How to Travel For Free | Stereo Live Q&A | EP 311

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.

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What You’ll Get Out Of Today’s Show

  • After a year when many of us canceled travel plans, hope is on the horizon that travel can resume again. Are travel rewards still a workable strategy?
  • Brad and his family recently traveled down to Orlando, but because travel rewards haven’t been on the top of his mind, he realizes he should have opened a Capital One Venture card to offset the cost of their Airbnb.
  • Because the FI community uses credit cards responsibly, using rewards credit cards for everyday spending to earn cashback or travel rewards is one of the pillars of FI. With optimized points and miles earning and redemptions, far greater value than the standard 1-2% return can be had to win the game.
  • With a 2% cashback card, spending $4,000 a month will earn $80. However, the value isn’t in the everyday day spend, but in the signup bonuses where an 80,000 point bonus can net $1,600 or more worth of travel.
  • For example, a premium rewards card may offer an 80,000 point bonus for spending $4,000 in the first three months from account opening. That requires just over $1,300 in credit card spend per month, something many in the FI community can do with everyday spending when they choose to use a credit card over cash or debit.
  • Brad can get around 2 cents per point when redeeming Chase Ultimate Rewards points, so an 80,000 point bonus is worth about $1,600, which is far more than $80 earned from a simple cash back card for his $4,000 spend ven after paying an annual fee.
  • Couples’ opportunities are doubled because each can open their own credit card and earn the bonus.
  • When travel rewards are part of your FI strategy, it reduces your travel budget. Plus, points and miles are earned tax-free. But flexibility and planning ahead are key.
  • For Jonathan, one of the most compelling things about the financial independence community was its contrarian thinking. Most personal finance books advise against the use of credit cards. For the financially responsible, is there a downside?
  • Millions of people get into trouble with credit cards, or carry a balance and pay significant interest. Earning travel rewards with credit cards is not for them. But if you pay your cards off on time and in full every month, travel rewards can be worthwhile.
  • Start by getting points that a flexible to use and then get an idea for where you want to travel and begin to optimize from there.
  • With respect to flexibility, transferrable rewards points, like Chase Ultimate Rewards or American Express Membership Rewards points, are the most flexible. They reside in your credit card account and may be viewed when you log in. In addition to the ability to spend the points for a fixed value through the credit card issuer’s travel booking system, points may be transferred to various travel partners, like United or Hyatt, at a fixed rate.
  • Jonathan has been earning Chase Ultimate Rewards points for his family’s trip to Africa. Although United doesn’t fly to Zimbabwe, United is a part of Star Alliance, which includes South African Airways and Ethiopian Airlines. He would be able to book flights on either of those airlines by transferring his Chase Ultimate Rewards points to United for booking on Star Alliance partners.
  • One frequently asked question is, will opening these credit cards hurt your credit? In Jonathan’s experience, the cards he and his wife have opened have not hurt their credit scores. They did go down a few points in the short-term, but since then, it had recovered and even increased.
  • Credit scores are made of several factors and when you understand them, you see why scores can increase after opening several credit cards.
  • When you apply for credit, there is a “hard pull” to check your credit by the lender. This negatively impacts your score by a couple of points temporarily. However, having a good history of on-time payments increases your score.
  • Even more significant is your utilization rate. When you have several cards that you are paying on time and in full every month, you have credit that you aren’t using. The utilization ratio looks at how much you have compared to how much you are using. The less you use, the better your score.
  • Another factor is the age of your accounts, and older is better. So keeping your oldest credit card open is a good thing, especially if it doesn’t cost you anything.
  • The last factor making up your credit score is types of credit, like revolving credit or installment loans. Having multiple types of credit helps to increase your score.
  • Higher scores help you to get approved for premium credit cards or the lowest rates on mortgages, but the difference between a few points up or down in the higher credit tiers doesn’t make much of a difference.
  • Susie called in to say her favorite site for travel hacking are Google Flights, Autoslash, and Juicy Miles, and wanted to know what Brad and Jonathan’s are. Brad agrees with Autoslash, but to track his travel rewards, he likes Award Wallet and knows that someone in the FI community created a site called travelfreely.net. He also likes to check with Seatguru.com for specific aircraft seat information.
  • Jonathan says ITA software by Google is especially helpful for finding what airlines fly between two destinations and what the associated fees will be for complicated routes.
  • Points and miles optimizers will enjoy Expert Flyer which helps you to find award and upgrade availability with the paid subscription.
  • For distance-based awards, Great Circle Mapper can be useful. Some award charts have sweet spot redemptions using distance-based flights, like British Airways which may require fewer miles to book.
  • Paula called in asking about downgrading cards with annual fees. It comes down to, “Are you getting value from the card?”. It’s a personal preference and what fits into your life. Brad keeps his Chase Sapphire Preferred card open and pays the annual fee because he’s able to keep his points there instead of speculatively transfer them someplace. The flexibility makes the annual fee worth paying for Brad.
  • The minimum spend required to earn a credit card bonus can feel intimidating. It’s worth looking at your spending to see if you can meet it with your regular monthly spending. It’s not worth overspending for travel rewards, but being creative might help get you there, such as front-loading normal expenses, like car insurance.
  • Susie called back to say one of the ways you can get the most out of a card annual fee is to make a retention call and see if the card issuer will offer you an incentive to keep the card open for another year.
  • Another caller asked about the most efficient way to open cards when in two-player mode. The good news is, there’s no one-per-household limit. Each individual adult may open up their own cards. Being an authorized user on a spouse’s account doesn’t mean you can’t open your own. You can.
  • Adding an authorized user can help you to meet minimum spends and earn the bonus, but there is a downside. Chase has a rule where they will not approve your application for a new cad if you have opened 5 personal credit card accounts within the previous 24 months, commonly referred to as 5/24. Authorized user cards do count against you.
  • Chase Ultimate Rewards may be transferred to the accounts of others in the same household.
  • Brad’s favorite no-annual-fee card is the American Express Everyday card which he uses to store his American Express Membership Rewards points.
  • Active duty military gets an amazing deal when it comes to credit cards. Both Chase and American Express waive the annual fees.
  • The next caller asked about transferring his Ultimate Rewards points from his Chase Sapphire Prefered to his Chase Freedom Unlimited card. He wonders if he will still have access to the Chase Ultimate Rewards travel portal.
  • Those who have a premium Chase card, like the Chase Sapphire Prefered, Chase Sapphire Reserve, or Chase Ink Business Preferred have the ability to transfer their Ultimate Rewards points to Chase travel partners, which is where the highest value redemptions are.
  • Freedom points are worth slightly less than points earned with the Chase Sapphire Preferred. Closing the Chase Sapphire Prefered means the cooler won’t have the ability to transfer points to a transfer partner and the value of the points will be less once transferred to the Freedom Unlimited account.

Resources Mentioned In Today’s Conversation

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.
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