Credit card travel hacking is certainly not for everyone.
It would be wrong for me to make a one size fits all recommendation and tell everyone to jump in and play this game.
Certainly, the game has its benefits, but can have adverse financial impacts if not played wisely.
What is the rewards game, anyway? I view it simply as applying for credit cards and spending the minimum to earn bonus points or rewards. These rewards come in many forms, but most commonly, airline miles, hotel points or gas rewards.
You can apply for as few or many cards as you can stomach (or your credit score can withstand – see PT’s credit score effects) choose to leave them open or close some when you’ve obtained the minimum spending level and received your bonuses.
So, now that you have my disclaimer (this game isn’t for everyone) and you get the premise of the game, let’s get into some tips for playing the credit cards rewards game without getting yourself into trouble!
Consider these tips an agreement you’re establishing with yourself before getting started!
I will pay off my balance each month and avoid interest charges
If you decide to play the rewards game, it’s critical you don’t spend more than you can pay off each month. Don’t purchase anything you haven’t budgeted for!
Some people think a credit card is a license to spend and receiving a bill you can’t pay at the end of the month is no faster, or harder way to learn this isn’t the case. People who are tempted to spend more than they can pay off on a credit card just to earn points or miles are not well suited for the rewards game!
I will monitor my credit score and credit reports
Another essential tip, is to monitoring your credit score regularly because each application request is usually a hard credit inquiry. In general, the more in shorter time period, the higher the impact on your score. Before starting, it’s a good idea to get your free reports from the three credit bureaus at annualcreditreport.com (learn more about this service). The reports will provide all of your financial accounts and how many you currently have opened but they don’t provide your scores unless you pay a fee.
You can get a FREE credit score by creating an account with Credit Karma. Credit Karma will show you any changes in your score month to month, credit inquiries and any financial issues, such as late payments, that may impact your score.
I will create a strategy that includes types of rewards and timing of applications
You need a strategy before applying for a bunch of credit cards. Are you going to apply for gas cards, cash back, airline miles or other point based cards? How many cards do you plan to apply for and how often? Again, be careful not to open too many accounts in a short period of time.
How will you track each card, make sure it’s paid off every month? How much do you need to spend before getting the bonus offering? Do you pay a fee year one, or is it waived for a year before becoming due?
Will you close the cards after getting a sign up bonus or keep them open for a while? Answering these questions before getting started is critical to ensure you’re not damaging your credit score or getting into credit card debt! It will also help ensure you’re not randomly opening cards that don’t align with your goals.
I will stay on top of new offers
If you’re going to get into the rewards game you need to be able to stay on top of new offers and sign up for the very best deals that play well with your strategy. Doing so requires some commitment on your end. For example, PTMoney.com provides a best credit cards page that is updated as new credit card offers become available.
And you can certainly Google specific credit card rewards to find plenty of information around the web. Just make sure you’re reading from a site that you can trust and that updates their information regularly.
I will track my cards and avoid fees
When I started playing the credit card rewards game, I decided to create a tracking spreadsheet. I knew that applying to several cards would be difficult for me to track, especially if I planned to close cards before the annual fees became due. My spreadsheet is simple and lists each card, the credit limit, minimum spend requirements before the bonus is applied and when the annual fee will be charged.
In having such a tracking spreadsheet, I know that I’m on top of each card and when I need to pay it off to avoid the annual fee, or when I need to call and downgrade the card to a no fee account without rewards. I also recommend putting important dates in your calendar so you can be reminded at least one week in advance.
I will stay on budget
I can’t stress staying on budget enough and I already touched on this a bit above. Please do not play the credit card rewards game unless you have a budget or plan for your money each month. As an example, a lot of cards require an initial spend of $3000 in the first 3 months to get the sign up bonus.
In reviewing my budget, I know well in advance how I’m going to use that card to get the sign up bonus. My wife and I are also on the same page as to how the card will be used. Food, or groceries for your family is just one area of the budget that can go a long way in meeting the minimum. Gas and entertainment can be a big contributor as well.
Try to assign certain budget categories to rewards spending versus using it for everything to make it easier for tracking. Remember, if you open several cards at once, you’re going to have to spend a lot more to get the bonus for each card. This may not be feasible so think about that as part of your strategy.
I will track my spending
I know my credit card balance before the credit card company knows my balance because I manually enter every transaction into YNAB. Seriously. Programs like Personal Capital will automatically download transactions for you, but I like the simplicity of YNAB.
While having a budget is critical, tracking your spending against your budget is even more important to playing this game without getting into trouble!
I will read the Credit Card Terms and FAQs
Don’t just sign up for a card because you like the marketing on the landing page. The deal may look great, but take the time to read the fine print and know exactly what you’re getting into.
Make sure you know how interest will be charged. Although, that won’t be a problem since you’re paying it off each month, right? Also, look at other fees such as penalty and transaction fees, the actual reward rules, how to earn miles, etc. You have to get comfortable with the details to play this game and to protect yourself!
I will know when to close them or when to hold them
Does opening and closing credit card accounts impact your credit score? In short, yes. Of course it does! Anything in moderation isn’t going to change your score dramatically. Your score is made up of a lot of areas, according to Credit Karma. Some of these areas include hard inquiries, total accounts and credit card utilization (the lower the better).
You need to consider all of this criteria when deciding when to close a card or keep it open. With only a few cards open, you may be better to leave them open as closing one could impact your credit utilization and thereby your score.
Also, if you have an older card, you may want to keep it open and downgrade it to a no fee card just so you have a longer account history. Remember, age of accounts has an impact!
Overall, the rewards game can provide a lot of benefit in free flights, hotel nights and more. My approach with things like this is to start slowly and apply for accounts in moderation.
I know there are a lot of people out there that have stacks of cards. Perhaps they have their system down and can manage any credit score impacts and track their spending, annual fees, etc. That’s fine, it’s just not the more conservative approach to the game I like to play or recommend when it involves my personal finances.
What are your thoughts on the credit cards travel hacking and do you have any rules of thumb or tips to avoid trouble?
Photo credit: Robert S. Donovan