Adventures in Credit Card Rewards

Travel Hacking?

There’s a lot of talk about hacking things these days- life hacks, personal finance hacks, travel hacks, etc… Everybody wants to be a hacker. I assume this is because that little girl in Jurassic Park made it seem super cool back in 1993.

It's a UNIX system, I know this.

Call me old fashioned, but when it comes to the business of getting points/miles/shiny rocks as a result of using credit cards, I usually just stick to calling them “Credit Card Rewards”.

All semantics aside, it’s a pretty sweet gig if you’re able to take advantage of it. So, today I’m going to talk about how I’m putting CC Rewards to use and how you could too, if you were so inclined.

When to NOT use Credit Card Rewards

Let’s get the disclaimer type stuff out of the way nice and early. If you have ANY balance on credit cards that you carry from month to month, this stuff ain’t for you. You’re just going to end up making it worse and probably cost yourself more money than you’re earning. Absolute top priority should be paying down those cards!

In this case, you could maybe look at opening a new card that allows for free balance transfers and 0% interest for a certain number of months as an option. That only works if you’re actually committed to paying it off though, because after those months are up they’ll jack up the rate to something determined to bleed you dry.

I’d be happy to write more about this strategy if anyone is interested.

My Past Forays

When I was in grad school I ended up discovering that I had a pretty sweet opportunity. No, not the one to learn or the one to further my career (BORING), it was the opportunity to get a whole bunch of credit card rewards easily! Through some magical generosity or maybe a mistake (which they’ve since corrected) on the part of my university, they let us pay for tuition entirely on credit cards and with zero service fee.

This let me go ahead and open a new credit card every semester or two and pay for that semester’s tuition on the card, which I would then immediately pay off from a bank account (I had been saving much of my income for the prior ~5 years in preparation for grad school). As a result, I would hit the required spending on the cards to get their initial bonuses (example requirement- spend $3000 in the first 3 months of having the card). As I’ll discuss below, the initial bonus per card is where the real meat of credit cards rewards is located and it essentially amounts to hundreds of dollars in free travel as a result of spending you already had to make.

At the time, I was flying irregularly and not often to the same destination and I wasn’t much using hotels. Because of this, I didn’t really focus on one single airline or credit card provider and their specific type of points, but went with a type of reward card that offered “Cash Miles.” Skip to the next section for a discussion of the different types of cards.

It’s been a few years, but two cards that I know I went with are the Capital One Venture Card and the BarclayCard Arrival Plus Card. Between the two, I got about $1000 of travel reimbursement for free, just by signing up and putting my tuition on those cards. I also had the American Express Platinum Card at one point, which falls under the “Flexible Points” category of cards and gave me about $550 of free travel.

Cash Miles vs Flexible Points

So, what’s the difference between these types of cards? It’s pretty straightforward.

  • Cash Miles– These are definitely the simpler option. You get the card, meet the minimum spend within the first few months, and receive maybe 40 or 50 thousand miles from the credit card company. When you go to book travel, you just use that card and then you essentially “erase” (Capital One’s terminology) that purchase by applying the miles towards it. Every 100 miles is worth $1, so 50k miles will reimburse you for $500 worth of travel. There’s flexibility here because it doesn’t matter what company you travel with, you just find whatever’s cheapest or best meets your itinerary and then pay it off from points.Fun bonus: this isn’t just for things like airline flights, I was able to reimburse Lyft rides and metro/subway spending as well.
  • Flexible Points– This option involves slightly more complexity, but the payoff is getting an even better redemption rate than 100 to $1. If you work the system right, you may get as high as 4 or 5 dollars per 100 points. This is why these cards can be an even better option, if you’re willing to work for it.With these cards, you still need to meet an initial spending amount within the first few months and then you’ll get a similar 40/50/60 thousand points from the credit card company. The difference is in how the points are redeemed. Often, you could do the same type of redemption to “erase” travel purchases or they’ll give you the option to get statement credits for regular spending (don’t do this, the redemption rate is terrible). However, the real value comes when you take advantage of the “travel partners” for the credit card company. You can transfer points from your card to an airline or hotel and then redeem through the hotel/airline’s website for much better rates.Example partners: American Express

Other Strategies

Aside from the Cash Miles cards and Flexible Points cards described above, there are two other types of cards that can be very useful, depending on your circumstances:

  • Airline Specific Cards– If you are often flying the same route (for example, if you have family across the country/ocean), it can make sense to stick with the single dominant airline for that route. You can get cards that reward you in points specific to that airline and give you other perks for boarding, upgrades, and checked bags. The Southwest cards I mention below fall under this category.
  • Hotel Specific- Same deal as above, but for hotels. I don’t stay in a lot of hotels, so I’ve never gone this route, but if you’re loyal to a specific chain you can get some incredible rewards and a lot of free stays by taking advantage of loyalty programs and the associated credit cards.

What about Ongoing Earnings on Spending?

I think unfortunately this is where most people focus their attention with credit card rewards. Partially, this is because it’s what the credit card companies focus on advertising, and it makes sense. They want you to get their card, keep using it indefinitely, and maybe let your balance carryover so you can pay them some interest. Seems like a great plan for the CC company, but a terrible plan for us. Even if you don’t carry a balance, you’re better off opening new cards to maximize rewards- a practice affectionately referred to as “churning”.

Here’s why:

The best cards will typically offer something like 2% cash back or 2 points per dollar spent (net result is the same) or maybe they’ll do something like 5% in a certain category up to a certain dollar amount within 3 months. This is all well and good, and I’m certainly not turning down those extra points/cash, but the rate of return you get is never going to compete with the initial bonuses that I described above.

For example, if I get a card that requires $3000 of spending in the first 3 months, it may give me about 50,000 points. Even if I get the basic level of redemption (100 points = $1) on those points, that’s still a free $500 for spending $3000. Doing the math (500/3000), that’s a return of 16.6% way better than the ongoing 2% or even the limited 5% returns.

Looked at another way: $3000 of regular spending after the bonus gives me 6,000 points at a normal rate of 2 points per $1 spent. 50,000 points is a heck of a lot better than 6,000 points.

So you don’t need to take this as seriously as some of the folks in the churning community and be constantly opening new cards, but at least remember that if you’re able to get approved for a new one and meet the minimum initial spend, your earnings are gonna be way better than just sticking with a single card indefinitely.

My Current Approach

Right now, I’m all about Chase. They seem to have some of the best cards out there right now and their partnerships with United and Southwest mean lots of options to redeem points for flights and get some great deals.

Here’s a screenshot of some of the Chase cards available at the time of publishing, sourced from The Mad Fientist:

Chase Cards

I started out by getting the Chase Sapphire Preferred card and the associated 50k points. Towards the end of the first year, I’ll plan to downgrade or close that card to avoid the annual fee. Alternatively, I may keep it open to have access to the Ultimate Rewards redemption rate of 100 to $1.25. I haven’t decided yet.

After that, I may have gone with the Chase Sapphire Reserve, which has an even better redemption rate and would have been another 50k points. Unfortunately, as of August 27th, 2017, it’s no longer possible to get both of their “Sapphire” cards without waiting 24 months between cards.

I’ve considered getting the Ink Business Preferred, but given our fairly low monthly spending, my wife and I would be hard pressed to hit the minimum spending requirement of $5k in 3 months. There are ways around this, such as front loading expenses (like buying a year’s worth of auto insurance up front) and buying gift cards that you’ll later use. However, for now I’m content to go with the lower stress option of the Freedom Unlimited card for an easy 15k more points.

At the end of this year, I plan to get two of the Southwest cards shown here:

Southwest Cards

Since Chase pairs with Southwest, I can easily transfer my Ultimate Rewards to Southwest and pay for quite a few flights. Additionally, by doing two of those cards (even though the 60k reward is expected to drop soon) I’ll be able to earn at least 110k Southwest miles in the same calendar year. What this does is grants me a Companion Pass where my wife will be able to fly for free with me, effectively doubling the value of my points (2 tickets for the price of one on each flight) for almost 2 year! 

How I’m Redeeming

At this point, I’ve gotten about 55k Ultimate Rewards points from the Chase Sapphire Preferred card and am conducting my first redemption. We’re going down to Florida in early January for Camp Mustache SE a.k.a Camp FI SE and thanks to these CC Rewards, we’ll be getting there for free!

To do this I’ll follow these steps:

  1. Go to Southwest.com and search for flights after clicking “Flexible Dates” and then showing fares in “Points”.
  2. Find flights with nice low fares that meet your travel timeline. Obviously more flexibility is better here in being able to snag the lowest fares/best redemption rates.
  3. Once I know exactly how many points I’ll need, I’ll login to my Chase Ultimate Rewards account and transfer that number of points to Southwest. This happens instantly, so there’s no sense in moving points ahead of time.
  4. Return to Southwest and book the flights, paying with the points that are now in my Southwest account.
  5. Keep an eye on the price of the Southwest flights over the coming months because I can easily rebook for free if the prices drop.
  6. Win.

As you can see, you could follow the same steps for any trip you want to take. Our flights to Florida are likely going to come out at just over 10k points per person, but if bought in dollars would have cost $200 per person. That’s a ratio of 100 points to $2, well above the 100:$1.25 of Ultimate Rewards or the 100:$1 average base rate.

Worth noting: I checked the flight costs in points from other airlines in the Ultimate Rewards portal (on Chase’s site) and from United (another Chase partner), but Southwest is the clear winner for this particular trip.

A Note on Credit Scores and Fees

Many of the best credit cards (read: largest bonuses) are only available to people that have decent (or above) credit ratings. If you don’t know your credit score, find out for free (I use Credit Karma, but there are plenty of options) and then work to improve it. A lot has been written about what it takes to have a good credit score, so I won’t get into it here aside from saying you don’t need to carry a balance and pay interest. Additionally, when signing up for the types of cards mentioned here, there will be a temporary, small hit to your credit score when the companies check your credit rating, but it’s not worth worrying about unless you’re getting a mortgage soon and need the highest score you can possibly get. Ultimately, opening these cards and paying them on time will end up raising your rating in the long run.

Fees– Some of these cards have annual fees, either immediately or after the first year. Sometimes it’s worth it (When I got the AmEx Platinum it cost $450, but gave me $1000 in rewards) and sometimes you can avoid it (When I got the Cash Miles cards described above, I downgraded them after 11 months to versions of the cards with no annual fee).

You can also close cards to avoid paying annual fees (after you’ve received and used the bonus points/miles), but it’s often better to downgrade because you have more available credit and a longer credit history (both of which boost your credit score). Assess each card and determine your strategy, but don’t just leave a card open that keeps charging you every year if you’re not getting any benefit from it. It’s also good practice to write down somewhere the dates when you’ll be getting charged fees; when you have multiple cards open it can be easy to lose track. You’ll then know your deadlines for closing or downgrading (I liked to leave a buffer of a month, just in case).

Where to Sign Up

When I’m planning to get a new card, I usually go through a website that I like so that the authors will get paid a commission from their affiliate program. It doesn’t change anything for me (same card, same bonuses, no cost), but it helps support the content I enjoy reading.

I’m too small time to have an affiliate program right now, but if you want to get the Chase Sapphire Preferred, I’d get bonus miles if you sign up with this link.

Other than that, here are a few websites I like to support (in no particular order):

Wrap Up and Further Reading

Thanks for reading. I’m by no means an expert on this, but I though it might be helpful to share my experiences and what I’ve learned about credit card rewards over the past few years. Hopefully, this will help you also get a whole lot of free travel! Let me know if there are any questions I can help answer.

If you want to learn more, you might also enjoy the work of Brad Barrett over at TravelMiles101.com and the description of the Chase Gauntlet.

2 Comments, RSS

  1. Dylan | Trail to FI November 1, 2017 @ 3:17 pm

    Man this is a good explanation! I get pretty lost with the Ultimate Rewards program. I haven’t used it yet, so hopefully it will make more sense when I actually book a flight. What do you plan to do after you’re 5/24?

    • aardvarkadvisor November 1, 2017 @ 6:48 pm

      Thanks so much, Dylan! I’m glad you got something out of it. I think you’ll find that once you start using it, it’s not as confusing as it sounds. I still haven’t really dug into some of the really high redemption rate possibilities that you can have with some of the Ultimate Rewards partners when you’re very flexible on travel dates, but I gotta figure that isn’t too complicated either. In terms of the actual transferring of points to a partner like southwest, it was surprisingly straightforward.

      That’s a good question and I’m not entirely sure. I just applied for the southwest business card which’ll put me at 4/24 and then a second southwest card will be the 5th. Although that assumes they approve me for the business one, which at this point is a little uncertain. After that, I think there are a couple Amex cards, like the Gold, that I could check out. Amex, to my knowledge, is once per lifetime with each of their cards; so, I don’t think I could do the platinum again. I may also pursue some hotel specific ones. I haven’t cared about them much since I’ve rarely had much need to book hotels, but it’d be a good compliment for all the southwest miles I’ll have. Then my wife and I can take plenty of flights and also stay in hotels for free. Will definitely open up some great travel opportunities!

      Thanks for stopping by!

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