My wife is from Zimbabwe, and her family still lives there. Anyone that marries someone from another country might appreciate what I am about to share. We try to visit her family every other year, and there are financial implications for that decision. A flight to Zimbabwe costs anywhere from $2500 to $4000 depending on the time of year. And we would need two tickets. That is not something you can do on a whim. It requires forced savings and a plan.
We had a plan; we were setting aside $250 per month to make this trip for the foreseeable future. That’s $3,000 per year.
I didn’t say it was a good plan.
I had heard of credit card travel rewards before, but frankly, I was a Dave Ramsey guy, and Travel Rewards was something that people who are reckless with credit cards did. Meanwhile, Brad was teaching tens of thousands of people how to travel the world for nearly free.
What are credit card travel rewards?
This is where you open specific credit cards to get large sign-up bonuses. You can redeem these massive travel reward bonuses for free travel around the world. These sign-up bonuses typically are around 50,000 points. Now depending on how you use these, they can get you anywhere from $500 to $1,000 in either cash or travel credit, and it’s pretty simple. At least they can if you have someone show you how to get started.
So why this site? Why ChooseFI? Although other sites are sharing similar information, I want to simplify it even further. I have access to the best teachers in this space including our co-founder Brad Barrett. I wanted the simplest tutorial available to get someone started. This tutorial is the 80/20 sweet spot tutorial. It is as simple as possible to get you up and running right away.
What do I have to do?
When you sign up for these cards, there will be a few criteria that you will have to meet.
Some cards have fees that you will pay upfront. A few of the cards will waive the fees for the first year. All of the cards will have a minimum spend requirement ranging from $2000 to $4000 in a three month period. So if you have at least $1000 per month in recurring and regular expenses, it’s simple to hit these criteria.
Personally, I just put my food and gas and some discretionary spending on the particular card that I have signed up for, and I use that card exclusively till finished or nearly finished, then I pivot to the next card. I am in no rush as long as I complete the minimum spend requirements in the specified amount of time. If you live a very frugal lifestyle and do not have enough expenses to run through the card, then you still have options. You can plan your minimum spend around a big purchase you have coming up. The card can be used to pay your property taxes or income taxes, and if you are close but need a little extra, you can purchase a gift card to a store that you frequently use like Costco or Target. Using gift cards allows you to get credit for spending earlier in the year without actually increasing your cost of living.
Credit card companies win if you spend more and keep a balance on your card. You win if you restrain yourself and just move your normal spending to hit these bonuses, then move on. Never keep a balance on the card. Always pay it off on time and in full.
You have probably done some of this already without realizing it. But if you don’t do it a certain way then you are leaving lots of money on the table. Historically I used my USAA Mastercard which gave me 1.5% cash back. So for every $3000 I spend, I would get $45
But with Travel Rewards, for every $3000 I spend, I get anywhere from $600 to $1000 or more in free travel which is a 33% + rate of return on my investment. You will never find a rate of return this big anywhere else, and if you stack 2 to 4 of these cards together each year, you will easily get $5000-$10,000 in free travel each year.
The key is to stop using your debit and credit cards sporadically, but instead, do it intentionally and with purpose. Because of this mindset, I never carry cash. In fact, I view cash as costing me 33% more because of the opportunity cost. Think of this as a simple game with a tremendous upside if you do it right. It makes the small things more fun.
Travel Rewards should be even more appealing for big spenders and people in high marginal tax brackets. For instance, if you make six figures and fall in a 25% marginal federal tax bracket + state, FICA and Medicare then you could easily be approaching a 40% marginal tax. For you to spend $5000 on travel each year, you would need to earn $7000. !!!Yikes!!! (exclamation points for emphasis). But if you use the techniques I am about to show you; you can travel for free. Also, these points are not taxable, so it’s like getting a tax-free raise.
Who should avoid this strategy?
- If you have a poor credit rating, this is not for you
- If you use your credit cards to make it from one paycheck to the next, this is not for you
- If you are about to apply for a large loan such as a mortgage and can not withstand a 3-5 point decrease in your credit score, then this is not for you
But if you live beneath your means and have implemented some of the other lifehacks that we discussed like crushing expenses, living beneath your means. If you are good with credit cards, you pay on time and in full every month, and you don’t need these credit cards to make it from one paycheck to the next…You can crush this game, and I am excited to show you how.
If this describes you, then you are thinking like me:
- You’d like a free trip to Hawaii each year for you and your partner
- You’d like to travel around Europe and make pitstops in 4 countries for free
- You’d like to be able to have miles tucked away for an emergency like a funeral or a happy event like a wedding that you can use anytime
How do travel rewards affect my credit?
The first question I get when talking to people about travel rewards is, “If I open 3 or 5 new credit cards won’t my credit score go down?”
Surprisingly my credit has gone up since I started doing this, but when I researched it this is what I found :
- When you open a line of credit, the company offering the credit does a hard pull on your credit score. The hard inquiry will decrease your credit score by 2 to 5 points, and this rolls off after a few months
- Then the credit card company looks at your utilization. If you have a $20,000 limit and only owe $100, this is a low utilization rate. A low utilization rate is looked at favorably and can boost your credit score. I only recommend credits cards to people who swear to keep a paid-off balance and since a paid-off balance means your utilization is zero you will get a moderate bump in credit
Many of the factors that can work to your benefit:
- Credit card utilization (high impact) is the amount of your total available credit that you’re using
- Payment history (high impact) is the percentage of payments you’ve made on time
- Age of credit history (medium impact) is the average length of time your accounts have been open
- Credit inquiries (low impact) are the number of “hard pulls” on your credit report for things like credit applications in the last two years
- Derogatory marks (high impact) are the number of collection accounts, bankruptcies, foreclosures, civil judgments, or tax liens on your report
Anecdotally in my own life, when you open a card your credit score drops by 2 to 3 points, but in the following months those other factors come into play, and often those other factors which favor the responsible, organized, individual seem to outweigh decrease from the hard credit inquiries.
Note that derogatory marks will wreck your credit so be sure to use this as a financial tool, not a life preserver
If you can tolerate a 2-3 point or even a 10 point swing in your credit, then this will be a non-factor. If you are coming from the Dave Ramsey school of thought, then you shouldn’t care about credit anyways so a 10 point decrease should not phase you
What’s my first step?
First of all, stop opening department store credit cards. My mom told me at Christmas time that she had gotten a great deal at TJ Maxx and saved an extra 10% on a $100 purchase by opening a credit card.
DON’T DO THIS.
This is a waste of an application. Card companies are lining up to give you a minimum of $500 to get a card in your hand. So $500 is the absolute minimum you should be willing to accept to do the credit card company the favor of putting their card in your wallet. Don’t waste an application to save $10 on your bargain clothes when the alternative is getting $500 to $1000 in free travel. Do it the way I describe, and it will open up very cool options in your world.
So how are you going to win?
Flexibility can be critical, and you also should be learning some of the strategies called sweet spots so you can maximize your points. It helps to have a strategy, and I’m going to share my simple game plan/strategy for beginning travel rewards. Remember my focus is simplicity, other advanced techniques are out there but most people that I talk to about travel rewards, like and identify with my logic on this one. I want a simple, replicable plan. I want a process that takes care of itself with minimum input from me…
What is my process for opening cards?
Look at your monthly expenses specifically your food, clothing, gas, and Amazon purchases (all discretionary spending)If you spend around $1000 per month, then this will be easy. Anticipating your regular spending gives you an idea of the frequency you should be considering opening cards. If you have $1000 per month in expenses, then the maximum number of cards you would want to open would be one every 3 to 4 months. There is no point in opening these cards if you can’t or don’t hit the minimum spend requirement.
I also pay my tax bill with a credit card which usually helps me hit the balance on at least 1 additional card per year.
I typically do not put my bills on the credit card as I find it to be too tedious to switch payment methods on all the individual services every 2-3 months. I make exceptions to this rule occasionally when a card gives me triple points for a category. I have a Chase Ink business card that gives me triple points on phone and the internet. Anytime I have a recurring expense on a credit card I make a note about that expense on an excel sheet that way I know when to switch it over to a new card if I have stopped using the old one.
I also alternate between opening a card for myself and then for my wife. Alternating essentially allows us to double the bonuses for which we would be eligible.
Keep reading in part 2 to learn our credit card strategy: The Chase Gauntlet