If you asked me this question not that long ago, I would have looked at you like you were crazy. Travel Hacking? What’s to hack? You get on Kayak or CheapOair, search for flights, filter results until you get a low enough price that still gets you flights that you can at least live with, and then buy them (all the while of course praying that a better deal doesn’t pop up next week). Then, make your reservation at your hotel and you’re done. Voilà!
Sadly, we have spent too much money on travel in the past. But no more!
If you’ve listened to us or watched our vacation videos (you can check them out here), you know we are obsessed with travel, but I needed to find a way to make it more accessible. By that I mean, I wanted to take our family on international trips on a frequent basis and could not afford to do so by just paying cash. Sure we love Disney World and will continue to go there obsessively, but we want to explore the world and expose our kids to many different cultures. However, it can be REALLY expensive. The cost of international flights alone is almost prohibitive, especially for a family of four.
So, I started reading, watching, and listening to all of these travelers that seemed to be going all over the world without spending a ton of money and they were all talking about travel hacking!
What is Travel Hacking?
First, we have got a great podcast on the basics of Travel Hacking 101. Travel Hacking is the art of gathering miles and points, then combining them with a strategy that allows you to maximize your travel by getting free or cheap transportation and accommodations. If you’ve ever signed up for a frequent flyer club, you’re familiar with the basic concept of miles and points. Companies in the travel industry (airlines, hotels, etc.) have loyalty programs that give you a currency in the form of miles or points to use toward their services again. Where the hacking comes in is maximizing those miles and points. And you don’t even do this by being loyal (ok, sometimes you do)! Travel hacking strategies center around credit cards.
Travel Hacking Using Credit Cards
Skeptical yet? I might judge you if you weren’t at least a little bit. I know I was when I first started learning about this little hobby of mine.
Here’s how it works:
- Credit card companies primarily make money off of interest, transaction fees, and annual fees. To do this, they need customers who will apply for, qualify, and use their card for as long as possible. Credit Card issuers compete for your business by advertising huge sign-up bonuses (SUB) to get you to apply for their cards. These come with conditions that you must meet in order to get them, most often charging a certain amount on the card in a given period of time (known as minimum spend requirement or MSR).
- The banks take the risk of losing money up front (due to the large SUB) in the hopes that they will make it back in the form of the three fees mentioned above over time.
- In order to keep you using the card, credit issuers will often sweeten the deal to keep you spending in the form of category bonuses. For instance, you might normally get 1x points (i.e., 1 point per dollar spent) on normal spending, but 3x points on travel purchases and 4x points for purchases at restaurants.
Here’s how to beat the system:
- Pay all credit card bills in full every month. Never, ever, EVER carry a balance on the credit card. The high percentage rates you will pay will far outweigh any benefits from SUBs or bonus categories.
- Always meet the MSR terms. If you don’t charge what is required in the time period it is required, you don’t get the SUB. No SUB = No hack.
- Don’t spend money that you wouldn’t have spent anyway. Only suckers (yes that’s you mom and dad) pay for everything with cash, checks, or debit cards. Okay, so if you seriously can’t help but carry a balance on credit cards, then paying cash is better than paying high interest charges. Otherwise, you’re leaving free money on the table. That said, if you buy things solely for the purpose of getting SUBs (meaning things you wouldn’t have bought anyway), then you’re paying way more for the stuff you shouldn’t have bought than the bonus is worth.
- Understand the Annual Fee. As a rule, the better the SUBs, category bonuses, and other perks (trip protection, travel credits, etc.), the higher the annual fee. Sure, you can get a no-annual-fee card and get 1% cash back. But, you can very easily offset annual fees with the value of what you get with better cards. We’ll talk more about value in a later post.
- Work within the rules of the credit card issuers. People try and game the system. Banks are not stupid and they know what these people are doing. While they might not be doing anything illegal, it isn’t worth getting banned from the banks or having your accounts closed.
Understanding How to Use Points and Miles
First, you need to understand the three basic types of currencies we will be covering here: airline miles, hotel points, and credit card rewards points.
- Airline Miles – These have been traditionally earned through opening frequent flyer accounts with airlines and then flying. However, co-branded credit cards make it possible to get huge airline miles SUBs simply by meeting MSRs.
- Hotel Points – These are extremely similar to airline miles except you’re booking accommodations instead of transportation.
- Credit Card Rewards Points – Major credit card issuers have their own currencies that can be used directly with the credit card issuers (for things like cash back, tickets, travel, etc.). However, the most valuable use of these currencies are transferring them to travel partners. For example, I found a flight through the Chase Ultimate Rewards (UR) Travel Portal on United Airlines for one of Leslie’s clients from Chicago to Munich in Business class for four adults for 2,579,424 UR Points. While this is better than paying cash for $32,242.80 (more on determining the value of points in a later post), it is not nearly as good as transferring. Since United Airlines is a transfer partner with Chase at a 1:1 ratio (i.e., 1 Chase UR Point = 1 United Airline Mile), the client had the option of transferring points to United to book the exact same flight for 141,000 miles per person plus $5.60 each. That’s a savings of over 2 million points!!!! Here’s the proof:
The Main Transferable Points Currencies Are
- American Express (AMEX) Membership Rewards
- Chase Ultimate Rewards
- Citi Thank You Points
- Capital One Venture Miles
- Marriott Bonvoy – SPG (Starwood Preferred Guest)
In the next post, we will dig in a little deeper. As there is a lot to the subject of travel hacking and things are constantly changing, we are going to take this one step at a time.
So, this has been a very basic overview on the concept of travel hacking. As I continue this series, please follow along with not only these posts, but also our podcasts on travel hacking. Here is a another great one to start with, Addicted to the Mouse Podcast 114: What is Travel Hacking?
As we go further in depth with travel hacking, I’ll give you my favorite credit cards and the reasons why. But, if you can’t wait and want to support Addicted to the Mouse, here are links to my current favorite cards:
Here is the referral link to our favorite card, the Chase Sapphire Preferred with a 60k point bonus: https://www.referyourchasecard.com/6a/32MOLX1VZA
Here is the referral link to the American Express Platinum Card that has the amazing perks such as Centurion Lounge Access and 60k bonus rewards: http://refer.amex.us/JAMESLjfab?XLINK=MYCP
Here is the referral link to the American Express Hilton Honors Aspire Card that has the great hotel benefits, Diamond Status, and 150k bonus points: http://refer.amex.us/JAMESLU7Km?XLINK=MYCP
If you use the link to apply and get approved, we get a miles bonus on our cards.
So what happens after the first year, when the SUB is gone? Do people cancel them? Travel hacking doesn’t seem like a sustainable method, just maybe something for a particular year/trip. Is that true?
It depends on the benefits of the card and what the card issuer allows you to do. If the card benefits outweigh the annual fee, then keep it. It helps your credit score to keep the card open. If not, see if your issuer has a downgrade path to a cheaper or no-annual-fee option (again, maintaining the open line of credit helps your credit score). If neither of those is an option and you don’t want the card, then you can cancel it at your one-year anniversary so that you don’t pay another annual fee. Some issuers allow you to get another SUB at some point in the future after a certain time period has passed (this is called credit card churning), but a lot of them have or are cracking down on this.