The real answer is probably both. However, this question is very unique to your situation. So, let’s break it down.
We have all seen the commercials, the advertisements, the letters from credit card companies offering large bonuses for signing up for their credit card. We have all been asked in every store we shop in, if we would be interested in signing up for a store credit card for increased perks/discounts. Then we all heard our parents in our heads warning us that credit cards are the devil!
Or is that just me??
For the longest time after I graduated high school and even undergrad, I held this notion that credit cards were bad. They will lead you into massive debt, they have massive interest, and they will kill your credit score. I was scared of them, and I believe a lot you are with me, or at least were with me. And for our parents generation this probably was/is true.
The Evil
According to Experion, the average credit card debt in 2017 in the United States was around $6,345. With Baby Boomers averaging around $7,550 and Millenials around $4,315.
If we take the average of $6,345 in debt at a high end APR of 24% and make the minimal payments on this debt. We would pay this debt off in 37 months and pay an extra $2,662 in interest payments.
And remember, this is the average debt. In our above example, we don’t add on continued purchases or debt. In reality, this interest payment is likely much larger at the end of 37 months for most Americans.
So our parents aren’t wrong, credit cards CAN be dangerous if you aren’t financially responsible. Credit cards are immediate money with the swipe of a piece of plastic. That’s dangerous.
If you can’t keep up with these payments, the interest on this borrowed money is crazy. Almost double, triple, or even quadruple the interest on your home loan.
That’s why credit card companies can give away so much free money through rewards and bonuses, because the average person isn’t financially responsible enough to handle this kind of financial power. They make money through credit card debt and these ridiculously large interest payments.
If everyone was able to use their credit card and pay it off in time to avoid interest payments, these large credit card rewards wouldn’t be possible.
But if you are reading this site, you are likely already financially smart or are avidly learning about how to become financially smart. And this allows us to take advantage of these credit card bonuses to travel the world for free.
The Good
Travel Hacking: It has many names, but travel/credit card hacking is the most commonly used coining to talk about using credit cards to travel around the world for free!
How it works?
Most credit cards offer a reward bonus of miles or points if you spend a certain amount of money within a certain time frame. Usually it’s around $3,000 in 3 months time. But it does vary.
So once you hit this required spending, the bonus enters your account on top of the miles/points you receive from everyday spending. Usually 1-2 miles/points for every dollar spent..
For example, the Capital One Venture Card offers 50,000 bonus points when you spend $3,000 in 3 months and offers 2x points with all purchases. So at the end of 3 months, you would have around 56,000 points to do what you please.
This is the equivalent of around $560 dollars in traveling rewards for simply using your credit card for your normal purchases. This almost 19% cash back!
Most people spend $1,000 a month and for sure most couples do. However, if you normally don’t spend this much per month, don’t over spend just to reach the reward bonuses because this defeats the entire purpose.
Cycling Cards
So the strategy I use is to cycle my credit cards based on these bonuses. First, I research the card that will most benefit me for any of my upcoming trips or vacations. If I don’t have any future traveling plans, I usually will go after a flexible card in which the miles will transfer to many different airlines such as a few of the Chase Cards.
Once I find my target card, I apply, get approved, and receive my card a few days later.
I will now use this credit card for all of my monthly purchases until I reach my targeted bonus. I then put this card away in my wallet and return to using my base card that offers me the most miles with every day purchases. For me, this is currently my Capital One Venture Card as it offers 2x points for all purchases.
After this 3 month span, I then start the process over again. Researching a new card, applying, and using it until I reach my bonus.
There are some rules and regulations that are ever changing that you need to be aware of such as Chase’s 5/24 rule. Which states you can only open up 5 credit cards with any bank within 24 months and be approved for another Chase card. But, as long as you are aware of this, this too can be planned for and worked around.
Results
At the time of writing this, I have cycled through 4 credit cards thus far and the outcome has been amazing. I have been able to purchase 4 round trip plane tickets for basically free. And this was only by using 1 of the 4’s credit card miles.
I still have over 80,0000 Marriott Bonvoy Points which could equate to over a free week’s stay at a Marriott based hotel depending on how I redeem them, over 50,000 flexible Chase points, and over 50,000 Southwest points.
All of which I plan to use on future vacations! Vacations are great, but free vacations are even better. Especially when they are given to you just by continuing your current spending and following the rules.
My Credit Score
I can hear everyone yelling at this point that I am irresponsible and am killing my credit score… I hear you. But to respond, my credit score has only continued to rise since I began travel hacking. I plan to break this down in a future post to prove it to all of you doubters!
However, if you are starting out with a very poor credit score this strategy may not be for you. Or if you are already behind on payments for any other debt, then this strategy definitely isn’t for you. Going into more debt is how you let credit card companies win, and we are selfish. We are the ones who plan to win.
Conclusion
Yes, we have been taught that credit cards are bad and dangerous but I hope that after reading this you still maintained this healthy dose of fear but also began to understand how powerful correctly using credit cards can be. A healthy fear is good, these cards are powerful and the consequences are massive.
But, if we learn, then plan, and always stay within our means. This tool can be used to travel all over the world and experience different locations for FREE!
Credit cards can be a confusing topic and one that everyone seems to have a differing opinion on, so as always, let me know if you have any questions here!
Do you credit card hack? Let me know below
