Posted: 10/9/2023 | October 9th, 2023
Getting — and Using — Credit Cards for Travel Hacking
Getting and using credit cards is a fundamental aspect of any travel hacking strategy. However, many people still have concerns and fears about using credit cards. It’s understandable since most of us have been taught that credit cards are bad and can lead to debt. But credit cards have more to offer than just debt. When used responsibly, they can provide rewards and benefits that can open up the world to you. Today, I want to dispel some of those fears by explaining how credit cards actually work. By understanding the system, you’ll be able to make credit cards work for you!
How Do Credit Cards Actually Work?
Credit cards allow you to borrow money from banks, which you must pay back later. They function as a short-term loan. When you open a credit card, you are assigned a credit limit, which determines how much you can spend. Each month, you can spend up to your credit limit. If you pay off the full amount at the end of the month, there will be no penalty. Your “loan” will be paid off, and you can spend up to your limit again the next month. However, if you don’t pay off your card at the end of the month, you will be charged interest on the remaining amount, often around 20%. To effectively use travel credit cards for hacking, it’s crucial never to spend more money than you have, regardless of your credit limit. Treat your credit card like a debit card, only spending what you can afford, and always pay off the balance in full each month. By doing this, you can avoid high interest rates and enjoy the benefits of free travel without extra expenses. Plus, you can improve your credit rating, which can be beneficial for future large purchases. Through this responsible approach, you can earn free flights, hotel stays, vacations, and even cash back.
How to Get Started Using Credit Cards
If you are new to using credit cards, you may not have much of a credit history and might not be approved for the best travel cards. In this case, it’s important to work on improving your credit. One way to start is by getting a secured credit card. This involves paying a balance in advance, usually a few hundred dollars, which becomes your credit limit. You can then spend up to this amount and pay it off, proving to credit card companies that you are a responsible credit user. Both Capital One and Bank of America offer secured cards to help you build credit. Additionally, you can inquire at local banks or credit unions about any available options. Another method to improve your credit score is to become an authorized user on the credit card of someone with good credit. This can help boost your score, but make sure to only do this with someone you trust.
Picking a Credit Card
When selecting a credit card, it’s essential to remember that there is no perfect one. The best credit card is the one that suits your specific goals. Begin by determining your objectives to figure out which card will help you achieve them. Not having a goal is a common travel hacking mistake as it leaves you aimless. Do you want your points to cover a hotel stay at your friend’s wedding next summer? Or are you interested in free flights to Mexico for a winter getaway? Perhaps making your travels more comfortable with a premium card and airport lounge access is your priority. Whatever your case, there is a card out there for you. Here are key things to look for when choosing a card:
- A substantial welcome offer: These offers, also known as sign-up bonuses, provide a significant number of points within a specific timeframe. For example, “unlock 60,000 points if you spend $3,000 within the first three months of having the card” is a common welcome offer format. These offers are a quick way to earn points and miles when starting travel hacking.
- Bonus earning categories: Look for cards that offer higher points per dollar spent in specific categories. For example, some cards provide multiplied points for dining, travel, or specific services like Lyft. Aim for cards with at least two points per dollar spent in bonus categories to maximize your earning potential.
- Travel perks: Different cards come with various travel perks. Identify which perks you value the most and find a card that offers them. Examples include lounge access, free checked bags, priority boarding, and no foreign transaction fees.
Common Travel Credit Card Perks
Travel rewards credit cards offer a range of perks designed for travelers. Generally, cards with higher annual fees provide more benefits. However, even no-fee cards come with rewards and benefits. Here are some common rewards and benefits offered by most travel credit cards:
- No foreign transaction fees
- Travel insurance and protection
- Bonus earning categories
- Ability to transfer points to travel partners
While many people hesitate to pay an annual fee, cards with fees often offer more perks that can outweigh the cost. In addition to the mentioned perks, cards with fees typically include:
- Bonus categories with higher earning rates
- Airport lounge access
- Global Entry and TSA PreCheck fee reimbursement
- Travel and lifestyle statement credits
Hotel and airline cards may also provide perks like early check-in, free checked baggage, and priority boarding specific to their services. As you can see, having a credit card (or several) can significantly enhance your travel experience!
FAQ About Credit Cards
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