I’ve been a follower of the Mad Fientist podcast from day one. He’s one of the big names in the FI community known for his expertise in tax optimization strategies. His blog is incredible and his posts on the mega backdoor Roth, the Roth conversion ladder, and the ultimate retirement account are, by far, some of the best content you’ll find in the community. 

In 2016, he had Brad and Alexi on his podcast titled Travel Miles 101 – Travel Hacking and Financial Independence. I used to be a Dave Ramsey follower who says credit cards are evil; however, listening to this episode certainly caused an inflection point on my own view about credit cards. This is the story of my travel hacking journey.

Before I get too far, I wouldn’t consider ourselves experts on the subject but so far we’ve been able to save a significant amount of money not only on trips but other categories as well. Discipline and following the ground rules of travel hacking have been the cornerstone of our success so If you’re the type of individual that has and still is struggling with credit card debt then this post is probably not for you.

Setting The Record Straight

Who in their crazy mind would go into credit card debt in order to rack miles and/or points? It doesn’t make any sense right? well, just like everything else in life it depends.

• The only reason you should think about applying for a credit card is to snag the sign-up bonus; if the card doesn’t have one then please STOP and reconsider your approach.
• For those cards that do carry enticing awards, they will come with an annual fee and will require minimum spending ranging from a few $100 dollars up to $5000 and perhaps more.
• Last but not least, make sure you spend the money within the timeframe set by the credit card issuer (usually ~3 months) otherwise you can kiss the sign-up bonus bye-bye.

If you take the travel miles 101 free course, which I highly recommend, you’ll learn about strategies that will allow you to open multiple credit cards and hit the minimum spending to get the bonus awards. Personally, I’ve chosen a more conservative approach where I focus on one credit card at a time.

Ground Rules

We are very strict about charging all our fixed (needs) expenses and paying it in full at the end of the month. We’ve also timed applying for a credit card with a major expense which has helped us expedite hitting the minimum spend and facilitated moving to the next card on our travel hacking journey. Below are some examples of fixed expenses we’ve charged to our cards:

• Bought furniture when we moved to our new home.
• Home improvements including window treatments, fence and our patio (unfinished).
• Car repairs and regular maintenance.
• Property taxes on our primary home and our rentals.
• Daycare (we’ve actually switched cards more than 3 times!!!).
• Life insurance (term) policy.
• Medical expenses (if available).
• Groceries.
• Gas.

At this point, you’re probably wondering … what should someone do once they get the awards? should they go ahead and cancel the credit card(s) to avoid the annual fee? should they keep them all and eat the fee(s)? my answer is: it depends. The last thing you want to do is cancel a credit card and lose the points you’ve been working so hard to get. If you still believe that’s the best option for you, consider doing research so that you can understand the implications of that decision.

In my case, I’ve opted for doing the math and assessing if keeping the card is a financially prudent decision. The way I see it if I get enough benefits that more than justify the annual fee then I will keep it; if not, I will call the bank and request switching to a no-fee version of the card (if available). In my opinion, this is a better option compared to canceling the card.

In summary, if you want to maximize the benefits of travel hacking I recommend adhering to the following ground rules:

1. Search the credit card marketplace and apply for a credit card that fits your needs.
2. Apply for a card when a “major” fixed expense is on the radar, this will expedite hitting the minimum spend.
3. Once approved, charge all your fixed expenses to the card.
4. Use automation and pay the balance in full at the end of the month to avoid interest.
5. Before canceling a card understand the impact to your bonus award.
6. If possible, avoid canceling the account and switch to a no-fee card.

If you master these rules your chance of success will be high; fail to do so, and you’ll end up accumulating stuff you don’t need and even worst unnecessary debt.

Our Credit Cards

Let me start by saying there are a lot of credit cards out there with incredible sign-up bonuses and amazing benefits. The Mad Fientist developed a pretty slick tool that allows you to search for the best awards cards in the market; however, the decision to which card to open will ultimately be yours. As long as you do your due diligence and follow the ground rules of travel hacking you should be fine.

There are credit card issuers that have set up rules in an attempt to limit the number of rewards cards you could get approved for. Chase credit cards are pretty famous in the travel hacking community but you need to be aware of their 5/24 rule which states that you can only apply (and be approved) for up to 5 credit cards (Chase and non-Chase) in a 24 month period. This is a big deal and something you should absolutely consider in your travel hacking strategy.

OK, without further ado, below you’ll find my credit cards, the sign-up bonuses both my wife and I have been awarded and high-level benefits for your reference:

Chase Saphire Preferred: This one is highly recommended as the first rewards card you should open. I was able to rack 50,000 points when I hit the $4000 minimum spent in the first three (3) months plus an additional 5,000 points for setting up my wife as an authorized user. Looking back, I don’t think that was a smart decision because now that card counts towards the 5/24 for her so keep that in mind. In addition, the card gets you 2X points on travel and dining at restaurants. Last but not least, this card has an annual fee of $95 but it is waved the first year which made it even a better deal. At the time of writing, this card is giving 60,000 points plus 5,000 for an authorized user.

Chase Saphire Reserve: This was the second on the agenda. Today this card is offering 50,000 points but when I applied for it, the bonus was 100,000 points!. Similar to the Preferred, the required minimum spent was $4000 in the first three (3) months. This card has lots of benefits including $300 of annual travel credit,  complimentary airport lounge access with priority pass, global entry or TSA-pre fee credit and many other benefits. In addition, the card gets you 3X points on travel and dining at restaurants. This card has a hefty annual fee of $450; however, the benefits more than justify the fee. Today, Chase will not allow you to open both Saphire cards so I got lucky. Due to the overlap between these cards, when the Preferred was due for the annual fee I decided to give Chase a call and switch to a non-fee card, namely the Chase Freedom Unlimited which you’ll find below.

Chase Southwest Rapids Rewards Business (wife): we love Southwest and fly almost exclusively every time we can. Getting the companion pass had been on our radar for a while but we needed to wait for the right time to maximize its value. In order to get it, you need to accumulate 110,000 points in a calendar year. Once you’re awarded the companion pass (try to get it at the beginning of the year) you get to fly anywhere and bring a designated traveler with you for free for up to ~ twenty-four (24) months. There are a couple of ways to get it but the easiest one is to open both a business and a personal credit card. I could have opened this card but I wanted to play it safe (5/24 rule). I decided to have my wife apply for the card which gave her 60,000 points after spending $3000 in the first three (3) months. In addition, you get 2X on Southwest purchases, 1 point on all other purchases. The annual fee of this card is sitting at $95 but again getting the companion pass more than compensates for this fee.

Chase Southwest Rapid Rewards Plus (wife): this was next on our journey to get the companion pass. We waited to apply for the card until the signup bonus was raised to 50,000 points. This card has lots of similarities in terms of minimum spent; however, the annual fee is only $69. Again more than worth it with the benefit of getting the companion pass. Once my wife was awarded the 50,000 points at the end of February, she received a notification from Southwest congratulating her on getting the companion pass which will expire on 12/31/2019 … that’s 22 months of 2×1 traveling!.

Chase Ink Business Cash: I signed up for this card after hearing it had an ongoing promotion offering 50,000 points with a minimum spent of $3,000 in the first three (3) months. This card does not have an annual fee nor does it generally offer a signup bonus. As you can imagine I couldn’t pass on this great deal. Aside from that this card is not necessarily the best in the market especially when compared to the Chase Ink Business Preferred that offers up to 100,000 points (minimum spent of $5,000 in the first (3) months). Once I comply with the minimum spent on the Chase Ink Business Cash I intent to move to the Chase Ink Business Preferred.

Chase Ink Business Unlimited (both of us): after receiving the bonus from the Chase Ink Business Cash, I went back and started browsing for best available offers. To my surprise, Chase had just released this card which similarly to the Ink Business Cash was offering 50,000 points with a minimum spent of $3,000 in the first three (3) months with 1.5% cash back on all purchases and no annual fee!. This makes this card a better product!. Once, the wife and I get to the minimum spent, we should be collecting a total of 100,000 points with no annual fees. I don’t know how long this offer will last so I strongly suggest considering this card as part of your strategy.

Chase Freedom: I signed up for this card when I was still in college. Today it has a $500 bonus after you spend $500 during the first 3 months. Moreover, this card offers 5% cash back on rotating categories and 1% back on all other purchases. If you’re getting started in travel hacking I would advise NOT opening this card. It doesn’t have a sign-up bonus and it will count toward the 5/24 rule. The nice thing about this card is that it doesn’t have an annual fee.

Chase Freedom Unlimited:  I switched my Preferred card to this no-fee version when I was due to pay the annual fee. There was so much overlap with the Reserve (which is actually way better) that it just didn’t make any sense to keep both of them. I could have canceled the Preferred credit card; however, in some cases, it is recommended to either 1) call the bank to see if they can wave the fee for another year or 2) switch to a no-fee card. The last one was my choice. This card is actually not too bad, It gives you 1.5% cash back on all purchases which makes it super convenient.

American Express Blue Cash Preferred: groceries are in the top of our expense categories so when I heard about the 6% cash back on supermarkets I knew I had to sign up for it. Not only that, it gives you 3% cash back at gas stations and select departments stores and 1% cash back on all other purchases. When I applied for the card I also got $200 when I hit a $1000 of minimum spent which essentially offset the annual fee of $95.

Concerns About Your Credit Score?

The majority of the top rewards card require a pretty healthy credit score (750+). If you’re not there, you can take your chances but it’s unlikely you’ll be approved for a card.

But what if you do have a credit score of 750+?, how will travel hacking affect your score? To answer these questions we first need to understand the elements that add up to your FICO (used by the majority of lenders) score. According to myFICO below are the main categories and their respective weights:

On-time payments (35%): The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a FICO score. This one goes back to my rule about using automation and paying your credit cards in full at the end of the month so that you can avoid interest on credit card debt.

Amount owed (30%): Your credit card utilization ratio is the amount you owe on your credit cards as a proportion of the total limit on each card as well as the total limit for all your cards in aggregate. It is recommended to keep a utilization ratio between 1-9% instead of zero just to show you can manage your cards well. You can lower your utilization ratio by asking for an increase in limits on your credit card as well as applying for new cards and avoiding canceling them (what I’ve done).

Length of credit card history (15%): In general, a longer credit history will increase your scores. However, even people who haven’t been using credit long may have high FICO Score, depending on how the rest of the credit report looks. Your FICO Scores take into account: 1) how long your credit accounts have been established, including the age of your oldest account, 2) the age of your newest account and 3) an average age of all your accounts.

Credit mix in use (10%): FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. If you’re in the process of making a big purchase like a house and/or a car and you plan on getting loans to cover expenses, then you might want to hold off from applying to credit cards. Numerous inquiries could affect the interest rate you get on those loans.

New credit (10%): Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.

According to credit karma, my score is currently sitting at 800+ so as you can see, as long as you stay committed to the travel hacking ground rules it should all work out.

The Bottom Line

MyFICO also mentions that “the importance of any one factor in your credit score calculation depends on the overall information in your credit report. For some people, one factor may have a larger impact than it would for someone with a much different credit history”. It’s obvious that if the information in your credit report changes, so does the importance of any factor in determining your FICO Score. As a result, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report.

Final Thoughts

• If you’re struggling with credit card debt then stay the hell away from travel hacking.
• I still applaud Dave Ramsey for helping so many people get out of debt; however, I disagree with his perspective on credit cards.
• Be mindful of Chase’s 5/24 rule and plan your travel hacking strategy accordingly.
• Follow the travel hacking ground rules to increase your chance of success.
• If your credit score is on the low end, don’t waste your time applying for rewards cards and focus on boosting up your score.
• Setting your wife or significant other as an authorized user is not worth it. Remember it will count toward Chase’s 5/24 rule.
• If you’re getting started, consider getting Chase credit cards as their flexibility is by far superior compared to other banks.

My travel hacking journey is just beginning but so far we’ve enjoyed the benefits and are very much looking forward to opening additional cards. What about you? have you started your own journey?

Until next time … JJ