Disclaimer: The following applies to organized and responsible individuals who are American citizens or residents. Use this advice at your own risk.
Since inquiring about else’s finances can be so taboo, I relish in my friends’ discomfort when they ask me about mine. No, it’s not because I enjoy people having to excuse themselves to ask me, “How can you afford to travel for so long?” Though they might expect a response including the words “trust fund,” it’s exhilarating to reveal the truth that’s far from that. Better yet, it’s a little-known truth that changed my life and can change theirs.
The Basics of “Travel Hacking”
It’s called “travel hacking,” or using shortcuts to get free or nearly-free airfare, hotels, and other accommodation. Travel hacking is a lot less nefarious than it sounds, and it’s completely legal, even if the airline, hospitality, and banking industries might not like it.
Though travel hacking takes many forms, the most lucrative is applying for credit cards with valuable sign-up bonuses that you can redeem for flights, accommodation, and other travel expenses. In the year since I started, I’ve received 16 new credit cards with sign-up bonuses totaling over 700,000 miles and points across different loyalty programs. Better yet, I’ve used my earnings to fly from Brazil to Boston for $60, NYC to Miami in first class for $11, LA to the Philippines for $34, and many other places for pennies on the dollar. Along the way, I even stayed at a couple five-star Hyatt hotels for free! Oh yeah, and my credit score hovers between 740 and 800, which is well above average.
Whoa, whoa, whoa–hold up! Credit cards?! Certainly, your parents always warned you to be very scared of those dangerous pieces of plastic because they can wreck your finances. In fact, I agree with your parents, but only if you’re irresponsible and disorganized. What your parents probably didn’t know is that credit cards can give you the freedom to travel virtually anywhere in luxury on a budget, all while building your credit.
So, how does this all work? There are four straightforward steps:
- Apply for credit cards, starting slowly at first and spreading your applications among different card companies.
- Meet the minimum spending requirements, usually $500-$3,000 over the first three months to earn the sign-up bonus for each card.
- Redeem the sign-up bonuses for free or nearly-free flights, hotels, or other expenses.
- Shortly before the annual membership fees (which are typically waived in the first year) are due, cancel or downgrade the card to a no-fee version.
What’s the Catch?
First and foremost, you cannot carry a balance on your credit cards. To compensate for the big sign-up bonuses, banks attach hefty interest rates to their premium travel credit cards, and by paying this interest, you’ll negate your earnings. If you don’t trust yourself to pay your balance in full, then just don’t bother with travel hacking because it’s too dangerous.
Second, your reaction to the suggestion of opening and closing many credit cards was probably, “No way! That’ll ruin my credit!” In the very short term, the new inquiry on your credit report requested by the credit card company will likely ding your credit score 3 to 5 points (commonly on a 300 to 850-point scale). In addition, closing a credit card generally has a negligible effect on your credit score.
However, after three months, if you’re paying your balance in full and on time, your credit score will recover and rise because you’re creating a dependable credit history, which is the greatest factor in a FICO score. Still, if you’re seeking a car or home loan soon, for example, it’s best not to apply for too many new cards.
Finally, you’ll have to meet your cards’ minimum spending requirements, which requires actually making transactions. If you don’t think you’re able to spend thousands of dollars on credit cards, there are many ways around this. My favorite trick is making a trusted relative an authorized user on your accounts to make their spending count toward your minimum spending requirements.
Before You Start
Unfortunately, poor credit will make it difficult to gain approvals for the best cards, but everyone should have a firm understanding of their credit profiles, regardless of how good they think their credit is. Request free credit reports from the three major credit bureaus from AnnualCreditReport.com to verify your information is correctly cited. Even if you have late payments listed, it’s worth negotiating with banks to have these removed.
Next, you’ll need to pay down your existing credit card balances to almost nothing because 30% of FICO’s score is determined by your credit utilization. The lower your balances are as a percentage of your total credit lines, the better. At that point, wait up to a month for your payments to post and the card companies to report your new low balances to the credit bureaus.
Also, not having a solid plan of where you want to travel and when will make travel hacking less effective. Certain loyalty programs have far cheaper award redemptions and more award availability than others at specific times of the year for travel to certain regions.
Nevertheless, it helps to be flexible with your desired timing as peak travel dates might already be unavailable before you even decide you want to go somewhere. Similarly, don’t expect to sign up for cards today and travel tomorrow–in most cases, you’ll need at least three to six months from when you apply for a card to when you begin your trip.
Some recommended cards to start with because of their flexibility, waived annual fees, other perks, and reasonable minimum spending requirements are the Barclay Arrival Plus and the Chase Sapphire Preferred (my referral link). These were both some of my first travel hacking credit cards, and they’ve allowed me to go on some unforgettable trips.
I’m happy to give my friends specific advice on which cards to apply for and overall strategy, but I need to know more about your specific travel goals and habits. For introductory travel hacking tips, I recommend the blogs Million Mile Secrets, Frugal Travel Guy, and The Points Guy.
If money is your biggest barrier to seeing the world, travel hacking might be your ticket to freedom.