The Cardinal Rules of Travel Hacking and Other Guidelines
Maximizing the benefits of credits cards, aka Travel Hacking, can be an alluring activity. From the large sign on bonus’ to the promises of free flights, free hotel nights, exclusive access to lounges, and more has spawned a generation of those looking to take every last opportunity to maximize the benefits they get through their credit cards.
While there are certainly some benefits of travel hacking, it can also be done incorrectly leading to a worse financial situation. Credit cards lead to certain behaviors that, if not controlled, can leave people indebted at high rates jeopardizing their financial futures.
Cardinal Rule #1: Shift, Don't Lift
Credit card hacking should not increase your overall spending. It should only shift existing anticipated spending around to take advantage of offers and maximize benefits. Shift expenses around, move expenses forward or backward, but don’t
Cardinal Rule #2: Pay It Off On Time, Every Time
Always, Always, Always pay off your credit cards at statement due dates. The benefits credit cards offer are paid for, in part, by cardholders who carry a balance. If you carry a balance, you are negating any benefit you might receive. There isn’t any financial sense is getting a 6% to 8% equivalent cash back benefit if you end up paying 24% interest!
Other Rules and Guidelines
- Goal Setting: Set goals for what you want to be able to do then find the cards that fit that goal. Your objective is to find a card that maximizes benefits for your current spending and helps you achieve your goals.
- Know Your Score: Travel hacking can have a negative impact on your credit score if not done carefully. Learn the components of your credit score and monitor changes.
- Be Informed: Cards change their programs with some regularity so the information provided today likely will be different in a month from now.
- Spending Shifts: To maximize benefits, you do have to be intentional about which card you spend money on. Often these programs require you to shift large chunks of your spending from one card to another to meet spending minimums in a period of time or move a certain type of spending (groceries) to one card and another type to a different card.
- Detailed Tracking: To maximize benefits, you also need to be aware of where you are in hitting rewards limits then shifting spending to a different cards once that reward is maximized.
- Beware of Spending Hacks: Spending workarounds don’t work. Trying to get prepaid cards, using paypal transfers to friends, etc. are often caught and the points removed. Other ways to inflate spending often have fees associated with them that can offset any benefit you may receive.
- Shop Around: Many cards provide bonus’ for booking through their own travel portals. However, the prices there may be higher than you could get otherwise. Always price shop as it may be better to not use points and just pay cash.
- Card Fee: An annual card fee could be worth it if you fully realize the benefits of the card.
- Fiscal Responsibility: Maintain a cash balance outside of the credit cards that will allow you to pay off your credit cards, in full, at any time. If you lose your job after a large bout of purchases on the credit cards, you are not further put in jeopardy by not being able to pay them or incurring large interest charges if you carry them over.
- Flexibility is Key: To truly maximize your rewards, you should maintain some flexibility. Flexibility gives you the option to book that last minute flash offer.