Photo Credit: A stack of CC’s by Ass Kickin Travel
I talk about travel hacking via CC points and initial spend bonuses. I must commend the ad guy who dreamed up the points scheme for travel CC’s! Sterling Cooper of Mad Men fame got nothing on these visionaries. They somehow gamified boring CC spend into some exciting travel adventures.
They got me, I’ll admit. I write to you as a reformed travel CC addict. Here’s a personal anecdote: During the 2010’s, I undertook exciting multiple vacation itineraries, including airline flights, road trips, and cruises. I did all this travel spend on hard mode via regular CC spend – no travel CC hacking. The travel budget took up around 12%-15% of my take-home pay over the years.
However, it was difficult paying those CC bills. I decided to do what savvy travelers were always doing – hacking their way into great vacations, and I wanted to do the same! I wanted to go big – go on epic vacations and have some of it paid by points.
And… I truly went big that year. Multiple vacation trips in one year to faraway destinations. The travel budget ballooned to over 25% of my take-home pay. I did some shopping sprees to hit point bonuses. I got those sweet travel perks such as free airline flights and some comped hotel stays! The points alone probably saved me at least $3k! My overall budget went $20k over my take-home pay that year!
The hangover from that epic year of travelling came shortly with those CC bills. I had to draw down on our savings just to pay them all. I thought travel hacking was supposed to make travel easier and cheaper?!? It was clear that travel hacking was NOT working as I thought.
Some Speed-Bumps of Travel Credit Cards
Don’t get me wrong – the points are great. I loved having free flights and free hotel stays. I truly nerded out, spending inordinate amounts of time in wringing out the max possible value of my CC points. I even made sure to use the full value of travel perks included in some annual fees. But, there was a huge drawback to travel CC’s – they needed to be paid in full every month. This wreaked havoc with my cash flow.
Travel is expensive. Even more so in 2022 with all the rebound/revenge travelling going on. It takes CC spend to lock down reservations and tickets a few months before the vacation trip. It takes CC spend during the actual vacation trip. Rinse/repeat for the next vacation trip.
In the meantime, I was presented with monthly CC bills in the thousands that need to be paid in full. Cash flow is nuked. All of my take-home pay was directed to paying off my travel CC’s. I frequently dipped into my cash savings to help CC repayment, stressing my personal finances.
Then there’s the CC points itself and the fact they all expire eventually. This creates urgency and appears as a ‘sunk cost fallacy’ where the user needs to make use of these points for their next vacation. So, the user spends more! They’ve gamified their way into unnecessary CC spend.
By the time I blew through some of my savings, I had some leftover AA travel points worth roughly $90. Then the coronavirus pandemic happened. I abandoned these points and just let it expire. I concluded that travel CC’s are unfeasible for my budgeting style and cash flow needs.
Slightly Better Way
If I had to do it all over again with CC travel hacking, I would use two CC’s. Typically, the bulk of the points awarded to a CC is made upon hitting the spend bonus. The rest of the points trickle down via regular CC spend and is a fraction of the overall point amount awarded.
I would get a CC travel card, and use it only to get the spend bonus. Once this level has been reached, I stop using it, and bank the points for later use. I would get a second CC that is optimized for 0% APR for 12-18 months. I would use that card for the rest of the travel expenses. This approach helps me manage my cash flow in repaying these CC’s back.
Unfortunately, it means two CC’s are opened and used. This would impact one’s credit score. And what if you wanted more travel hacking? FOMO kicking again! You’d have to open a second CC travel card and hit its spend bonus. And a third? Depending on how you travel, you may fully utilize the 0% APR CC, and you’ll have to open an another 0% APR CC. The pursuit and use of points are gamifying your spending again! RIP your credit score.
This is The Way
I submit that there is a better way in travel hacking via CC’s. Forget about using travel CC’s. Just look for 0% APR CC’s that are 12-18 months in duration. The longer, the better. Put all of your travel purchases on the card and make minimum payments.
Then, in the final month of the 0% APR expiration period, sell your stock holdings and collect the proceeds. Pay off the CC in full. Done. Usually, you’ll be ahead, where the stock market has appreciated in the timeframe you’ve been making minimum CC payments. (Keep in mind the tax implications from selling your stock holdings…)
As a bonus, inflation has made everything expensive, and debt cheaper! One nice advantage is that you’re not tied to a specific hotel, airline, travel website, etc. You can freely choose your next vacation destination, set an itinerary, purchase tickets/items at market prices, and put it all on the CC. Depending on your personal finance situation, schedule vacations of your choosing – no FOMO, no sunk costs, etc.
There are two drawbacks with the 0% APR CC approach. One is the impact to credit. Credit utilization is a key component to one’s overall credit score. Regular usage of the 0% APR CC and making minimum payments will only increase credit utilization. A high credit utilization may prevent you from getting another 0% APR CC, and could impact your ability in other areas, such as car loans, insurance, or mortgages. I blew up my credit score. 🙁
The other drawback is the stock market risk in 0% APR CC arbitrage scheme. This arbitrage play must end eventually. What if the stock market is down by the time the 0% APR CC expires and the entire amount must be paid? This person will have to sell stock holdings at a loss to pay off the CC.
Conclusion
Like personal finance, travel is intensely personal. The experiences gained by travel is priceless. Travel broadens your horizons and recharges your life. That epic year was memorable and I loved every minute of travelling. I want to do it again, but just do it smarter this time. Undertake travel based on your own personal financial situation, not subject to gamification by those CC companies. Otherwise, you may find your personal financial situation being impaired by unnecessary spend/travel.
The usual disclaimer applies; This blog article is for entertainment purposes only. No express or implied warranty is offered, regarding any actionable information contained in this article. Laws governing investing are complex and varied. Personal finance is personal to you – no one else knows about your financial situation intimately. I encourage you to read and study information from other financial sources to gain the knowledge and expertise needed to manage your finances.
