How to Travel for Free

If you are someone who needs a change of scenery more often than the annual family vacation, you might find yourself allocating a significant dollar amount to the travel budget.  My goal as a financial planner is to find different ways to make my clients’ money work harder for them.  One financial tool that is available to just about everyone over the age of 18, is a travel rewards credit card.

Using credit card rewards points is a great way to offset some of the costs of travelling.  For example, the last trip I took (for business) included 3 legs of flights and a 2 night stay in a hotel, all of which cost me $45 and about 50,000 credit card points. 

• The cost of an average round trip flight is roughly 30,000 points (based on the rewards program I used)

• The cost of a nightly hotel stay varies based on quality, timing, length of stay, etc., but I was able to secure a 4-star room for 10,000 points per night

Not all cards are the same but here is a breakdown of how I did it:

• Bonus Points

  • Most travel rewards cards offer different bonus point promotions throughout the year

    • For example, spend $3,000 on your card in the first 3 months and receive 75,000 bonus rewards points

    • To make sure I hit the bonus point spend amount, I signed up for the card in anticipation of a few large expenses (new brakes on truck, oil change, auto inspection, Christmas gifts)

• Spending Points

  • In order to rack up enough points to use towards travel, you have to use your card

    • Pay for all monthly bills on the credit card – cell phone, cable/internet, electric bill, home/auto insurance, water/sewer (if able)

    • Pay for everything else with your credit card – gas, groceries, take out, restaurants/bars, anything and everything

      • This also helps you track exactly how much you are spending and can help create budgets

• Things to consider

  • Do not spend more than you have in your checking account – mentally think of the card as your checking account

  • Pay off the entire previous months balance in full every month – or your credit score could suffer

  • Keep your credit utilization to less than 30%

    • If your credit limit for the card is $10,000 and you carry a balance of $3,000 or greater per month, the credit reporting agencies will hit your credit score with a negative mark

    • Even if you pay off your card in full every month, at some point, the balance at the end of the month could reach that 30% mark

    • How to avoid this

      • Ask for a credit limit increase

      • Pay down your balance more than once per month (make payments to your card weekly or bi-weekly instead of monthly)

  • Card annual fees

    • Card fees range from $0 - $500 per year

    • If you only travel once or twice per year, make sure that the annual fee is worth it

      • Example, if your annual card fee is $199 and you travel to Florida once per year (on points), you probably could have booked the round-trip flight on Southwest for less than $199

  • Make sure you hit the introductory offer spending bonus

    • If you fail to hit the bonus points (50k-75k) then it might take you a year or more to accumulate enough points to actually use them for a flight or hotel

  • Pick a card with reward partners that you use

    • Different banks (Capital One, Chase, Discover) have affiliations with certain travel partners (Southwest, Delta, Marriot, Hilton, etc.)

  • Churning cards can affect your credit score (negatively)

    • I use to sign up for a different card every year to get the bonus points and then cancel before the annual fee was about to be assessed (at the start of year 2)

    • This strategy usually has a negative impact on your credit score for at least 3-6 months, so take this into consideration if you are in the market for a new car, home (mortgage), or trying to refinance your student loans

  • This is not an emergency fund

    • Interest rates on these cards can exceed 25% if a balance is carried and not paid off every month

    • If you do not have an emergency fund flush with 3-6 months of living expenses saved in it, then I would caution against the use of a travel rewards card

The credit card can be a rewarding tool that allows consumers to save money on travel and do things that might only seem possible for the top 1%.  Proper research and diligence needs to be done prior to any purchase or account sign up, but this is definitely something to consider for those who have their financial ducks in a row.