Travel Hacking 101 – How Does It Work?

Welcome back to the next installment of our Travel Hacking 101 Series. If you missed the previous post, you can check it out here:

• Travel Hacking 101: What Is Travel Hacking?

This week we are going to dig into what it takes to make travel hacking a realistic strategy for you.

What Do You Need To Make This Strategy Work?

1. Being responsible with credit cards
   • Pay off your credit card balance in full each month and carry NO credit card debt.  There is a reason why this is step number 1 and I keep harping on it.If you currently hold credit card debt or can’t pay off the balance in full each and every month, this is NOT for you.
   • Use the card only for items you’d be buying anyway, do NOT go above and beyond your normal everyday spending just to receive a bonus.
   • The reason why these lucrative bonuses exist is because these financial companies are taking a calculated risk assuming most people will NOT pay off their cards in full each month and the crazy high interest (20+% WHAT?!) charged to those people will far outweigh the benefits given to others (us disciplined folks). In NO circumstance will paying interest on your card be offset by the points/miles/perks you get from the card so don’t even think about it!
2. Have an excellent credit score and have good standing credit
   • • The exact credit score to have before starting your travel hacking endeavors varies depending on who you ask. Personally, I’d say if your credit score is not above 730 do not start travel hacking. Instead, work on building up your credit score.
     • If you need to build up your credit, take a look at your day to day spending, create a budget (or anti-budget), pay down your debt, save up for an emergency fund, and rebuild your credit.
3. Be VERY organized
   • Patience and organization are key to getting the biggest benefit out of travel hacking.Keep track of your spending, to the PENNY, so you know when you reach the minimum spends. Do not rely on your monthly statement balances for this. Actually log into your credit card account online, review every single line item spent, and add that transaction (date/item purchased/cost) into a spreadsheet.  Keep in mind that any annual fee does NOT count towards your minimum spend.
   • Set up autopay to pay the balance in full each month.  You can do this directly online by logging into your credit card account and syncing up your bank account information to automatically pay off your balance each month going forward.
   • Set alarms for 11 months after you get approved if you need to cancel before the 1-year mark to avoid annual fees and be aware of when you can reapply (every bank will have its own rule so a simple Google search will provide you with this answer).  It’s also worth calling the credit card company to see if they will waive the annual fee or give you points if you keep the card open to justify the annual fee.
   • Keep track of your login info securely.
   • Opening multiple cards can get confusing so we advise setting up a simple spreadsheet to track all of your credit cards along the way. Here is an example of some notes you can include. Personally, I have a different tab for each credit card. I title the tab with the credit card info and the last few numbers of the card. For example, for a Chase United Explorer Plus credit card, I may title it “Uni123”. Then in that tab, I have a column for the date, a column for the item purchased, a column for the cost, a cell totaling up all the spending so far, and another cell with the required spend minus the actual spend to date so I can see how much is left until I earn the bonus.  I also include the following info so I can keep things organized.
   • 
4. Do Not Buy More Things Just To Get Points
   • If you normally spend $700/month but now you’re finding yourself spending $1,000/month once you get into points churning, you should reassess as this is counterproductive. You’re spending more to get “free” travel but it’s no longer free anymore as you’ve inflated your spending to get there! Sure maybe you can buy some gift cards to your grocery store within the period to reach the minimum spend which you can then use over the next few months. I’m not poo-pooing this. This is a good strategy and something we personally do. I’m talking about getting that weekly massage just to reach your minimum spend when massages typically only happen a few times a year.
5. Don’t Compare Yourself to the Travel Joneses
   • Once you start joining groups and reading more about travel hacking you’re going to see people who use all sorts of travel-related acronyms, seem to fly first class every month, and only stay at the Ritz. Remember that travel hacking is personal and will be different from person to person depending on your goals – very much like your path to FI!  People who own their own businesses, travel for work, or are seasoned experts at this game, will have an advantage over beginners or those without opportunities for additional points (they often time get targeted promos). Make your goals, set realistic expectations, and enjoy your victories no matter how big or small.
6. Determine Your Travel goals
   • Insider scoop, most people skip this step in the game but it’s the most important one!Rather than ask “What’s the best credit card to sign up for?” you should be asking “Where do I want to go?” and then work backward from there to figure out the best plan of attack. Then the question to ask is “What are the best rewards redemption options for this specific origin and destination combination?” And then figure out which airline within this reward program is the best fit for your needs. And then figure out which credit card will get you there.
   • Open the right card for YOU and YOUR SITUATION! There are some great credit cards with many transfer options out there but that doesn’t necessarily mean it’s the best card out there for everyone.  There is no one size fits all credit card out there.
   • As you get more experienced, you’ll learn that it’s a good idea to diversify the points you’re earning.  Don’t stress over this to start.

What Do You Have To Do? 

• Old school way of accumulating with purchases/stays/flights you go on = remain loyal and fly the same airline (loyalty).
• Travel “hacking” way = credit card sign up bonuses (diversity).
• Each of these credit cards offers a bonus, but there are some spending stipulations. A typical bonus offer might read:Earn 50,000 bonus miles when you spend $3,000 in the first 3 months. $95 annual fee waived the first year.
• To unpack this statement: you have to spend a cumulative $3,000 within the first 3 months after your approval date (not when the card arrives in your mailbox, this is a common misconception and many people miss out on their bonus because of this oops!).  You can and should pay your balance off on time and in full each month. So, you aren’t running any debt and you aren’t paying any interest. (I know I sound like a broken record here on this point but it’s absolutely critical!)
• When you reach that cumulative $3,000 figure you earn your 50,000 bonus miles after the close of that current credit card statement.
• This card also has a $95 annual fee, but it is waived the first 12 months, so you can earn your bonus during this trial period for no cost and close the credit card as you approach the end of that year if you determine you aren’t getting value from it any longer.

What’s The Potential Value?

• So there’s no interest expense (since you’re paying it off in full each month) and no annual fee expense on most cards (since you’re canceling before any annual fee hits unless you feel the annual fee is justified to keep for a prolonged time frame – which some are). That means you literally just earned 50,000 miles that you should get at a minimum $500 – $1,000 worth of travel value (depending on the airline’s reward program) for $0 in expense. Of course, you had to spend a few hours logging into your spreadsheet to calculate when you’ve reached the spend so really you’re getting paid $500-1,000 for a few hours of work. For most people, this likely is more than your hourly wage and a worthwhile endeavor.
• For that $3,000 in normal life spending that you simply put on this new credit card you earned $500 – $1,000 in value. That’s like getting a 16.67% – 33.33% rebate on that $3,000!
• Compare that to your normal 1% “rewards” credit card where you’d earn $30 for that same $3,000 and you can see how powerful this strategy really is. Even a 5% cashback card doesn’t compare.  Which would you rather, $150 in cash or $500-1,000 in airfare?  This is why I personally do not chase cash back rewards cards.
• Now picture yourself opening a few of these cards every year to earn thousands of dollars of travel.  This is why our annual travel expenses are very low yet we’ve been to over 25 countries and all over the US and Canada.  

How To Hit The Spending Requirement?

• Put all spending on the card for your family and pay off in full each month.Everyday spending: groceries, restaurants, internet, cable, electric/gas, water/sewage/garbage, cell phone plans, gas, car insurance, home insurance, etc.  See if you’re able to put your rent, mortgage, and/or property taxes on a credit card.Buy yourself a gift…..card. Gift cards to places you know you will use soon (groceries, gas, etc.).
  • Take it one step further and do this for your parents who may not be into travel hacking and have zero interest in it. We do this by purchasing monthly gift cards for my mom to her local grocery store (online for free, gift cards get sent right to her home) and she sends us checks for that account.  Doing this essentially provides us with enough points to use when we purchase flights with points for her to come and visit us a few times a year.
  • Going out with friends? Put the whole tab on your bill and have everyone Venmo over their portions to you.
  • Have a trusted friend or family member making a big upcoming purchase? Put it on your card and have them transfer you the money instead.
  • Wait to apply for a card until you know you have a large purchase coming up. We strategically apply for a card when we know our annual car insurance premiums are up for renewal as that covers a decent portion of the minimum spend in one purchase.
• Once you reach the minimum spend (or close to it as the process of applying, getting approved, and getting a new card in the mail can take a few weeks) rinse and repeat. Don’t open 4 cc’s all at once as it’s highly unlikely you can reach those minimum spends all at the same time! But it’s very realistic to open 4 cards over a year (as most require the minimum spend to be met within the first 3-4 months).
• Beware some credit cards allow authorized users (aka your spouse/partner) which sounds like a good idea in theory as you both can use the card as you’re out and about on your respective errands to supercharge your spending to get you to the minimum spend quicker. However, it may prevent the authorized user from opening that same card and getting the bonus! Research each card’s rules as there likely is a small bonus (~5,000 points) if you add an authorized user but now you just prevented them from opening up their own card for the point bonus for awhile.  Bummer!

How Do You Earn Points?

• Fixed value travel reimbursement50,000 points = $500 off your travel purchasesThis is the most straight forward award program but likely the least lucrative. These credit cards are not tied to a specific rewards program.  Rather you book your travel using that card and you will get a statement credit for say $500 off.
• Co-branded airline and hotel credit cardsSome examples include Citibank with American, Chase with United, Alaska with BoA, TD with Aeroplan, Delta with AmEx.These are the most specific offers. The reward is associated with a specific airline. Depending on your origin/destination plans, some of these could be great options for you. Once you learn which airlines are the best for you (Are you close to a hub? Do they have many flight options from your closest airport? Is their award chart competitive?) you can focus your efforts on certain airline-specific cards.
• Transferable points cardChase Ultimate Rewards, Citi ThankYou Rewards, Amex Membership Rewards, RBC Avion, etc.These are the most flexible. These points transfer to ANY of their partners. You can simply Google something like “Chase Ultimate Rewards airline transfer partners” to find what you’re looking for. Points remain with the bank until you make the transfer to your airline of choice.
  • Another nice perk to this type of card is that if you cancel the credit card but have another no-fee credit card associated with that bank the points can remain live. For example, if you have a Chase Freedom (no-fee card) and a Chase Sapphire Reserve (annual fee card), you can earn points with the Chase Sapphire Reserve, cancel the card as you approach your 1-year mark, and the points earned will still be within your Chase account and you can transfer anytime after the card has been canceled as long as the Freedom is still open. 
  • These flexible cards are also useful if one of your rewards programs is approaching its expiration date (which requires more organization skills to be aware of any upcoming expiration dates).  Say you earn 50,000 Chase Ultimate Rewards points and your British Avios points are due to expire soon.  You can transfer 1,000 of those 50,000 points to British Avios to have activity on that account to reset the clock and the other 49,000 points can be transferred wherever else you wish.

Miscellaneous Points To Consider

• It’s not 100% FREE travelTaxes, surcharges, fees (international flights) still apply.Some airlines charge really high fuel surcharges if you fly their specific airline. For example, British Airways flights across the Atlantic from North America to Europe come with really high fuel surcharges in the multiple hundreds of dollars basically eliminating any incentive to use points with them. Whereas other airlines, such as American Airlines which is a partner airline to British and can be used with those same points as they are both within the One World Alliance, do not charge nearly as large of a fuel surcharge if you fly an American Airline airline across the pond instead.  This is a hard concept to comprehend but once you do, you can learn about certain airline’s pain points to avoid and other airline’s sweet offers to chase after.
• Some cards come with additional perks such as free checked bags, priority boarding, NEXUS/TSA precheck/Clear reimbursement, etc.
• Sign up for rewards accounts with airlines and hotels and link these up when you apply for a co-branded credit card associated with a specific airline or hotel so it automatically syncs with your rewards account.
• Check out your local airport – are they a hub for a certain airline? Do they offer direct flights to areas of interest? If so, with which airline? Google “(city) airport wiki”.
• Be flexible – can you travel in a few weeks? Can you travel on a Tuesday and return the following Wednesday? Can you travel on a holiday?
• Do your research on the different types of cards, what they offer, branding, and partnerships as credit card offerings are always changing.

A lot of people get bogged down in the details of travel hacking, but it honestly doesn’t have to be that difficult. I am 100% convinced that with minimal effort, just about any financially responsible person can take 1-2 nearly free vacations every single year just with this one small, but important life hack. It will take some reading to educate yourself to feel comfortable to dive in, but once you do, you can literally earn a flight in under 15 minutes by signing for the credit card of your choice and spending on it versus your previous payment method.

Missed the rest of our Travel Hacking Series? Here you go!

• Travel Hacking 101: What Is Travel Hacking?

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We believe in stacking up life hacks to keep your enjoyment levels to the max without depleting your bank account. Here are some ways to further educate yourself and save thousands of dollars over your lifetime by making some simple adjustments:

• Investing Newbies: Check out our free Investing 101 Series.
• How much are you paying for your phone plan?  Canadians, learn more about Public Mobile, and see how we are paying $3/mo for our cell phone plan.
• How much are you paying for internet?  Canadians, learn more about the various Independent Service Providers out there to see who services your area so you can lower your monthly bills.
• How much are you paying for home insurance?  We were able to reduce our rates by 25% by switching over to Square One Insurance.  If you live in BC, AB, SK, MB, and ON, check out Square One for your home insurance, landlord insurance, and/or tenant insurance.  Use this link to receive an extra $15 off your quote.  (Note that you must use this link to start the process to get the $15 off even if you prefer to pay over the phone.)
• How much are you paying for your monthly utility bills?  See how you can likely save on this monthly expense.

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