Zac Hood, Wealth of Geeks
As if nothing ever slowed down, travel is roaring back into the forefront of our lives. Whether it’s a short road trip, a cross-country jaunt, or an international cruise, we’re back ‘on the map.’
Free travel or “travel hacking” is a concept that more and more people are discovering. Travel bloggers have been writing about this for the last 10+ years. Now professional financial experts and the mainstream media are jumping on board. However, it’s only for certain people. You need to have a good credit score and will pay bills on time. If you do, there is free money out there if you are financially responsible.
Here is a short overview of how to spend very little time and rack up more points and miles than any of your friends.
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Sign-up bonuses are big deals
Credit card sign-up bonuses are the best way to earn a crazy amount of points without traveling or spending a lot of money. A sign-up bonus is when a bank offers a special bonus if you spend a certain amount of money in the first few months of signing up for that card.
These bonuses range from $50 to $1,500 worth of cash or travel rewards. The spending requirements for the best bonuses can range from $500 to $5,000, and you must meet spending requirements in the first three months of opening an account.
The average person can meet these minimum spending requirements with regular monthly spending. That’s the beauty of this approach. You don’t have to travel to earn travel rewards. Everyday expenses can achieve these bonuses.
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Here’s why a sign-up bonus is so special
Let’s do the math.
Rewards Traveler #1 doesn’t even have a credit card that earns points and miles. Instead, she uses a debit card for all purchases, including her flights. She flies twice per year and earns 4,000 miles on her favorite rewards program. Total Miles and Points = 4,000. A value of $40 - $60.
Rewards Traveler #2 has one credit card with her favorite airline and has used it for five years to earn points on spending. She averages $1,500 per month of expenses and gets 1 point per dollar spent on her card. At the end of the year, she earns 18,000 miles for a value of about $250 to $300.
Rewards Traveler #3 doesn’t earn any miles from flights because they are all free. She knows the value of sign-up bonuses and gets one new credit card each year with a bonus of 60,000 to 80,000 for hitting spending bonuses by simply paying for monthly expenses she already has. On average, she’s earning over 100,000 miles every year. This is a value of $1,500 to $2,000!
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How is this possible?
Banks make some of their biggest profits through credit cards. But unfortunately, many people carry balances on their cards, and the banks get rich by charging interest. A Federal Reserve report from 2019 said an estimated 45.4% of households carry an average of $6,300 in credit card debt.
With a national average credit card interest rate of 15%, these households pay an average of $945 per year in interest! So, banks are more than willing to offer cards with big sign-up bonuses to capture new customers.
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Credit scores increase
Here’s a myth buster. The common question is, “What about my credit score?” Most people see their credit scores increase when they sign up for additional credit cards and use them responsibly. This reason has to do with credit score calculations. When you sign up for more cards and prove to be responsible with them, you are improving most of the major credit score factors like total accounts and credit utilization.
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Banks are only losing a few dollars and making billions
The average person uses a particular credit card for seven years. So if over 45% of American households pay $945 per year in credit card interest because they carry a balance, the bank makes $6,615 over seven years on that household!
No wonder they are giving away big bonuses to get you to gain long-term credit card use. But, don’t forget that they make 2-3% of every purchase in processing fees, too.
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Be a transactor
In credit card terms, there are transactors and revolvers. Transactors use their cards for purchases and pay off the balances each month. Revolvers carry balances on their cards, paying interest charges month to month. A transactor does not see the balances on their cards as debts because the charges are paid off in full every month. They don’t pay any interest.
So, intelligent free travelers are transactors! They are financially responsible people who pay their bills on time. They outsmart this unfortunate cycle of debt that allows banks to make large profits.
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Slow and steady is the best way to get started
Jumping into the world of credit cards and sign-up bonuses can be intimidating to some people, especially those who are brand new to free travel and are a bit suspicious. Nothing in life can be free, right? This is a rare case because so many other people carry a balance on their cards. The banks are okay with giving away big bonuses because many people end up paying enormous fees in interest (and they still charge merchants 2-3% on every swipe).
It’s worth doing your research to address your concerns and give you the confidence to sign up for a credit card. Start slow and get the best card with a great bonus matching your monthly spending. But, I’ll warn you, it’s a bit like watching the movie “The Matrix.” Once you take your first free trip on points, you’ll be hooked.
