Ready for a Vacation? How to Use Credit Card Rewards to Travel for Less
When you work hard, you want to play hard. We get it. You deserve to enjoy the finer things in life, and you can have them—you just have to be smart and strategic with your spending. Sticking to a budget while saving toward financial goals doesn’t mean you can’t splurge a little. In this, our second story in a series on spending hacks, we continue to help you figure it all out. With some savvy tweaks and an eye for planning ahead, you can have what you want.
What if you could travel the world for the price of a great dinner out— or even for free? You might be thinking that sounds too good to be true, but I’m here to set the record straight. You can travel the world for next to nothing, and it doesn’t involve any gimmicks. All you have to do is plan carefully.
A few years ago, I learned of people using credit card rewards to go on their dream vacations, and I was skeptical. I thought there had to be a catch. But because I was aggressively paying down my student loan debt while working full-time and taking extra work on the side, I really needed a vacation, so I looked into something called “travel hacking”— creative ways of maximizing credit card reward bonuses to redeem free or low-cost flights and hotel rooms.
Here’s what I discovered.
The Art of Travel Hacking
Many rewards credit cards offer attractive bonuses after signing up and meeting the spending minimum. These bonuses are typically enough to get you a free flight, but if you’re smart about it, you may even be able to travel abroad.
When I started travel hacking, I signed up for an airline credit card that offered 30,000 miles after spending a minimum of $1,000 within three months. The $89 card fee was waived for the first year.
Over the next few months, I put my groceries and utility bills on that credit card, and paid the full balance each month. After hitting the spending minimum, 30,000 miles were added to my account, which already had over 10,000 miles in it from previous flights.
At the time, off-peak flights to Europe from the U.S. were 40,000 miles (mileage awards have since gone up). Miles in hand, I booked a flight to Spain in April 2015 to visit a friend who lived there then. The final cost after using 40,000 miles? Sixty-three dollars in taxes and fees.
I couldn’t believe it. If I had paid for the flight out-of-pocket, the cost would have been over $1,400. By scoring a steep discount on airfare, I was able to use the money I’d saved on food, fun, and adventure, including enjoying the art in Madrid and the beaches of Nerja.
After living it up in Spain, I vowed to never pay full price for a flight again.
This year, as a reward for paying off $81,000 in student loans, I decided to use miles again to go to Italy. After all, I worked hard to pay off that debt! In total, it took me nine years, but after graduating from NYU with my M.A. in May 2011, I got serious and hustled hard to pay off $68,000 in four and a half years.
For my trek to Italy, I got another credit card, paid the annual fee of $89, and received 50,000 miles after just one purchase. In total, I spent only $159—the cost of the annual fee and taxes—on air travel.
With a little experimenting, I went from being terrified of credit cards (I got my first credit card at age 28) to learning how to use them to my advantage and travel the world—and you can, too.
Maximize Credit Card Rewards to Travel for (Practically) Free
You don’t have to be a travel-hacking expert to make the most out of credit card offerings. You just need to know what to look for in a credit card, be responsible with your spending, and be clear on your goals. Reward cards are typically for people with good credit, so why not be rewarded for being financially responsible and go on a trip of a lifetime?
“For those who use their credit cards every month and pay them off on time and in full, travel hacking is a great strategy,” says Brad Barrett, CPA from travel hacking and credit card rewards resource, TravelMiles101.com.
To get started, identify where you want to go. For inspiration, you can even print out pictures of your destination(s) or make a Pinterest board and share it with any travel buddies.
Next, create a plan of action. Research and compare airline reward programs to see exactly how many miles you need to get to your dream destination, and which carrier makes the most sense to use. Reward charts are sometimes call award charts, like this one from American Airlines.
Once you’ve chosen an airline, search for a rewards credit card with a sign-up bonus that meets your mileage needs. For example, a card offering 50,000 miles for initial spending is perfect if you need 45,000 miles to travel to your destination. It’s key to understand the spending minimum, though, and make sure you can meet it responsibly.
When you’ve found the best card, apply. Once approved, start using it for your monthly recurring expenses, such as groceries, Netflix, insurance, etc.
When you get your miles, it’s time to plot your adventure and redeem your rewards!
Timing Is Everything When Redeeming Credit Card Rewards
You can redeem your credit card rewards online using the airline’s website or the credit card portal, but there’s a right time to do it.
Miles may expire, so always be sure to redeem them while they’re active. Check expiration dates in your account. Also, consider traveling off-peak and avoiding holidays. Off-peak rates vary, depending on your destination, and holiday travel may require additional miles.
“If busy professionals are looking to maximize their miles, I’d suggest a late spring or early fall vacation,” say Barrett. “The weather is often decent in much of the U.S. and Europe during those times, and the demand for award seats plummets then.”
If you want to take a special trip, budget at least one to two weeks time and alert your employer a few months in advance. For the past two years, I took two weeks off to go to Europe and gave my clients plenty of notice.
Finally, always check the out-of-pocket price against the total price using miles. In some cases, it may make sense to pay cash instead of redeeming your miles. But if you’re going abroad or want to splurge on first class, use the miles to make your dream a reality.
Be Smart About Travel Hacking
Travel hacking is a great way for responsible credit card users to reap rewards for spending. But it’s important to keep an eye out for any credit card creep—an increase in spending that can take you by surprise. The buy now, pay later flexibility of credit cards makes it tempting to buy things you can’t actually afford.
Be appropriately cautious when signing up for rewards cards. Read the fine print, as sign-up bonus details around initial spending period timelines and amounts can be confusing and cause you to overspend. According to a 2015 report by the Consumer Financial Protection Bureau (CFPB), “it is not always clear from the available materials, for example, when the relevant period starts or ends, or exactly how total spending over the period is calculated. As a result, consumers may not know precisely whether or when they have achieved this target, an uncertainty that may further incentivize spending.”
Because of this, it’s key to look for a credit card with good reviews and an easy-to-use payment system that allows you to quickly track your spending and rewards. If you notice you are overspending or sliding into debt, you may want to nix the credit cards altogether. After all, why continue to use the tool that got you into debt in the first place?
Travel hacking can be seen as “gaming the system,” but if it leads to credit card debt, you’ve lost the game and the rewards aren’t worth it. Prospective travel hackers should not only watch their spending, but also be mindful of annual fees and their overall credit rating. Additionally, it’s important to keep your balances low, as your credit utilization—how much of your credit limit you use—does impact your credit score. Aim to keep your balances 20%-30% under your credit limit.
Most rewards credit cards waive the annual fee for the first year, and then charge very high fees thereafter. So many travel hackers cancel credit cards after they redeem the bonus miles. But it’s worth noting that closing a credit card may result in a slight decrease in your credit score.
What to Do If You Get Into Credit Card Debt (Hint: Stop Using Credit Cards)
While you may think consolidating credit card debt through another credit card offering at a lower rate is a good option, that strategy can be a slippery slope. An additional credit card could lead to added debt, especially if overspending is an issue that’s not being addressed.
If you find yourself with a high credit card balance that may take years to pay off, you might want to consider a personal loan to ditch your debt, save you money on interest, and help you get a fresh start. According to NerdWallet, “Consolidating credit card debt with a personal loan typically makes sense only if it will take you more than six months to pay off.” Personal loans offer a lump sum (a finite amount), which could prevent you from going further into debt.
Get Started on Your Next Adventure
Traveling can be expensive and, therefore, feel out of reach for many people, especially working professionals managing student loan debt and mortgages. But with credit card rewards, you can take a well-earned vacation for a fraction of the cost. After all, you don’t work just to save for the future, so enjoy the present. Find out more about the top rewards credit cards, and then cash those miles in for unique experiences around the globe.
Another option for funding your next vacation is with a SoFi Money account. SoFi Money is a hybrid account that earns you more and costs you nothing. Plus, you’ll get unlimited reimbursement on ATM fees and can use any ATM anywhere in the world. And we don’t charge foreign transaction fees!