valued at $700.  However, if you apply through this application, the bonus is 40,000 Membership Reward points valued at $800!

Summary.  The Reeves family would earn 92,560 Membership Rewards points in their first year holding the Gold Card, would net an additional $1,050 annually just by keeping the Gold Card open (~$1,300 – $250 annual fee), and would net an initial $800 from the sign-up bonus. 
Remember, this example assumes the Reeves family intended on purchasing four round-trip tickets for a vacation this year.  The 40,000-point sign-up bonus alone covers the entire trip cost.  Additionally, the remaining 52,560 points earned by living as we normally do would more than cover the unexpected trips that the Reeves did not budget for.

Alternative Card Recommendations

Let’s say for whatever reason, the Reeves family is still not sold.  Maybe they don’t like Amex. Maybe they only fly Southwest and know that Southwest is not an Amex partner.  Maybe they want to travel a lot in the upcoming year.

Their alternatives to minimize annual fees and maximize rewards could be the following:

Chase Sapphire Preferred (Annual Fee: $95):  and Chase Freedom (Annual Fee: $0)

The Chase Sapphire Preferred has a sign-up bonus of 60,000 Ultimate Reward points after you spend $4,000 in three months.  The Chase Freedom has a sign-up bonus of 15,000 Ultimate Reward (UR) points after you spend $500 in three months.

The Chase Sapphire Preferred provides 2x UR on travel and dining.  The Chase Freedom has rotating categories every quarter that provides 5x points for up to $1,500 each quarter (7,500 UR).  The Reeves family budget could earn up to 100,000 UR in their first year and have the option to transfer points to airlines that Amex is not partners with like Southwest or United.

Southwest Plus Card (Annual Fee: $69) and Southwest Performance Business Card (Annual Fee: $199)

If the Reeves plan on taking a lot of family vacations in the next year (or two), they may want to consider earning the Southwest Companion Pass.  The Companion Pass allows the holder to bring a designated individual on a booked trip for free.  This includes trips the holder books with points.  To qualify for the companion pass, a person typically needs to earn 110,000 points in a calendar year. The combined sign-up bonuses of both cards qualify towards the Companion Pass.

The Southwest Plus Card has a sign-up bonus of 40,000 Southwest Points after spending $1,000 in three months.  The card gives an annual 3,000-point anniversary bonus. The Southwest Performance Business Card has a staggering 80,000-point sign-up bonus after spending $5,000 in three months.  The card gives an annual 9,000-point anniversary bonus. The Reeves budget would only earn 1x point on all purchases (13,140 Southwest Points). However, the sign-up bonuses alone would total 120,000 points—enough to qualify for the companion pass.

The Reeves family could get an insane amount of value going this route. The pass is valid for the remainder of the year in which you earn and the entire following year.  The Reeves family would earn 126,000 Southwest Points after meeting the sign-up bonus requirements (120,000 UR bonus points and 6,000 spend).  Additionally, the Reeves family would earn an additional 12,000 points on their card anniversary for a total of 138,000 points in the first year.  In other words, if the Reeves met the sign-up qualifications by September 1, 2019, and didn’t spend another dollar on the cards, the entire family of four could take up to eight free round trips (138,000 / 17,712).

Conclusion: Happiness Checklist

Let’s see how we did.  The Reeves family budgeted $800 for flights for a family vacation in the next year (i.e., they were going to spend this money anyway).  The above scenario contemplates the Reeves spending no more than the budget they made. The recommendations include annual fees ranging from $95-$250. I don’t know about you, but I’m happier when:

1.  I don’t have to choose the cheapest option.  Check.  $250 is less than $800.  The sign-up bonuses on any of the above-three scenarios would easily cover the $800 airfare budgeted for. That’s an instant return of $550.

2. I can stretch my income beyond what is typical (i.e., buy one, get one free).  Check. Anyone of any income can travel gratuitously if they want to—without bankrupting themselves or their family.  Also, the Companion Pass is literally a BOGO deal.

3. I’m not in a stressful situation.  Check.  Vacations are supposed to be stress free. Flying Frontier or Spirit is not stress free.  Rewards credit cards empower people to literally say, “I’m not flying on the worst airlines in America because I don’t want to” and metaphorically say, “I’m better than single-ply toilet paper.”

The post You Couldn’t Pay Me to Fly Frontier or Spirit: The Economics of Happiness was first published on Coworkaholic.

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