Scott Mayerowitz has a good, basic piece out of the AP on earning travel rewards from credit cards.
Lessons boil down to what should be familiar to most readers of this blog:
- Many credit cards offer big bonuses for signing up that can be used for free or inexpensive trips. I blogged last week the Best Current Credit Card Signup Bonuses.
- Flexible points which transfer into the currencies of several airlines — like Chase Ultimate Rewards, American Express Membership Rewards, and Starwood Preferred Guest points — can be the most valuable. Then you don’t have to know what award you want up from (for choosing the right program for you) and can move the points where you’ll be most likely to secure the award space when it comes time to redeem. Not included in the piece is my frustration with the slow points-to-miles transfer time with Starwood – though they have the most airline transfer partners, the speed issue can be a challenge when it’s time to book.
- Hotel credit cards are often worth keeping beyond the first year for the annual free night that many of them offer (Starwood American Express does not offer this), since the annual fee on the card is often much less expensive than the value of that night (if you’ll use it).
- For spending that isn’t being used to qualify for a signup bonus, cash back cards are often the best (especially true if you’re interested in coach travel). You can get a strong reward — 2% through the Fidelity American Express or Priceline Visa — and use it towards travel if you wish, without being constrained by capacity controls/having to search out award space. (Of course miles can be useful here too for topping off an account towards an award.)
- This game is not for you if you do not pay off your credit cards in full each month. You should care, then, more about interest rates than about mileage rewards — paying higher rates these cards often bring won’t be worthwhile. And there are 0% balance transfer cards you can use to bring down your borrowing cost.
My other basic principle, not in the piece but that I repeat often, is that there are three types of cards: those you get just for the signup bonus (and don’t want to put additional spend on once you earn the bonus, or probably even keep past the first year), those you get for the benefits (worth having perhaps for lounge access or hotel status but not a card you want to spend money on because the points aren’t as valuable), and those you actually want to use for ongoing spend (such as Chase Sapphire Preferred or the Starwood American Express).
Nice piece. The one thing I don’t read about ever the temptation to overspend when meeting minimum spend. There are a lot of warnings about paying off your cards in full, but none about watching your spending habits. One of my friends is a financial journalist, and pointed out a couple of studies demonstrating that people spend more when using credit cards. A high minimum spend requirement just increases my tendency to spend more on credit cards. When you’re a newbie, and eligible for every single great sign-on bonus, it’s even worse. I’ve definitely overspent in my efforts to get great deals. I now have to consciously restrain myself and apply for cards with discipline. 99.9% does get charged, but I have to really watch it.
Kay, that’s a really great point. I would say that this really just takes a lot of discipline and forethought. There are plenty of ways to meet spend requirements without spending a dime (AP, MoneyPak, Vanilla…previously, etc.)
The key for me is to ensure that when I buy something – it is something I truly need and want. (as a semi-minimalist, this is easy)
It is incredibly easy to fall into the trap, however: “Well, I shouldn’t really buy it, but I do need to spend $3,000 on this card…so it’ll end up being worth it”
My first churn, I nearly applied for cards requiring $15k in the first 3 months – even with all my business spend on there, I still wouldn’t hit that. With restraint, I dropped that to ~$6,500. All it took was some real thoughts about what is realistic.
Charge on!
You should always view your credit card as a debit card and not buy anything you don’t really need. For some people, this is much harder to do. But I think years of responsible spending makes most people responsible users of credit cards.
A counter point on the temptation to overspend, the mile gathering hobby for me quenches my own temptations to search for something new and shiny. I can look forward to scoring 50K once I hit minimum spend as opposed to actually buying something. The best part is when the hedonic adaptation kicks in from having acquired the points, I may get a second boost at redemption which admittedly will be coupled some extra spend on nice meals (properly category multiplied, but of course).
I guess I am saying $3.95 reload fees are cheap compared to most other hobbies.
I think it also depends on your natural budget and your tendency toward frugality. I try to be as frugal as possible, and my natural budget doesn’t accommodate spending $10K in 3-6 months, even though I’ve signed up for that level of minimum spend. Paul, I agree that you can manufacture spend effectively, but when you first get into this hobby, you’re probably not manufacturing spend.
I agree with what’s been said but if you are in the situation where you can prepay mortgages, insurance, etc. then you want to sign up for the bonus points cards..you don’t want to go out and buy the $5,000 72″ plasma flat screen TV that you can’t afford to enable you to meet the spend requirements.
These deals will continue….be patient!