By Shannon McLay
If you’re looking to level up your finances, you might have heard of “travel hacking”. Travel hacking refers to strategically using miles and points, especially from credit card sign-up bonuses, as a way to score free or low-cost travel. But how does it actually work? Here’s what you need to know about travel hacking.
What is travel hacking?
As you probably know, traveling isn’t cheap. Money is one of the biggest barriers to traveling but travel hackers have found a way to make it more affordable. How can you join in?
- Sign up for a credit card with a lucrative bonus
- Meet the spending minimum
- Get your bonus miles or points
- Cash them in for free or low-cost travel
- Cancel the credit card before the annual fee hits (many credit cards waive the annual fee for the first year)
Credit card companies are all vying for your attention. They want you to sign up for their credit card, so they’re willing to offer bonuses upon sign-up. The catch is that you must spend a certain amount of money in a specific amount of time. For example, the Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard® offers 50,000 bonus miles if you spend $2,500 in three months.
Typically, these sign-up bonuses are enough for one round-trip flight for free and potentially just paying taxes. But, it’s not a game everyone should play.
Who should travel hack?
It can be enticing to read all the headlines about travel hacking and think “I want to travel for free!” But travel hacking is a sophisticated game that requires some work and care. You are playing with credit cards after all and if you’re not careful, you could end up in debt. If you’re currently in credit card debt, you shouldn’t travel hack. Don’t tempt yourself.
The best candidates for travel hacking are:
- People with good credit — Rewards credit cards are geared toward those with good credit. If you don’t have good credit, you may not get approved.
- People who are organized — You have to keep track of when your annual fee will hit and cancel the card, if you truly don’t want to pay any fees. You must read the fine print about spending minimums, promotion deadlines, etc.
- People who can afford it — Some of the minimum spending requirements are high. Given the example above, if $2,500 is way out of your budget to spend in three months, travel hacking might not be for you. You don’t want to spend more than you have just to meet the requirement.
If you will be stretched thin trying to “hack” the system, you easily forget due dates or your credit is less than ideal, travel hacking isn’t a good fit.
Though many articles can make you think anyone can do it, that’s not true. There have been people who have signed up for credit cards and don’t meet the spending requirement during the promotional period, so no bonus miles for them. There have been others who have gotten into debt trying to play the game. And that’s what it is — a game. But if you meet the requirements above, you can consider travel hacking to help you reduce travel costs.
How to get started with travel hacking
Travel hacking is a process like any other and there is a strategy to do it right. The first thing you want to do is figure out where you want to go. Having a place in mind and working backwards to get there will help.
Once you have a place in mind, review several rewards credit cards and look at their bonuses. Take a step further and see where those miles can actually take you. You’d hate to sign up for a credit card and later realize the bonus doesn’t even cover where you want to go.
The Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard® can be a good card if you want to go to Europe. The bonus is 50,000 miles after spending $2,500 in three months.
American Airlines has off-season flights to Europe for 22,500 miles. That means you could technically go to Europe round-trip using your miles and paying any taxes and fees. If Europe is on your list, this is a good card. But this is for off-peak travel, so you must look at the dates to make sure you’re eligible.
The Chase Sapphire Preferred offers up to $625 in travel — but the spending minimum is high at $4,000 in three months. You can also check the Southwest credit card or the Alaskan Airlines credit card.
A good place to start is either choosing a destination and finding a credit card bonus that will support that or look at your favorite airlines’ credit cards and see where their bonuses can take you.
Once you have a location in mind, you can apply for the card that will get you to your desired location. Remember, you still have to get approved for the card. Once approved, you spend like you normally would to meet the spending minimum within the stated time frame.
After that, you will receive your bonus and can redeem for travel. Depending on where you go and the card you have, you could score free or low-cost travel. If you want to avoid paying the annual fee after it’s waived the first year, you will need to cancel your card.
Canceling cards may hurt your credit by a few points, so you want to be mindful of that. You wouldn’t want to apply for a bunch of cards and then close a bunch of cards.
It can be a red flag for lenders to have so many “new inquiries”, which make up 10 percent of your credit score. Closing your credit accounts can affect your length of credit history and credit utilization, which combined make up 45 percent of your credit score.
In order to travel hack successfully, remember to:
- Read the fine print
- Be aware of spending minimums
- Understand how it affects your credit
- Choose the right card to get to your dream locale
Travel hacking is a great way to save money on travel but only if you play your cards (pun intended) right. If you are a responsible credit card holder with good credit, who pays your balances on time and in full, this could be a good option for you. But play at your own risk. For more detailed information check out our Travel Hacking 101 webinar!