Have you heard of travel hacking? It’s a way to get free (or almost free) travel by opening a credit card — or a series of them — and spending the minimum amount of dollars required to earn the big bonus points or miles to travel for free. Here’s an example.
A few years ago, British Airways was offering 100,000 Avios (the name of their rewards program) points to anyone who would sign up for their card and spend $3,000 in the first 3 months after opening the account. I was skeptical when I first heard about it because I don’t frequently travel to Britain. Little did I know. A touch of research (thanks, Google!) turned up that British Airways has a sister airline, American. American flies to Hawaii for as little as 35,000 points round trip — if you book in the off-season and follow a number of other restrictions. “Sister airline” means you can use the points from one program to fly on another airline.
So those 100,000 Avios points make up almost 3 round trip flights to Hawaii. I have two daughters and a husband. Doing some quick math, I discovered I could get FOUR round trip tickets to Hawaii if we both opened a card and spent the requisite amount. And we just so happened to be flipping a house. Six thousand dollars is easy to spend when you are in the middle of a rehab.
But wait, there’s more! British Airways allows you to combine Avios accounts into one household account if you would like. Um, yes please.
Before we continue, I have to tell you that each card opened had a $95 annual fee, which I don’t love to pay, but I do love to pay $190 for four round trip tickets to Hawaii!
For those of you keeping score, I just took the $6,000 that I would have spent on flipping supplies, and turned it into $6,000 worth of flipping supplies PLUS four round trip tickets to Hawaii. Oh, but wait. Thirty-five thousand points times four is only 140,000 points. What happened to those other 60,000 points? Well, how about four round trip tickets to Florida? Flying in the off-season really helps you maximize your rewards.
Not only do you earn those bonus points, you typically earn a point for every dollar you spend. Since I spent $6,000, I earned 6,000 points. I didn’t quite have enough for four round trips to Florida, so I ended up spending $40 to buy 1,000 more points to get there.
OK, there really isn’t any bad news, per se. Let’s call it a caution. You really don’t benefit from any of these programs if you don’t pay off your credit card every month. Carrying a balance on a card wipes out any “free” anything. Those interest charges add up quickly, turning it into a sort of robbing “Peter to pay Paul” deal…
When you open a card, your credit score gets a “hard inquiry,” which can knock the score down a few points. Once you are approved, your “available credit” goes up, which can also take your score down a few points.
What if I’m Not Flipping Houses?
Periodically, I open a new card because I need the points or miles. While I am a frugal person, I am still easily able to make the minimum purchases to get the rewards because I simply switch spending over to the new card. I hate going into the gas station to pay for gas when there is pay-at-the-pump. (First world problems, right?)
My husband is self-employed, so we pay for our own healthcare 100% out of pocket. Enter the Affordable Healthcare Act, which connected us with our current provider, who just happens to take credit cards. We don’t qualify for any subsidies, so the entire amount goes onto whatever card we are trying to rack up spending for. It accounts for more than half of the spending requirement. Since we both work from home and need internet access, that goes onto the card, too. Groceries, gas and the occasional meal out top off the spending, and we are able to meet our goals easily.
I learned everything I know about travel hacking from my friend Brad, who blogs about travel hacking over at Richmond Savers. Since he knows so much about this, I thought I would share with you some of his thoughts and tips.
4 Questions About Travel Hacking, Answered
Why do credit card companies offer rewards? What’s in it for them?
Customers! It is a competitive landscape out there for credit card companies, and the major banks are all competing over the same lucrative customers. They traditionally offer rewards (even the 1-2% of “normal” rewards) as a way to keep their customers happy and provide some incentive to continue using the credit card.
Where we move into more interesting territory for travel hackers is when we talk about the huge signup bonuses the banks offer for new card accounts (often in the range of 50,000 miles/points, which you should be able to turn into $500-$1,000+ of travel). These are incentives to open new cards and move your business from one bank to another; these are generally only on the premium cards that require well over a 700 credit rating to get approved for, so you’re talking about the most creditworthy customers.
What is the best way to make use of the cards? Plan the vacation first, or acquire the points and then plan around them?
This is really all about the signup bonuses, as that’s where the vast majority of the points/value comes from, so you need to maximize as many of these bonuses as you feel comfortable with. My wife and I systematically go through these cards and continually open up new ones, so we’re always working on another bonus. That enables us to get about 20%-30% rewards on all of our regular spending instead of the standard 1%-2%.
For people just getting into this, I think planning around a vacation is the best way to get started because it is more concrete and definable. Travel hacking seems a bit odd when you first encounter the concept, so getting that first “win” under your belt is a great way to start. For the more seasoned travel hacker, it is all about amassing these points constantly, especially the more valuable, transferable points like Chase Ultimate Rewards and Amex Membership Rewards (which transfer to many different airlines and hotels, so they have built-in flexibility and diversification).
What are your best tips for travel hacking?
The mechanics of travel hacking are fairly easy once you get into it: earn points, find airline and hotel award availability, book your nearly free travel and enjoy! Sure, there are hundreds of little rules and tricks that you need to know to fully maximize your points, but from an 80/20 perspective, you can get up to speed on the basic mechanics fairly quickly.
The mental approach, however, is more difficult and requires a bit of a re-think on your travel plans. I tell people that the biggest thing you can do to succeed with travel hacking is to be flexible. Flexible with dates and times most importantly; flexible with potential destinations, airports, points you earn, etc. Any bit of flexibility you can build in will help you succeed because the reality is that there are limited “Saver Level” award seats, and people book these flights. This is what most people erroneously call “blackout dates,” but what it really means in most cases is that someone booked the award seats before you did.
If you can be open-minded and see that travel hacking will save you many thousands of dollars potentially each year and help you see the world, then you will love this! If you are dead set on your dates, times and destinations and there’s no changing anything, then you probably aren’t ideal for this concept (but amazingly, you can still save money with cards like the Cap One Venture and Barclaycard Arrival Plus).
More concrete tips would be:
- Earn points well in advance of your trips, as there’s nothing worse than having to scramble for points last-minute while you’re hoping award seats you found don’t get booked.
- Understand that with the airline alliances, you can fly on many airlines with one miles currency. For instance, with United miles, you can fly on Air Canada, Lufthansa, TAP Portugal, Turkish Airlines and many others just to get to Europe.
- Start with transferable points, such as Chase Ultimate Rewards, because you have 11 different transfer partner options just by having these miles.
- The low-hanging fruit of the rewards world: Southwest Airlines because there aren’t award seat limitations, hotel rooms at most major chains for the same reason (if they have a “standard” room available for cash you can use your points, right up until the last minute), “fixed value” cards, such as the Venture and Arrival Plus, because you just use your card to pay for travel and you get a statement credit on your credit card when you redeem your miles after the fact.
What are the downsides of travel hacking? Hit to credit score, etc.
The biggest downside of travel hacking is losing control of your finances. This is only good for a small sliver of the population, as you must be responsible with your cards, which to me means paying off on time and in full every single month.
If you’re organized and can keep track of your spending, then you shouldn’t have a problem with this concept.
There are usually minor impacts to your credit score, but that of course is dependent on a lot of factors, and I can’t definitively say that you won’t have an impact. I would say that if you’re looking to get a mortgage in the next 12-18 months that you should consider the impact of having many new credit card accounts on your credit report, even if only from the human perspective of an underwriter looking at it and wondering what you are up to.
My credit score has actually increased from when we started 4 years ago, though it did drop by as much as 25 points at one time, which was quite acceptable based on my own risk tolerance for a potential drop. You need to do what you are comfortable with!
Travel Hack Your Way Through Your Next Flip
A huge thanks to Brad for sharing this with us.
Travel hacking is a fantastic way to get free or almost-free travel. Building up these points by charging rehabbing supplies on a rewards credit card just seems like a no-brainer. If you have to spend the money anyway, why not get something out of it, too?
I like to open a new card for each new house or project that I tackle. I take the money I would already be spending on the project and turn it into vacation rewards. I also close the accounts when I am finished with the house or project, so there isn’t the open credit dinging my report. Rinse, repeat.
Like Brad said, if you aren’t able to pay off a card every month, then perhaps this isn’t the program for you. But if you can swing it, the world is your oyster.
[Editor’s Note: We are republishing this article so investors newer to BiggerPockets can benefit from it.]
Have you ever used a credit card to fund a flip? Would you consider trying your hand at travel hacking?
Please share your experiences.