In my young and single days, luxurious vacations meant hitchhiking, train hopping, couchsurfing, sleeping in ditches or working as a Mexican farm laborer in exchange for beans and rice. Surprisingly, my wife and son have a different, more commonly held definition of luxury. Luckily, there is a way for us to continue traveling in true luxury but on the same hobo budget.
The key to our hobo-priced luxury vacations is strategic use of credit card bonus points. The majority of our family’s vacation expenses are paid for with credit card points, and we go on lots of trips. The cards that give you 1 or 2% back from all your purchases are a good start, but unless you spend copious amounts of money, it takes forever to add up to significant bonus points. The real key to successful free, or near free, travel is cards with huge sign up bonuses. The only deals I go with are those that give you 40,000-100,000 bonus points (worth about $500-$1,000 each) for opening new cards.
There are dozens of great bonus credit cards that can get you free airfare and hotel nights, but by far the most valuable deal for us has been the Chase Southwest Airlines credit cards. Here is the short summary of why they are so valuable. When you open a new Chase Southwest Airlines card you can get a bonus of 50,000 miles (points) after spending $2,000 within three months. Ok, what does 50k miles get me? You are asking. Well, it can get you about three to four round trip flights, depending on the routes you take. But the deal gets much better than that. If you earn 110,000 points in a calendar year, you earn a companion pass, which allows you to take a companion with you for free on every trip you take, through the end of the following calendar year. (If you earn the companion pass in the next few months, your companion will be able to fly free until the last day of December 2018.)
Opening up only one new Southwest card doesn’t provide you with nearly enough points to reach 110,000 points, but, here is the kicker, there are multiple card options: the Plus, the Premier, and the Business Premier. If you open any two cards, you can earn 100,000 bonus points. (Yes, you are allowed to open up two Southwest cards at the same time!) You will generally only need to spend $10,000 within the same calendar year* to reach the 110,000 mark for the companion pass.
You can use the companion pass on flights that you pay for, or flights that are paid for with credit card points. So, If you have earned 110,000 points, your points are effectively doubled, meaning you and a friend or family member can earn up to 12 round trip tickets on those two credit card bonuses. Using this credit card bonus/companion pass method, my wife and I have taken over a dozen trips together in the past four years using without paying for a single flight.
Now, you don’t want to get free flights only to spend $1,000 on lodging at your destination. Luckily, there are numerous card options that you can use for free hotel nights. If you are looking for luxury, a Starwood Preferred Guest (SPG) card might be your best option. If you want the flexibility to stay almost anywhere, a Chase Ink, one of the Chase Sapphire cards, or a Citi Thankyou card might be your best bet. Depending on how luxurious you want your stay to be, you can get between one to ten nights lodging on a single card’s bonus. If you want an all-inclusive, totally free vacation, and you are willing to plan ahead, (you should be), you can build up points for a free rental car, and free gift cards for your groceries and restaurants too.
How do I reach the bonus thresholds without spending like a big-spending consumerist?
Because the bonuses generally require you to spend two or three thousand dollars within about three months, it is often important to use proper spending strategery. I try to time the opening of new credit cards with big expenses that I know about ahead of time; Lasik, property taxes, insurance premiums, home repairs, having a baby, etc. If I want a card at a time that I don’t have any big expenses coming up, I sometimes spend hundreds or more on gift cards to grocery stores. Once my bonus is reached, I will spend down those gift cards.
Will this hurt my credit?
The most common concern I hear from people in regards to traveling with credit card points, is that opening new credit cards may hurt their credit. This is generally false. New credit can temporarily affect your credit score in a negative manner, but it will generally be a minuscule hit. Conversely, because your credit utilization rate is weighted much more heavily on your credit score than new accounts, opening a new card will often increase your credit score.
For example, let’s say you generally spend about $1,000/month on credit, and you have a total credit limit of $10,000 on your cards. You have a utilization rate of 10%. If you suddenly open two new cards that each have $5,000 limits, and continue spending $1k each month, your utilization rate has decreased to 5%. This decrease in utilization rate will almost always increase your credit score more than the new credit will decrease it.
What will hurt your credit is if you forget to pay your new credit card bill on time. Because timely payments are so important to your credit, (and important for avoiding fees) I always set up automatic payments. Paying late fees and interest is never worth bonus points.
Is this illegal, or does it go against the credit card policies?
No. Everything about this method of travel is completely legal and within the terms and policies of the credit cards. Banks know that some of their customers will spend enough to earn the bonus points and then never use the card again. But, they also know that so many more of their customers will keep using the cards, fail to pay off their entire balance at the end of the month, and rack up all sorts of debt. The trade off is worth it to them, so they keep paying out these huge bonuses. In addition to that, banks collect about 3% of the transaction costs every time you use the card, so even the most responsible credit card users are profitable for the banks.
Is traveling with credit card points actually free?
With some of the bonus cards, there is no annual fee, or often it will be waived for the first year. So, if you are careful, you can avoid these fees altogether. However, the Southwest cards have annual fees of $69 and $99 dollars. Also, the nominal flight taxes (about $6/flight) are much higher for international flights. That being said, using credit card bonuses, you can turn a $2,000 vacation into a $200 vacation quite easily.
Don’t even consider credit card churning if:
- Getting a new credit card will cause you to spend more money. If you feel pressure to buy more stuff so that you can get the sign on bonus, you are probably going to lose money. If having access to more credit makes you more likely to use that credit, you shouldn’t use these methods.
- You ever keep a balance on your card. 15-30% interest on the money you spent is terrible, and you should never, ever, ever fail to pay off your entire balance within the grace period.
- You will forget to cancel the cards with annual fees, and 5 years later realize that all your freebies were paid for with years of annual fees. If your finances aren’t organized, don’t get another credit card. Get organized first, then think about these opportunities. I have a bad memory, so I made a detailed spreadsheet tracking all the credit cards I have opened in the past 5 years. I detail the dates the cards were opened, minimum purchases, annual fees (if any), what categories earn multiple points/purchase, and when I have to cancel the cards to avoid paying the annual fee. If they don’t have an annual fee, I generally keep them open, even if I never use them again.
There is no better time than the present to start planning your next free vacation. Get on it, and good luck!
A friend of mine, Brian McAdam, is writing a multi-part series on traveling for free. In it, he gives more detail into the credit card bonus points game. If this is a topic of interest of yours, I suggest checking it out. He has also compiled a list of the credit cards with the highest value sign up bonuses.
*there is something called “manufacturing spend” that can get you to the bonus thresholds even faster, but for myself, I prefer to keep things slow and simple.
I don’t get any compensation from any of the companies mentioned in this article, and contrary to the fake sweepstakes flier, I don’t have sponsors. I can, however, send referrals for a couple of the high bonus cards. If you would like some referral links, email me and I will forward you a link. If you open one of these cards, I will also get a few bonus points on my account.