For the past nearly 4 years, one potentially beneficial avenue of personal finance I’ve been hesitant to go down is credit card churning. Or said differently, travel hacking.
A lot of this had to do with my perception of it, the potential consequences and simply a general lack of understanding of exactly what happens when you partake in it.
No matter how many articles I’d read from people doing it and the benefits and advantages such as free travel money or cash back through signup bonuses that come with it, I just couldn’t bring myself to take the steps and dive in.
Simply put, I was scared. I’d read and heard too much old and outdated information regarding what could happen, and a lot of my fears turned out to have been greatly exaggerated.
My fear was rooted in the opening and closing of new cards and how that would affect my entire financial picture.
Don’t get me wrong, I didn’t stay away from credit cards completely. I’ve always had a least two credit cards opened, and over the past four years earned over $400-500 in cash back, plus 50,000 points (or about $500 in travel credits) just from regular spending alone.
Most of those points were actually used on flights for my most recent trip to Europe. Safe to say I didn’t miss out entirely.
Looking back and doing the math on things I could have done with travel hacking, this easily could be considered one of my bigger financial mistakes.
Last month I opened my first credit card in three years; with every intention of reaching that $4,000 minimum spend in 3 months to get the sign up bonus*. While a little late to the party, let the travel hacking commence.
Here were some of my biggest fears with travel hacking, why I was mistaken, and how much I’ve ultimately missed out on over the years.
Your Credit Score Will Plummet
This was the biggest one here. I’d read that the opening and closing of credit cards had the ability to negatively impact your credit score, and sometimes by a lot.
This scared me big time, as your credit score has the ability to impact how good of a rate you can get on any future loans. I worked hard to get my score slightly over 800!
I didn’t want this silly card churning habit to affect my ability to get a good rate on a car loan or mortgage in the future! (LOL on the car loan…)
These fears were all based on not really understanding how credit scores are generated.
As it turns out, it would seem I was right about one thing: your credit score will usually drop after opening/closing a credit card, but plummet? That’s a little dramatic.
Instead, you’ll usually see a slight dip after one of these actions, and as long as you continue to pay your monthly payments on time, it should be a temporary adjustment.
The one thing you should not do is close your credit cards that have the longest history associated with them. Credit longevity is a big part of how your credit score is calculated so keep these around and make a periodic payment on them to keep it active.
Those two cards I opened 4 and 3 years ago respectively? Yep I’ll be keeping them around even through the opening/closing of new cards.
It’s been a month since I opened my new card. Through my checking account and credit card associated bank I have free credit score (through Transunion) and FICO score monitoring every month. The FICO score was unchanged from last month while the credit score dropped… wait for it… one point.
Hardly a cataclysmic event.
This is something I will continue to monitor, but my worries have completely subsided on this front.
Managing Dozens of Credit Cards
The thought of opening and managing dozens of credit cards used to just seem like a huge hassle, and one with many drawbacks.
What if I forgot to make a payment on one of them? That would hurt my score!
If you set up auto payments and ensure the account it’s connected to always have enough money in there to cover your monthly spending, you’ll never run into this problem.
Making a spreadsheet with the day of the month each payment is due by (see below) can also be helpful if your cash flow is variable and can’t ensure the account will be fully funded at the same time each month.
What if one of my accounts was compromised and I didn’t realize it until it was too late?
If you set up email alerts, usually they will alert you to suspicious activity. In addition, you should be receiving a bill in the mail or through email that will detail your monthly expenses. If something doesn’t look right you can dispute a claim.
One thing I’m planning to do is link up every new card on Personal Capital. Since I check it every day often, I’ll be able to easily tell when a card I’m not using suddenly has a balance on it when it shouldn’t.
I might incur fees after the annual fee waiver is over on some cards!
There are many useful spreadsheets out there to help with this exact problem. Doing a simple google search of “travel hacking spreadsheet” with give you several sites with a downloadable excel template to track your own cards with useful categories. Or you can just make your own!
My wallet doesn’t have enough space for all of them! (ok that was a joke 🙂 )
Since the new cards I’ll be opening/closing periodically, this really shouldn’t even be a huge issue for me!
My Normal Spending Can’t Reach the Minimum Spend Requirements
As you’ll see in the next section, this was more a fear for my current level of spending (not prior years).
Now that I’ve created a budget that avoids lifestyle inflation, I’m looking to stay on track. $4,000 in 3 months is a lot for me, and my current levels of spending won’t reach that.
So what am I going to do?
I planned this minimum spend around the summer time when I have some big expenses coming in. The recent medical bills, as well as auto insurance, vacations are all big upcoming bills I have.
In addition I’ll be looking to pay for several things in advance. I will have to pay them eventually, so why not right now and apply them for my minimum spend?
If I still fall short, my plan is to utilize buying gift cards from online portals to places I normally shop (Aldi, gas station, etc) and make a few donations to charities that I’ll typically do at the end of the year.
Maybe I’ll even Christmas shop early for once! 🙂
How Much I Missed out On By Not Travel Hacking
Luckily, I’ve been tracking my spending since the beginning of 2015, so I have data to look back on.
Just how many rewards did I miss out on over those 3 years?
Credit card rewards come in all shape and sizes, and have different minimum spends associated with them.
To make it easy, let’s just say I had to average a $3,000 minimum spend over 3 months to get $400 worth of rewards ( I think this is a conservative number).
That’s basically two minimum spends right there on their own! ($800 in rewards).
Removing those two expenses, my credit card transactions still averaged slightly over a $1,000/month through that 3 year period. I think it would have been fairly easy to open at least 3 cards each year and get total rewards of $1,200/year.
If you’re adding that up folks that’s $4,400 in free rewards I missed out on over the last 3 years… That’s all from just doing my normal regular spending, nothing extra.
What a bummer!
Well, better late than never!
While I’m certainly going to be travel hacking in the future, I also am not going to go crazy on it. I’m thinking 2-4 cards a year will suffice, depending on the offers.
After all, even if you’re hitting a minimum spend requirement, you are still spending that money. I have a budget and savings rate target to keep to!
In addition, since I’m actively pursuing a rental property, I’m mindful that I need my credit score to stay high so I can secure a good mortgage rate.
While I now think travel hacking can be extremely beneficial as well as utilizing credit cards in general, I realize it is not for everyone.
If you cannot control your spending, or will have a hard time paying off your credit card bill each month, I would advise against using credit cards.
Credit card debt has extremely high interest rates and can be tough to get out of. It’s not worth getting all the free rewards if you just have to pay it back, and then some, in interest payments.
If you are a beginner to travel hacking, here are some great resources I used when learning about how everything works. The Mad Fientist, Luxe Strategist and ChooseFI sites were ones I browsed extensively to quell my fears and learn more.
Be sure to check them out for a more extensive guide!
Do you travel hack? If you don’t why not? Are there any other resources you use when it comes to managing your credit cards and available points?
*For those wondering, I signed up for the Chase Sapphire Preferred. It’s usually suggested as a great first card to open due to the attractive sign up bonus. If you haven’t opened one and would like to, feel free to use my referral link. You will get 50,000 bonus points which translates up to $625 in travel dollars if you meet the minimum spend requirements I mentioned. By going through that link I’ll also get bonus points on top of what you get. Please do not sign up if you aren’t able to use credit cards responsibly! Thanks!