Travel Credit Cards 101, or: How to See the World for (Almost) Free
People are always asking us how we can afford to travel so much. As a teacher and a nurse, we don’t bring home exorbitant paychecks, and our bills pile up just the same as everybody else’s. And yet we’re hopping on a plane to someplace new every other month. We do it by being smart with travel credit cards!
In the last few years, we have booked flights to and accommodations in the Bahamas, Australia, England, Puerto Rico, San Francisco, Hawaii, Lake Tahoe, and Costa Rica – all for free or a fraction of full price.
Honestly, it took us a few years of dipping our toes into the credit card game before we fully committed and realized just how much we had been missing. Done right, travel credit cards will take the purchases you’re already making anyway and convert them into points that will pay for a trip you couldn’t have afforded otherwise. It’s literally FREE TRAVEL, in exchange for a bit of organization and smart money management on your part.
So if you’ve heard about people traveling for free with credit cards but aren’t sure you can do it yourself, let me tell you – from one regular person to another – you can, and you should get started right now!
Some of the trips our travel credit cards have helped pay for
For travel credit card beginners, here are the basics:
When you apply for a new credit card, you can earn a big sign-up bonus by spending a certain amount of money on that card. That large chunk of points you’ve earned can later be redeemed for travel. And once you have the card, every purchase you make with it continues to earn you more points, which you can use for more travel!
You can go down the rabbit hole with this pretty much as far as you want. We started out with just one basic travel credit card, and as we realized how effective using them can be, we’ve continued to get more and more. When I think back to the many years’ worth of purchases I paid for with cash or debit cards, when I could have been earning points towards free travel, it drives me crazy!
That said, this tactic requires some organization and strategy in order to be done well. If you aren’t smart about how you use your travel credit cards, you’ll end up wasting money in the long run.
A few warnings:
Kicking back in first class thanks to credit card perks
>> First things first: Don’t do this if you’re one of those people who never looks at their credit score. You’ll need good credit in order to be approved for snazzy travel cards, and you’ll need to keep an eye on how your score is doing in the future. Applying for these cards shouldn’t hurt your credit (as we’ll get into later), but you’ll need to stay on top of things in order to make it work.
We love the Mint app for keeping track of our finances, and it also gives us our credit scores for free. There are plenty of websites, like Credit Karma and Credit Sesame, where you can get your score free of charge as well.
>> Pay your card in full every month! If you aren’t able to pay your card off with each billing cycle, paying interest on your balance will negate the points you earned towards travel. We charge literally everything we can to our travel cards, but we keep track of those purchases (again, with Mint) and we ALWAYS make sure we have enough money in the bank to pay our cards off entirely when they come due.
>> Meet the minimum spend. Each travel credit card has a different minimum spending requirement in order for new cardholders to earn the signup bonus. For example, one of our favorites, the Chase Sapphire Preferred, offers 50,000 points IF you spend $4,000 on the card within the first three months of opening it. That may seem like a lot of money all at once, but if you start paying for all of your everyday purchases – groceries, gas, utilities, eating out – with the card, many people will hit that mark without a problem. Here’s a good chart of the minimum spend requirements and signup bonuses for popular travel cards.
>> Watch out for fees. The only purchases we don’t charge are those that levy a fee to use a credit card. For example, we’d love to pay our mortgage on our travel credit cards, but any service that could make that possible includes a surcharge that outweighs the points we would earn. Every once in a while retailers also require a credit card fee, so just keep an eye out for those notifications at the point of sale.
>> Stay organized. This is simple enough to do with one card, but if you start to play the game with a few simultaneously, things can fall through the cracks! Set a reminder or mark in your calendar when your minimum spend needs to be met and when your payments are due. If you’re not using your card often for some reason, be aware of when your points might expire so you can be sure not to lose them.
A word about annual fees:
For a long time, we avoided the fancier travel credit cards with large annual fees. But once we got serious about traveling with cards and sat down to do the math, we realized they can actually be an awesome deal!
Here’s an example: For a while, our one and only travel credit card was the Capital One Venture card. Its annual fee is only $59, and that’s waived for the first year you have the card. It seemed like the least expensive, lowest-risk option. Sounds great, right?
Then one day, after a particularly grueling layover on an international flight, we got curious about more elite cards that could get us access to airport lounges. We started looking into them just for fun, assuming we weren’t rich or fancy enough to afford cards like that. As it turned out, they were a WAY better deal for us than the basic card we were using!
Enjoying free food and booze at a Priority Pass airport lounge thanks to our Chase Sapphire Reserve card
Nowadays, the Chase Sapphire Reserve is our absolute favorite. Its annual fee is a whopping $450, but stick with me! Here’s why it’s worth it: The signup bonus is worth $750 in travel, so even if all you do is meet the minimum spend, the card has more than paid for itself for the first year.
But it pays off in the long-term, too. It offers a $300 annual travel credit – literally, $300 of travel expenses just disappear from your bill as soon as you charge them – so if you travel at all, you’re already two-thirds of the way to making up the annual fee.
Extra money-saving perks include a $100 application fee credit for Global Entry (no more waiting in line at customs!) and free entry to over 1,000 airport lounges worldwide (meaning you’ll get complimentary food and drinks during your layover rather than paying $30 for a salad and a glass of wine at the terminal). Plus you’ll earn 3 points for every dollar you spend on travel and dining, and one point per dollar on all other purchases. If you use this card for all it’s worth, it more than compensates for its annual fee in no time!
The higher-end travel credit cards may not be worth it if you only take one trip a year, but for us they pay themselves off almost immediately. Or, if you know you have a big trip coming up and you want the points and perks just for that, you can always get a card for a year and then cancel it before its annual fee comes due. Just one more reason to stay organized and, as annual fees approach, periodically re-evaluate whether your cards are worth keeping!
Won’t this damage your credit?
Not if you do it right! I am a control freak with our budget and super concerned about my credit – especially when we decided to buy a house a couple of years ago. In fact, worrying about messing up our credit was one of the things that (wrongly) stopped us from getting into travel credit cards earlier.
Today, we have several cards between the two of us and often apply for and cancel cards in order to take advantage of bonuses or avoid annual fees. And I can tell you from personal experience that this has actually IMPROVED both our credit scores. That’s because we finally understood the components that actually make up those scores!
To avoid damaging your credit in the first place:
>> Maximize the length of your credit history. Never cancel your oldest credit card since the length of your credit history makes a difference to your score that can only be earned with time. If you have an old card with an annual fee that you no longer use, you can always call the bank and ask to downgrade to a no-fee card – that way, you’ll keep your years of credit history without throwing money down the drain.
>> Minimize the number of inquiries to your report. Don’t go applying for 10 new cards in a day. Each time you apply for a card, the company does a hard pull of your credit report. Doing this a lot can cause a small ding in your score, or get you declined by the bank for having a suspicious number of recent inquiries. If you have a compelling reason for going on a credit card bonanza (chasing a bunch of signup bonuses for a specific trip, for example), it may be worth the temporary drop in your score – but that’s advanced credit card gaming, and this is a 101 class!
To improve your credit score with new cards:
>> Pay your cards off in full, on time, every month! (We’ve covered that, right?) The biggest component of your credit score is your payment history. Paying your fancy new travel card off on time, consistently, will be a bonus to your credit score.
>> Understand utilization ratios. After payment history, the next most significant component of your credit score is the amount you owe. This is how opening multiple new credit cards over the past couple of years has improved both mine and my husband’s credit. Your utilization ratio is the amount of debt you have compared to your amount of available credit.
When we started out with just one credit card with a $5,000 credit limit and spent $2,500 on it, our utilization ratio was 50%. That’s not great. But as we started applying for more credit cards, the amount of available credit we had increased while our spending stayed the same.
For example, if we then opened the Sapphire Reserve and got an extra $20,000 credit limit, but we were still only charging a total of $2,500 a month on our cards, that would make our new utilization ratio only 10%! As we have continued to apply for new cards and pay our balances in full each month, our credit score has only gone up.
Conventional wisdom says to keep your utilization ratio under 30%, but we aim for less than 10% because I’m a perfectionist. The good news is that as long as you control your spending and forget about those big credit lines you have sitting unused, each card you add only improves your ratio!
Which travel credit cards should you start with?
There are tons of cards out there offering a wide variety of benefits, and there’s no simple answer to which one is best to start with. It all depends on how YOU travel!
Some cards can only be used to fly with specific airlines (the Alaska Airlines Visa or United Mileage Plus cards, for example). General travel credit cards, however, can be used to redeem points for a much broader category of travel expenses. For example, our very first travel card, Capital One Venture, allowed us to use our points to simply “erase” travel purchases from our statement balance – so the cost of flights with any airline or nights at any hotel would disappear once we had the points to cover them.
Unless you are loyal to just one airline, I think a general card gets you the most bang for your buck. This became abundantly clear to me when I tried to fly to Hawaii a few years ago with my Alaska Airlines credit card.
Alaska loves to advertise their Companion Fare that comes along with owning this card – a $99 ticket once a year for you to bring a friend along with you, anywhere Alaska flies. Unfortunately, when put into practice, this perk often isn’t as great as it sounds. Once I had chosen my flights and was ready to book my Companion Fare to Honolulu, the total price didn’t seem like a discount to me. Just to be sure, I plugged my same dates into Hawaiian Airlines’ website and found that it was cheaper to just purchase regular tickets with them. Thanks to all the taxes and fees Alaska had tacked on to their Companion Fare, it never ended up being worth it for me to use it at all!
Once we learned that lesson, we switched mostly to general travel cards and never looked back. For absolute ease of use for those nervous about getting started, I’d recommend the Capital One Venture card – it doesn’t give you the highest value for points, but it’s got a low annual fee and the points are super easy to redeem for literally any travel purchases.
Another excellent card to start with is the Chase Sapphire Preferred. You’ll earn 50,000 bonus points after spending $4,000 in the first 3 months, 2 points per dollar spent on travel and restaurants, and 1 point per dollar for all other purchases. The $95 annual fee is waived for the first year and it’s absolutely worth it if you use this card often. It also comes with a host of other perks, like no foreign transaction fees, a $100 airline fee credit (for expenses like checking your bags), car rental coverage, and trip insurance. We’d still have this one if we hadn’t upgraded to the Reserve!
I’ve only just scratched the surface of how to maximize your travel with credit cards! Now that we’ve gotten the hang of it, we apply for and cancel cards frequently.
You don’t have to play the game that much! Starting with just one travel card that you plan to hold on to for the long term will still earn you benefits that will get you traveling for free.
For more specifics on how we do this, check out which travel credit cards are in our wallet right now. If you have questions about how to make this work for you, leave us a comment – we’re always happy to help out our fellow travelers!
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