How to Balance Traveling and Paying Off Debt by Using Travel Hacking

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?