One thing we prioritize is travel. We love exploring everything this awesome Earth has to offer.
However, one thing we don't love is the price of travel. The costs of flights, hotels, food, and activities can really limit our availability to travel.
After we spent way too much money on flights to Patagonia in Chile (pre-FIRE lifestyle), we decided to look for ways to save money on travel since the costs were not sustainable if we wanted to keep traveling. After talking to an old friend who travels the world on the cheap, he recommended that we start reading the Points Guyand this introduced us to the world of travel hacking.
Travel hacking is the process in which you apply for and receive many airline and hotel credit cards to get points to earn travel credits. Typically, you can gain the most points when you sign up for the card, as there is usually a sign-up bonus. We used this to our advantage. Whenever we had a large purchase to make, we applied for a new credit card. This resulted in over 20 credit cards between me and my husband. I know what you are thinking, "Their credit must have taken a hit." The truth is, it may take a 10 point hit, but our credit scores are both above 800 and have been for a long time.
Many friends and family members were very nervous that we were doing this. But here are a few things to know and rules to live by:
Pay your credit card off in full every month. If you cannot do this, then travel hacking just isn't for you. Paying interest fees defeats the purpose of travel hacking.
Don't overspend just to get the sign on bonuses. In order to receive the large sign on bonuses, you often have to spend $3,000-$4,000 over a 3-month period. Don't overspend on things you would not normally buy just to meet this amount. Instead, plan to open a credit card when you have a big purchase. For example, we booked a safari in Tanzania for our honeymoon for $6,000. The safari could not be paid by using points, so we paid for the safari via two new credit cards. Since we both applied for the American Airlines credit card, we both had to spend $3,000 in the first 3 months to receive our sign on bonuses. So we each put $3,000 on our new cards and we earned over 120,000 points between the two of us to then be used to for flights for an upcoming trip to Australia and New Zealand. This was a purchase we were going to make regardless, so it was the perfect opportunity to capitalize on a new sign on bonus.
Do not add authorized users. Often credit cards offer a 5,000 point sign up bonus if you have someone added as an authorized user (such as a spouse). Do NOT do this. Instead have your partner open his/her own card. For example, when we opened our American Airlines credit card, we each opened our own separate card. That gave us 120,000 points total (60,000 points per card). If we would have added someone as an authorized user, this person would not be able to open that same credit card in his/her name, and that would only get us 65,000 points (60,000 + 5,000). (Not enough to get us both to New Zealand.)
Be organized. Travel credit cards usually have an annual fee. The annual fee on most cards is typically waived the first year. So cancel the card before the annual fee kicks in. We had an Excel spreadsheet to track when we should close each credit card. However, before cancelling, be sure to make sure your points are already transferred to the airline or hotel so you don't risk losing them. We also found that even if you didn't cancel the card before you were charged the annual fee, almost every credit card company refunded us or prorated us the annual fee.
Know the factors that affect your credit score. A common question we get relating to travel hacking: isn't this going to affect your credit score? The core issue is that people do not understand the factors that affect a credit score. Some common factors that affect credit scores are payment history, debt-to-credit ratios, length of credit history, credit requests, liens, foreclosures, and bankruptcy.
Now let's think about these factors in terms of credit cards.
And yes, when closing a credit card, credit score can drop. But when you a close a credit card that you have had for less than 1 year, this should have a nominal effect on your credit. This is because that credit history was short. However, if you have had a credit card for a long period of time, you should consider leaving that card open, as closing a long-standing credit card could have a larger effect on your credit score. (See point 4 above on being organizing and knowing when to cancel cards.)
Yes, every time we applied for a new credit card our credit score was calculated and our credit score dropped about 10 points for about a month. This is because a credit request was calculated.
But when you open credit cards, you increase your debt-to-credit ratio. This can improve your score if you pay your bills on time and in full.
Bottom line: Our credit scores have always been pretty high - 780 and 800+, respectively. And we have purchased 2 houses since beginning our travel hacking, so do not be scared by the travel hacking-haters.
Finally, read the blogs on travel hacking: The Points Guy is a great resource to get started on this.
We put these rules to use and received free airfare to the following places over the last two years:
International Round Trips for both of us:
- New Zealand
Domestic Round Trips for both of us:
- Rhode Island
- Washington, DC
Our trip to Australia and New Zealand is coming up at the end of February. In a future post, we will break down what we did to receive free flights and free hotels for a 2-week trip! Stay tuned for that and pictures from our trip!