This is a guest post by Holly Johnson. Holly is a wife, mother of two, and frugal lifestyle enthusiast. She is the co-founder of Club Thrifty and a staff writer at Get Rich Slowly and Frugal Travel Guy. Check out more of her super awesome skills at clubthrifty.com. If you would like your personal finance story or article to be feature on Vosa let me know here.
Last year, we traveled to the Dominican Republic in February, Mexico in July, and Florida twice.
This year, we’ve already got three trips planned, including a trip to Jamaica this winter, Florida with the family in April, and London and Paris in September. Since I’m a frugality writer and self-proclaimed scrooge, a lot of my family members and friends wonder what’s up with my penchant for travel. And I totally get it. I mean, it must be confusing. After all, I’m always wearing old clothes. I drive an old car. Hell, I don’t even have cable television. So, how can I afford to go on so many trips? The answer is simple: I pursue credit card rewards like it’s my part-time job.
Pursuing Credit Card Rewards
It all started a few years ago when I received a direct mailer from Chase Bank tempting me to sign up for the Chase Freedom card. And I couldn’t believe what it said. Basically, they were offering me a $100 statement credit if I signed up for the card and spent $500 within the first three months. And since we budgeted $500 monthly for groceries at the time, I knew that the spending requirement wouldn’t be a problem. So I did it. I signed up for the card, bought groceries like I usually do, and paid the card in full immediately.
Shortly after that, I took the $100 statement credit and bought something incredibly boring, like more groceries or something. But I learned an important lesson from the Chase Freedom card and its relatively small sign-up bonus. I learned that I could truly get something for free, just by doing something that some people would deem risky. And once I realized how easy it was to earn credit card rewards, I started signing up for different kinds of rewards cards, including travel rewards cards. And that’s how I booked our two round-trip flights to Jamaica for $96 total including taxes and fees. That’s how we’re traveling to Europe for a total of $430.00 each, including for cost of our flights and luxury hotels. And that’s how we’re able to travel so much, despite the fact that we’re desperately cheap. We’re able to do it because we use credit card rewards to subsidize ourselves, to stretch our travel budget as far as it can go, and to travel to places that we couldn’t afford to otherwise.
Types of rewards
Airline miles. Statement credits. Hotel stays. Gift cards. These are the typical credit card reward offers available to most people with good credit. But, while the types of rewards you can pursue are virtually limitless, most people tailor their rewards strategy to their personal goals. Me? I like them all, and I bounce back and forth between the types of offers that I focus on. I also rotate between applications between myself, my husband, and my business so that the credit inquiries stay spaced out among us. And while I tend to focus on earning sign-up bonuses, others focus on earning long-term rewards such as the bonus categories that come with the Chase Freedom mentioned above.
Since I love to travel, I think that some of the best credit card rewards programs are those that dole out free hotel stays and flights. My husband just got done meeting the minimum spending requirement on a Citi Aadvantage MasterCard, for instance, and scored 50,000 American Airlines miles for one of our upcoming trips. Last year, we both signed up for a Starwood Preferred Guest American Express card, and earned enough SPG points to spend 5-10 nights almost anywhere in the world. I also just finished up earning two free nights in Paris with the Hyatt Credit Card, and immediately signed both of us up for the Southwest Airlines Rapid Rewards Plus Card which is currently handing out a 50,000 point sign-up bonus good for two round-trip flights, hotel stays, cruises, or gift cards.
A word of caution
Sounds easy, doesn’t it? It’s really not that hard if you’re organized enough to pull it off. However, there are some unspoken rules when it comes to credit card rewards. That’s because, without any rules, your credit card strategy could end up backfiring or costing more than you ever dreamed. So, before you start researching credit card rewards offers, it’s important to understand what you’re getting into.
First of all, I think that most personal finance experts would agree that you shouldn’t pursue credit card rewards if you have credit card debt or have other high interest debts. Why? Because it doesn’t make sense. The rewards you might earn would likely be cancelled out by the interest you’re paying. If you’re in that boat, work diligently to pay off your high interest debts and credit card debt instead.
Second, credit card rewards may not be for you if keeping track of things isn’t your strong suit. Even though I churn cards like they’re going out of style, it still gets confusing. And that’s still the case even though I keep excellent records. Consider yourself warned.
With all of that said, here are the rules I follow (and think you should follow) when pursuing credit card rewards:
- Know your minimum spend- Most rewards cards offer a sign-up bonus that kicks in once you meet a minimum spending requirement. Therefore, knowing your minimum monthly spend is a crucial component of any credit card rewards strategy. To find out your minimum spend, figure out how much money you can put on credit cards on any given month. For most people, this consists of the grocery, gas, and miscellaneous categories in their budget. (An example: My family spends $500 on groceries and $200 on gas and miscellaneous every month. I’m also currently able to put our health insurance on credit, which is $394 per month. This brings our monthly spend total to $1,094 per month)
- Only sign up for offers that are within easy reach of your minimum spend– Since my family can put $1,094 on credit cards each month, I typically only sign up for offers that require I spend $3,000 or less over a three-month period. Fortunately, most credit card rewards offers require that you spend less than $3,000 to earn the sign-up bonus, although bonuses do vary. The only time I make an exception to this rule is if I have an out-of-the-ordinary expense to plan around. Like for instance, my car insurance which is due every 6 months, or the last time we knew we were going to replace the carpet in one of our rental homes.
- Keep track of everything- It’s important to keep track of which cards you signed up for and when. This is especially true for credit cards that have an annual fee that kicks in after the first year. I keep a simple spreadsheet of my churning details for quick reference, including any cards I’ve signed up for and when, when I earned the bonus, and when/if an annual fee kicks in.
- Track your spending- If you’re worried that you might lose track of your spending, monitor your accounts closely online. Keep track of all of your spending and make sure that it aligns with your spending goals and plans.
- Pay your credit card(s) off religiously- As I mentioned before, you’re not really helping yourself if you’re paying interest while pursuing rewards. So, in order to avoid paying interest on any of your purchases, it’s important to pay your credit card off, and in full, before any interest accrues. (Since I use a zero-sum budget, I like to empty my bank account by the end of the month. Therefore, I usually pay mine off 2-3 times a month)
- Monitor your credit- Signing up for, and closing, multiple credit card accounts will have a negative impact on your credit score. For instance, my husband and I have seen our scores drop from the low 800’s to the mid-high 700’s within the past year. But, since we’re debt free with no desire to borrow money ever again, it isn’t a huge concern for us. I do monitor our credit at CreditKarma.com (Brent here, MyFico is another credit monitoring option), just in case, because I like to know if there are any changes to either of our scores. Take your personal situation into account before signing up for a new rewards card, or three. Most credit experts also suggest that you steer clear of signing up for any cards if you plan on buying a house or taking out any other major loan within the next year, if you want to stay on the cautious side.
Credit card rewards can be a fun and lucrative way to stretch your budget a little further and get something in return for the money you were going to spend anyways. However, it’s important to understand The Rules and know what you’re getting into. Free or highly-subsidized travel and rewards are great, but not at the cost of your financial goals. So, when it comes to credit card rewards, ensure that you’re making the best choice for your family and your wallet.
Have you ever pursued credit card rewards? If so, what kinds of rewards have you earned? If not, why not?
Afterword From Brent
I have to commend Holly, and her family, for finding a way to enjoy the spoils of travel while still doing so without spending a lot of money. Great job!
I have been using credit card bonus points to fund travel for years now, so this topic is near and dear to my heart (plus traveling is one of my favorite things to do). Holly does an amazing job of outlining the rules for playing this game and I agree wholeheartedly with all of them.
The points game can sometimes get confusing and keeping on top of all the latest offers can be even harder.
If you don’t have the time, or do want, to keep on top of the latest credit card reward off I recommend signing up for the Travel Hacking Cartel where I have been a member for a while. They are constantly alerting me to all of the latest opportunities to earn points for travel.