Like most Americans, I have a fist full of credit cards in my wallet. But unlike most Americans, I have zero credit card debt. In fact, my credit cards actually pay me. Over the past year, my Husband and I have managed to accumulate thousands of dollars worth of free adventures in the form of travel. Our long distance marriage was in part supported by dozens of free flights to see each other. And beyond that, we were able to go on several vacations throughout the year. Since sharing our last vacation budget, I've received quite a few emails asking for details about travel credit cards so I thought it would be a good idea to share our tips for how to properly use travel credit cards.
There are so many choices when it comes to travel credit cards. You can open cards with individual hotels and airlines. Or you can open general cards with the big credit agencies…mastercard, visa, etc. But regardless of what card you choose, there are some hard and fast rules to follow.
Do Spend within Your Means
Don't Accumulate Debt
This may seem obvious, but this is so much more important with travel credit cards. Travel credit cards are different than regular credit cards because travel cards offer amazing rewards and cash back for every dollar spent. But travel credit cards also tend to have higher interest rates compared to regular credit cards. So I can't stress enough the importance of paying off your credit card IN FULL every single month. Accumulating credit card debt is one of the worst financial decisions anyone could make. Unfortunately, it's also a common mistake. Thankfully, it's simple enough to safeguard against. Only charge something on your card if you currently have the money in the bank to pay the card off. As another safeguard, I pay off our credit cards any time we make a large purchase to prevent from building up a large balance.
Do Compare the Benefits
Don't Ignore the Fine Print
To get the most out of your travel credit cards, you need to have the right ones. I'm currently compiling a list to share with our favorite travel credit cards. But it's important that you be able to evaluate the benefits of various cards to choose the best ones for you. Let's say, that Credit Card A offers 2 points per every dollar you spend. Whereas, Credit Card B only offers 1 point for every dollar you spend. On the surface, Credit Card A is obviously the better card. This is where it's essential that you don't ignore the fine print. Points often have different values from card to card. Let's now say that Credit A only gives you $0.20 per point earned. So if you spend $50 on Credit Card A, you get 100 points ($50 X 2points) and that comes out to $20 (100points X $0.20) in rewards. Not Bad. But Credit Card B offers $1 per point. While spending $50 on Credit Card B only gives you 50 points ($50 X 1point), those 50 points are worth much more than the 100 points from Credit Card A. It's common for cards to market themselves as having 2 points per dollar or 3 points per dollar etc. And people tend to pick the cards that offer the most points, but first make sure you know what those points equate to for different credit cards to get the most.
Do Take Advantage of the Sign-up Bonus
Don't Overspend to Get it
The best way to use a travel credit card is by taking advantage of the sign-up bonus. For example, a credit card company may offer $500 in travel rewards to a person that signs up for their credit card and spends $2000 on the card over the course of 3 months. But, the $500 reward is only beneficial if you were already planning on spending $2k. Sometimes people get so caught up in earning the reward that they overspend. So the key to taking advantage of the sign-up bonus is to get a new card when you already have a big purchase planned. We were fortunate enough to charge my rent on our travel credit cards (with no additional fee). I would simply pay my rent on a credit card for a couple months, pay off the credit card immediately, and voila! I just earned $500 in free flights by simply paying my rent. Car or home repairs, holidays, vacations….these are all instances where we know that we will be spending more than usual and you have hopefully saved up for it. Why not take advantage of this and earn a little back?
|An example of some credits I redeemed for our California Trip|
If you don't have any large purchases coming up, but you have extra money in your bank account, you can always create a large purchase. Don't run out and buy something you don't need, simply pay for what you do need ahead of time. For instance, I once singed up for a credit card because I had car repairs planned. Things changed and I no longer needed the repairs, but then I was like oh crap, I'm not going to get my sign-up bonus now. So I had two options: 1.) Let the extra $$$ sit in my bank account and earn a whooping $0.03 of interest OR 2.) Spend X amount of dollars to get my sign-up bonus of a few hundred dollars. Obviously, I wanted the sign-up bonus, but I didn't want to overspend to get it. Here, it would have been easy to take on the mindset of "I just saved a bunch on those car repairs, I may as well use the extra $$$ to buy something I want and get my points". Instead I paid my internet bill 6 months in advance and I bought a bunch of grocery store gift cards. I'm not going to suddenly stop needing to pay for internet and food, so it made sense to create this large purchase to get my bonus.
Do Keep Your Oldest Line of Credit Open
Don't Pay the Annual Fees
The best travel credit cards are associated with an annual fee. Each year, you may be charged upwards of a $100 just for using the card and the rewards associated with it. Typically, this fee is waived for the first year that you have the card. After that first year, get rid of the card to avoid paying the annual fee. But be aware that constantly opening and closing credit cards can affect your credit score. Our credit score has increased or stayed the same since we started doing this and a big part of that is keeping your oldest line of credit open. I have an old Discover card (it's not a travel credit card) that I don't even keep in my wallet. I maybe spend $10 a month on it and I have no real use for it. But I keep it around is because I've had it for years and it establishes a good line of credit for me. Follow the old adage...Old Credit is Good Credit
Hopefully, I've shed a little light on how to make the most of travel credit cards and what mistakes to avoid. Getting started with travel credit cards can be a bit overwhelming at first, but once you understand the basics, you can open yourself up to a whole new world through the benefits and travel. As always, feel free to leave any questions below. I've noticed that many of you feel more comfortable emailing me directly at firstname.lastname@example.org. Either way, I'm happy to answer any questions.