In just two short months, I’ll be headed to Spain to go see one of
my best friends who is teaching there. It’s a dream come true for me,
as aside from paying off debt, traveling is my true passion.
But how is someone who is so focused on paying off debt, able to
travel abroad? Through travel hacking! I was able to book my flight to Spain for a mere $63 in taxes, and 40,000 miles.
But, what is travel hacking? And how can you use it to travel while working towards other financial goals?- Melanie Lockert
What is Travel Hacking?
Travel hacking is the term used for people that use reward-based
credit cards to receive a sign-up bonus in order to redeem free travel.
Oftentimes these sign-up bonuses are enough for a free trip, and
smart consumers are reaping the rewards quite often. Then they simply
cancel the card before the annual fee is due (most cards waive the
annual fee for the first year).
If you are curious about getting started with travel hacking, here are some tips to get started.
Check Your Credit Report
Before you even apply for a new credit card,
you should check your credit score as well as your credit report. Your
credit is an important factor in determining whether you get approved
for a card, so you’ll want to verify that you are in good standing and
that there are no errors on your report.
You can check your credit report for free once a
year at AnnualCreditReport.com, and get your free credit score at Credit
Karma.com. And yes, these are completely free options that don’t need
your credit card information. Plus, I personally use and like them.
Assess Your Situation
As great as travel hacking is, it isn’t for everyone. If
you already have credit card debt, or if you know that you spend more
with a credit card, then travel hacking isn’t a good fit for you. It
won’t be worth it!
The key to travel hacking’s success is to assess your situation
beforehand and truly know yourself and your spending habits. It’s easy
to get lured into spending more for the rewards, but that doesn’t really
make sense, does it?
Assess your financial situation as well as your consumer behavior
to determine if travel hacking is something that you are comfortable
with. Travel hacking does affect your credit in a few ways, but maybe
not in the way you think. Any time you apply for a credit card, your credit score will drop a few points because of an inquiry.
If you get approved, you may find out that over time your credit
actually improves. If your credit limit is higher, and you only use
10-30% of your available credit, your credit utilization will be low,
which can have a positive impact on your credit.
However, if and when you close your card to avoid the annual fee,
your credit score is likely to take another hit. If you have excellent
credit, a few points won’t make a huge difference, but it’s important to
know the ramifications of travel hacking on your credit.
Pick the Right Card
I have to admit that I didn’t get my first credit card until 2
years ago, at age 28. I abhorred debt and didn’t understand why people
would buy things on credit, and pay for it later. But as I got older, I
wanted to improve my credit (it was good from student loans, but not
excellent) and also learn more about this travel hacking business.
I didn’t want to detract from my debt repayment, but I also didn’t
want to wait several more years to travel — so I found a way to
continue paying off debt and travel for free/cheap through travel
hacking.
The first credit card I got was a Venture card from Capital One
with no annual fee. The reward bonus wasn’t great, but it was also my
first credit card, so I wanted to proceed cautiously with something easy. After months of paying the balance back on time, I redeemed my points for a hotel stay. It felt so nice!
The card that’s getting me to Spain for $63 is the American
Airlines credit card card. I don’t spend that much, so I opted for the
card with a 30,000 mile bonus, after spending $1,000 in three months. I
knew I could do that and still be safe with my budget.
I received my bonus, flew to New Orleans for a conference, and
ended up with 40,000 miles — enough to go abroad off-season. I didn’t
feel like I had to spend a lot and didn’t really do anything out of the
ordinary.
It’s important that you sign up for the right card for you. Make
sure it’s for a reward you like (such as airline miles or cash back),
with spending requirements that are in your budget, etc. You want this
to be pretty painless and not feel like work — after all you should only
be spending money on things you are already planning on buying, like
groceries, insurance payments, etc. The card defeats the purpose if you
use it as a buy-anything-I-want-card!
It’s also crucial that you understand what those bonuses can get
you. I did my research beforehand, so I knew I could go abroad for as
little as 40,000 miles between October and May.
In a nutshell, here’s what you need to look for in a credit card:
-
Annual fee. How much is it? Be sure to mark in
your calendar when you got the card, and put in the calendar when you
want to cancel, if you choose to avoid paying the annual fee after the
first year.
-
Rewards. Is it miles, cash back, or something else? Make it something fun that you enjoy!
-
Blackout dates and restrictions. Be sure to see if there are any red flags that would dash your dreams.
-
Spending requirements. Many of the cards with
bigger bonuses require you to spend $3,000+ in the first three months.
As I mentioned, I don’t spend a lot and I didn’t feel comfortable doing
that, so I got one with a smaller spending requirement. Yes, it took me
longer to accrue the necessary miles, but I had peace of mind.
-
Interest rates. Know them well! To avoid any issues, pay off your balances in full every month.
If you are curious about travel hacking, use these steps to get
started. But be careful and watch out for any credit card creep, and
always pay off your balances in full.
Most importantly, once you accrue enough miles book that dream
trip, or get that cash back, don’t just sit on rewards. Actually use
them, as they may expire soon.
Have you tried travel hacking with credit cards? How have you used it to save money on travel?