Big Sur California… we want to go back, maybe for free!
I am going to get a TON of grief for this. I am a Dave Ramsey follower and I preached til I was blue in the face on how bad credit cards are (I still think they are terrible and playing with fire). However, when I read an article in Money Magazine on what the actual cost of a Disney World Vacation cost my jaw hit the floor. You’re telling me people spend anywhere from $4,000 to $10,000 to visit the Magic Kingdom?!?!?! There is no way I am going to sacrifice fully funding a Roth IRA or an Education Savings Account so my girls can see Mickey Mouse at Disney World! But I also know there is no way I am going to be able to look them in their beady little eyes and tell them no… Therefore I went in search of an alternative. I found a website Richmond Savers that gives a step by step guide to going to Disney World for free using travel hacking. So I began an experiment to see if it actually works. Yes I feel like I sold my soul to the devil… but it is a trial run! I am going to write a post on the feelings I had when I decided to start this and the barriers I have put in place in a later post. If you’re a budget conscious family and have a solid budget like I explain in an earlier post then maybe you could try this too. I may be completely late to the game and several of you are already doing this? Has anyone had great success or failures? Post a comment below, I am curious to know if this is even worth it!
If you haven’t figured it out already this is Super FI “TROOPERS.” This is a website about coworkers/friends of mine that have drank the kool-aid on becoming Financially Independent (FI), not just Dave Ramsey kool-aid! Trooper Joe is a good friend and fellow FI guy that has been using credit cards, has way more experience and knowledge about it than I do! Please read his post and let us know what you think!
When I first heard about travel hacking from Jimmy I thought it was just another scheme to open a new credit card and drop my credit score. I decided to do some more research on it and discovered that I could have been doing this for years and been traveling for free or next to nothing and if you do it right, your credit score will not take a huge hit like you may think. My wife and I like to travel but the cost to book flights, hotels, and rental cars was just too much to be able to do it every year, especially with having 2 kids. Now that I have discovered travel hacking, we are looking at going on a trip to California next year and going to a friend’s wedding in Colorado. We will pay next to nothing for both trips because of the rewards we earn from travel hacking.
Another trip that most people will take with their kids, is going to Disney. This will be our next trip in a few years that we will use travel hacking to pay for. Jimmy is currently working on this trip for his family, so we will see how it works out for him and discuss this travel hack in a later post.
What is Travel Hacking?
Travel Hacking is when you sign up for a new credit card that has a large sign-up bonus, whether it be for reward points or reward miles and you can use these bonuses for travel. Most credit card companies have these bonuses, which I will tell you which ones I think are the best later. These bonuses can range from 40,000 points up to 80,000 points with the majority of them sticking around 50,000 points. When you go to use these points depending on how you use them, whether it be for travel credit (highly recommend) or cash back (what I consider the worst option) you can earn between $500 to $1,000 in cash back or travel credit. This may sound complicated to most, but I assure you, it can be simple and I will show you how to get started.
How to Get Started
First you will need to sign up for a rewards credit card. Do not add your spouse or significant other as an authorized user on the card though. You will sign them up for the same card later.
Each of these cards you sign up for will have certain criteria that needs to be met. Some of these cards will have fees you have to pay upfront and others will waive the fee for the first year. You will also have to meet a minimum spend requirement ranging from $2000 to $5000 in the first three months of opening the card. You can hit the minimum spend requirement by putting your regular monthly expenses on the card each month.
So, for example, I put our food, gas, other reoccurring monthly expenses, some discretionary spending, and even some of our bills that allow us to pay with a card on there. I will use this one card until I have met the minimum spending requirement and then I will move on to the next rewards card. If you know you are going to have trouble meeting the minimum spend requirement, then you can sign up for the card when you know you will have a major purchase coming up. You can also pay your property taxes or income taxes with the card if you need to.
I always thought I was getting a good deal on my American Express card because I was earning 6% back at grocery stores, 3% back at US gas stations and department stores, and 1% back on all other purchases. So, we typically would spend between $2000-$3000 a month and would earn around $40-$70. After three months, we would have around $120-$210 back.
But with Travel Rewards, you meet the minimum spend in three months and you can have anywhere from $500-$1000 in free travel! By the end of the year, you could end up with $5000 or more in free travel by opening other cards and earning their rewards. As you can see, using the reward points you earn for travel expenses is much more rewarding than the cash back option!
The card that you sign up for should be the only thing you use for spending. This will be hard with a significant other because you both cannot carry the card at the same time in different locations. You will have to make sure the card is with the person who will be spending the most money for the day. Also, make sure you stop using cash and debit cards so you can hit your minimum spend on time.
Once you have met your minimum spend requirement, you will then sign your spouse or significant other up for the same card. This will allow them to earn the same reward points you just did. You will continue to alternate opening up cards to maximize your rewards.
Who Should and Who Shouldn’t do this?
Some of you may be asking if this is something you can even do? I can tell you that if you open or use credit cards just so you can pay your monthly bills and expenses every month, this is not for you. If you are someone who spends below or within their means and ALWAYS PAYS THEIR CREDIT CARDS OFF IN FULL EVERY MONTH, THIS IS FOR YOU! This does not work if you do not pay your credit card off in full at the end of every month. The point is to earn free money for travel, NOT TO GO INTO CREDIT CARD DEBT.
If you have a poor credit score or really care a lot about your credit score, then this is not for you. If you are someone who has a good or very good credit score and you do not care about a few points being taken off your credit score, then this is for you. I would also not recommend this to anyone who is planning on buying a house and applying for a mortgage if a 3-5-point hit will prevent you from getting approved.
How much will this affect my credit score?
This is the biggest question most people have with doing travel hacking because they do not want to drop their credit score too much. Here are your credit factors and their impact on your score:
- Credit Card Use (High Impact)-This is the amount of credit you are using compared to your total limits
- Payment History (High Impact)-This is the percentage of payments you’ve made on time
- Derogatory Remarks (High Impact)-This is the number of bankruptcies, tax liens, collections, or civil judgements you have on your report
- Total Accounts (Low Impact)-This is the total open and closed accounts you have
- Credit Age (Low Impact)-This is the average age of your open accounts
- Hard Inquiries (Low Impact)-This is the number of times you applied for credit
Once you open a card, the credit company will perform a hard inquiry on your credit score. This inquiry will drop your score 2-5 points. When I opened up a card for myself, I saw about a 2-3 point drop. Nothing that affected my score enough to prevent me from doing this. This hard inquiry can remain on your credit score up to 2 years but the effects of it will fade over time. This is why hard inquiries have a low impact.
The High Impact Factors are the ones you want to pay attention to. These are the ones that will determine if you get approved for the credit cards. Your credit card utilization score is one you want to keep low because this can actually boost your credit score. So lets say you have a credit limit of $30,000 between 5 different credit cards and you only owe $1,500, this is a low utilization rate. If you pay your cards off in full every month, this factor shouldn’t be a problem because you will always stay at a low utilization rate. The same goes for your payment history. If you pay your bills and cards on time every month, this tells the credit companies they can rely on you to make your payments. Derogatory remarks will just wreck your credit score so do not do this if you cannot pay your cards off in full. The last thing you want to do is get turned over to collections or file for bankruptcy because you were told you could earn free rewards for travel if you spent money that you do not have on credit cards.
So if you can handle a 2-3 point drop on your credit score each time you open a new credit card, travel hacking will not be a problem for you. The site I use to check my credit score is Credit Karma. This site has always been pretty accurate for me and it’s free to use! There are times that you may have cards or loans that have been paid off but still show a balance. This is okay because it sometimes takes up to a month before it gets to the credit reporting agency.
Now if you are someone who is a huge Dave Ramsey follower you are telling yourself that you cannot do this because credit cards are evil! I am a Dave Ramsey follower and this is actually one of the areas I disagree with him on. Do not get me wrong, credit cards can be bad if you do not use them wisely. But if you follow the guidelines I have laid out above, you will be just fine and have some cool new opportunities in your life. Plus as a Dave Ramsey follower, you do not care about your credit score, so a 2-3 point drop every 3-4 months will not phase you at all.
3 thoughts on “How to Travel Hack with Credit Card Rewards”
Great Article! Very helpful information. I currently use my Capital One card as a debit card (pay in full each month), but use the Cash Back option. After reading this article, I am thinking about opening another cc for my Honeymoon to Hawaii in January and using the rewards for future travel. Have you researched which credit cards have the best deals at all?
Yes! Joe is working on a supplemental post currently, which will lay it all out! The first one I opened with the best travel reward is Chase Sapphire Preferred. The Chase cards are currently the most travel rewarding! Let me know how Hawaii is! That is where we will be going to burn our mortgage amortization schedule when we pay off our house!
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