If there is anything that I’ve learned since starting M$M, it’s that credit cards are a SUPER divisive topic. Some of my readers hate them, and others love using them. In my opinion, as long as you’re responsible and have your finances in order – they aren’t so bad (assuming you pay the entire balance each month).
I’ve actually really been interested in travel hacking, so I was stoked when Noah from Money Metagameoffered to do a post about it to explain the early stages. Enjoy! ~M$M
Imagine booking a perfect international vacation to your dream destination. First class flights, airport lounges, luxury hotels, and more can add up to an unforgettable experience for yourself and anyone else you might want to bring along.
Now imagine that your total out of pocket cost for such a trip ends up in the hundreds of dollars instead of the tens of thousands of dollars you might expect! This was the reality for my wife and I when we took a 3-week honeymoon to New Zealand and Fiji for a total out of pocket cost under $400.
If we would have booked the exact same business class flights and hotels with cash instead of miles and points, the total cost would have totaled nearly $14,000!
This is a more extreme example, but almost anyone can benefit from responsible credit card use towards funding travel at little to no out of pocket cost.
Let’s cover some concepts you should understand before potentially opening up your very first credit card with a large signup bonus. If you decide this hobby isn’t for you after reading, then no hard feelings! Travel hacking isn’t for everyone, but an organized person has the potential to turn it into a very lucrative side hustle.
Here are 5 things you need to understand before you attempt travel hacking:
1. Basic Personal Finance Comes First
Before thinking about opening that new credit card, I highly recommend you have your personal financial situation already running smoothly. Ideally this means:
- No outstanding consumer debt!
- Expenses are being tracked on a regular basis
- A credit score above 700
- A history of responsible credit use
Related to personal finance, but not necessarily a prerequisite is basic organization. Do you already have a system in place to pay all of your bills on time and in full? Are you tracking various aspects of your financial picture in excel or something similar?
Staying organized with travel hacking is important to make sure you aren’t paying unnecessary fees or missing out on benefits, particularly if you decide to ramp up the rate of opening new cards. We use a custom excel sheet to track all of the credit cards we’ve opened (you can find a copy of my own credit card tracking sheet here).
Now let’s address the question that’s probably been on your mind since the beginning.
2. Your Credit Score Will Be Fine, I Promise!
The number one question I get when describing travel hacking to friends and family (by a huge margin) is: “Doesn’t that hurt your credit score?”
The short answer is No.
The slightly longer answer is that the new account on your credit report, lower overall utilization, and additional on-time payments (all positives) more than offset the hard credit pull and lowered age of accounts (negatives) over the mid to long-term
In the short term, it is possible for your score to drop a small amount (typically less than 10 points), but it should recover within 3-12 months and keep growing beyond its starting point. Closing credit cards also won’t negatively impact your score so long as you maintain a low utilization across the cards that remain open.
For a much longer answer with all of the nitty-gritty details, I recommend checking out this post dedicated to the subject: Churning: Tracking and Understanding Your Credit Score.
Anecdotally, I can tell you that both my wife and I’s scores have gone from the low 700s a few years ago to the high 700s today. This is despite each of us opening (and closing) dozens of new credit cards over that time frame. Another anecdote is that we had no problem refinancing our mortgage or opening a HELOC despite having opened several cards within months of applying for each respective loan.
Credit score is far and away the largest concern most people have, but I can assure you that the fear is largely unfounded. Regardless, you don’t have to simply take my word for it because you aren’t going to go open 10 cards tomorrow!
3. Take It Slow At First
For anyone starting out with travel hacking (or just thinking about starting), this is my #1 tip to make sure you don’t get in over your head.
If you’re anything like me when I first discovered this hobby, then you are probably feeling a bit overwhelmed at the moment. That’s okay! If you decide to give this thing a shot, I have the perfect method to comfortably get you off the ground and walking (not running! walking).
Keep in mind that almost all adults open at least one credit card during the course of their life, sometimes several over the course of many years. To start out with travel hacking, you’re just going to be doing the exact same thing: Opening a new credit card. The only difference is that your choice of credit card might be a little more optimal.
After you determine the right travel rewards card for you:
- Fill out an application online (or in a physical branch of the bank)
- Record the name of the card, the date you opened it, and the details of the signup bonus
- Wait for the card to arrive in the mail
- Open and activate your new card, then place it in a prominent location in your wallet
- Use the card for all of your normal purchases
- Pay off the credit card in full every time a statement is issued
- Track how much you have spent and compare it to the spending requirement
- Repeat from step 5 until you’ve met the spending requirement
- Make sure the signup bonus posts to your account (this could be the bank itself or an airline/hotel loyalty program depending on the card)
A bonus 10th step would be to spend the points and book some travel. That’s why we’re doing this after all! The points and miles earned aren’t worth anything until you spend them, but I include this as a bonus step in case you don’t have any immediate travel plans.
A good exercise whether you have immediate travel plans or not is to go through the process of booking with your newly earned points, even if you don’t check out. This will be very beneficial for when you do need to book something in the future.
The only potential step left is deciding whether or not to keep the card open for the long term. Many cards with large signup bonuses have an annual fee tied to them, but luckily this is often waived for the first year. After that first year is up, you can either keep the card open (if the benefits of the card outweigh the fee), downgrade to a different product (keep the card open, but switch to something without an annual fee), or simply close the card.
Congratulations! You’re officially a travel hacker once you’ve completed the above steps!
At this point, you understand the entire process front to back because you’ve tried it out yourself with almost no risk. Now you have a range of choices from stopping completely (as I mentioned, it’s not for everyone) all the way to ramping up new card applications! Find a balance that works best for your own travel and organizational habits and rock it.
Remember, it’s not a contest to see who can get the most points. Everyone can win simultaneously by finding a way to save a little (or a lot of) money on travel that they were planning to book anyway.
4. Don’t Fear the Annual Fee
Once you’ve gotten past the hurdle of attempting your very first card, there’s one tip that took me a while to appreciate: Annual fees aren’t necessarily a bad thing.
When I first started, one of my primary goals was to avoid paying ANY annual fees and I avoided all cards that required an annual fee be paid in the first year. I suppose I was convinced this was “the catch” to the whole thing and I would outsmart the banks by avoiding them.
In reality, the annual fee should be approached rationally like anything else and compared to the benefit(s) received.
Here’s a hypothetical example: Which card would you rather apply for?
- Card #1: $200 signup bonus after spending $2,000, no annual fee
- Card #2: $500 signup bonus after spending $2,000, $95 annual fee
If I was asked this a few years ago, I probably would have chosen Card #1 because it appears to be the “risk free” option by requiring $0 up front. Of course the rational choice should almost always be Card #2!
Why would you do something for a profit of $200 if you could do the exact same thing for a net profit of $405 instead?
This was the irrational behavior that I overcame in my own travel hacking adventures, but maybe you can avoid the same mistake. Here’s a real world example of a recent card I opened, the Charles Schwab American Express Platinum card:
- $550 annual fee (not waived for the first year)
- 60,000 Membership Rewards signup bonus after spending $5,000 within 3 months
- $200 airline credit per calendar year (so $400 within the first year the card is open)
- $200 Uber credit in the first year
- Plus elite hotel status, lounge access, a global entry credit, and more
A unique feature of this version of the Amex Platinum card is that points can be cashed out at a flat rate of 1.25 cents per point. That makes the signup bonus alone worth at least $800! Add in the $600+ of available credits during the first year plus the many auxiliary benefits and $550 is starting to look like a steal.
If you’re just opening your first rewards card, then I totally understand if you want to lower your perceived risk by avoiding an up-front annual fee. Just don’t stay in that habit for too long or you might miss some very lucrative opportunities. Speaking of which…
5. The Only Constant in Travel Hacking is Change
You may have noticed that I didn’t recommend any specific cards up until this point and I don’t plan to start now. The reason for this is that the travel hacking game as a whole is constantly changing in several different ways. A good credit card today might end up being a poor choice tomorrow.
In addition to the credit cards offers changing, the banks issuing the cards also change their eligibility rules from time to time. Even the various points and rewards you earn from the credit cards change in value and flexibility, so be sure to spend rather than hoard them.
Overall, the state of travel hacking at any given time is in constant flux. Luckily, you don’t have to worry about keeping track of it all yourself because several great resources are maintained with pretty much all of the information you need to know.
Bonus! The Best Places to Check for Signup Bonuses
I don’t own or operate any of the following links and some of them may contain affiliate links, but these are the places I find myself visiting again and again when I’m considering opening a new card for myself or for my wife.
- Doctor of Credit’s Best Current Credit Card Offers
- Frequent Miler’s Best Credit Card Offers
- Crowdsourced Google Doc with the Best Offers (via the Churning Reddit)
Best of luck on your own travel hacking adventures!