Are Travel Credit Cards Worth It? Avoid These Travel Hacking Mistakes
If you love to travel, you’ve probably heard the buzzwords “travel hacking.” This involves using reward points from travel credit cards to take trips for “free.” In short, you sign up for new credit cards in order to earn free rewards like mileage points.
Several of my friends had travel hacked pretty successfully, so I thought that I should try my hand at it. In retrospect, it was a bad idea for me, though I had seen it work for many others.
Why didn’t travel hacking work for me? And are travel credit cards even worth it? Here’s my sad story.
I was in the process of preparing to travel for two months in Australia. That is an epic trip with a ridiculous number of miles to be earned and burned for the budding travel hacker — a mileage goldmine.
The idea of getting more miles from this trip by opening up new lines of credit and paying for certain parts of my trip in advance in order to meet the threshold was super enticing. What could go wrong?
So I opened up some additional travel credit card accounts. I was able to earn miles on two cards and thought that I had earned miles on the third card — except I hadn’t, though I didn’t know that at the time.
It’s painful, not to mention embarrassing. Why? Because it really didn’t make sense for me to borrow more money when, until that point, I had been working hard to pay off my debt.
Why did I add on more debt just to get the reward of “free” plane tickets? Not a smart move.
It also made me realize something extremely important: You always pay for rewards in one way or another — not to mention the impact of the number of inquiries on my credit report.
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How Much Did I Borrow?
All in all, though, my trip ended up being pretty affordable. I spent around $5,000 for two months in Australia. That included round-trip airfare, accommodations, three weeks watching tennis during the Australian Open (tickets are way cheaper than the U.S. Open), and other miscellaneous expenses. I have friends in Sydney and Melbourne, so I was able to save a substantial amount on accommodations by crashing in their places.
But let’s get real. I could have side hustled more and paid for this trip in cash.
I’ve hustled before and paid cash for other overseas trips that I’ve taken. But instead, I borrowed around $4,500 using credit cards for a trip that I could have paid for in cash.
And to top it all off, I couldn’t have picked a worse time to do it: I was transitioning to self-employment and would be dealing with inconsistent cash flow. Genius.
Credit Score Disaster
While I was away, I made sure that I paid all my bills, including credit card balances. But in all that excitement and the hot Aussie sun, I missed one card payment that was due. By the time I returned to the States and checked my phone messages (and mail), the damage was done. I had seriously dinged my credit score, and the worst part of the story is that I hadn’t even earned miles on the card that messed up my credit. Pointless.
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3 Ways to Make Travel Credit Cards Work for You
Travel hacking didn’t work for me, but Chane Steiner, CEO of Crediful, gives his top three ways to ensure you make the most out of it.
- Make sure your rewards are compatible with your airline of choice. This is another bit of “read the fine print” advice. Some airlines may not have the routes to your favorite destinations. Or maybe they just don’t provide the services you like. If your preferred airline is not covered by a credit card’s travel points, you may want to pass. This also applies to hotels.
- Triple-check the booking options. So you’ve got a dream vacation lined up and you’re about to use those hard-earned travel points. The problem? You didn’t select the right booking option or package, so now your points are worthless. I recommend triple-checking that your booking plans are covered by your travel points, or you will be sorely disappointed.
- Don’t fall for a bad signup bonus. If a signup bonus sounds too good to be true, it probably is. Most of these have a required amount of money you must spend before you can collect. What good does a $300 signup bonus do if you need to spend $5,000 that you don’t have to get it? Be clever about it.
I found myself back in debt, with seriously damaged credit. I have paid off debt before, and I knew I would pay this off, too. So while I didn’t cry myself to sleep every night, I must say I was pretty miserable. These types of tricky financial maneuvers are not for everyone.
I am super frugal, can budget like a ninja, and am willing to stop shopping for a year, but I still couldn’t stop myself from falling into this trap.
People like me should be honest with ourselves and admit that using credit cards to travel hack isn’t right for everyone.
As a result, I found myself in a deeper financial hole, and I had to clean up my credit and pay off that debt. I worked more and earned more for much longer to recover from that one silly mistake.
Luckily, I am not in the process of buying a new home or purchasing a car. My crippled credit would have made those goals almost impossible. I’ve learned my lesson: Travel hacking is not for me. Next time, I will start a long vacation armed with a wad of cash as thick as Shaquille O’Neal’s biceps.
Don’t Let Your Credit Score Suffer
While travel hacking didn’t work out for our writer, CentSai spoke to Mike Pearson, founder of Credit Takeoff, to find out the dos and don’ts of opening up new cards for travel points, and how you can reap the benefits without the drawbacks.
Be Careful Opening New Lines
The biggest risk to opening up new credit cards in order to get reward points is that you’ll start making purchases on your new cards without paying the bill on time every month. Paying your bill on time month to month accounts for 35 percent of your credit score.
If you miss even one payment deadline, you can significantly damage your credit score.
And by opening up multiple new cards and trying to meet the minimum spend to get your travel rewards, you’re putting yourself at risk for missing a payment on one of those cards.
I recommend keeping a spreadsheet of all your payment dates and setting calendar reminders of when your payments are due.
Don’t Play If You Can’t Pay
Being aware of a payment deadline doesn’t help much if you can’t actually afford to pay off your purchases. Another big risk of opening up new cards is that you’ll end up spending more money than you can afford.
I do not recommend taking on debt just to get credit card rewards — you should only apply for cards if you can afford to pay the balances back in full, each month. Otherwise, you are putting yourself in unnecessary debt and directly impacting your credit score.
Credit utilization, or how much of your available credit that you’re actually using, accounts for a large chunk of your score. You generally want to keep balances at 30 percent or lower. But if you’re constantly putting new charges on your new cards and not paying them back on time, your credit utilization could easily go over 30 percent and bring down your score.
Are Travel Credit Cards Worth It? The Bottom Line
The simple act of opening up a few new credit cards will not significantly hurt your score. You will only get into trouble if you start to rack up more debt that you can handle, increase your credit utilization rate, and begin missing payment deadlines.
Additional reporting by Kelly Meehan Brown.