This is the first of a series of posts I am going to write on credit cards and travel hacking. I started with this hobby recently and I want my readers to get benefited by what I have learned so far. If travel is your thing and you can use credit cards with ease, this series is just for you!
Often we, personal finance bloggers, ask our readers to limit credit card usage. That’s only applicable for people who have had a bad history is handling credit cards. Typically if you are a person who likes to carry credit card balance month to month you shouldn’t use a credit card at all. financially it makes no sense!
But for other people, credit cards are not the problem. In fact, the smartest consumers know that it is a good thing to carry and use a card as long as they don’t carry a balance. When you don’t carry a balance, you won’t have to worry about accumulated interests and fees.
Convenience is a precious word that transcends just about any aspect of life. When it comes to finances, convenience comes in the form of credit cards. Credit cards have become a necessity for most people who prefer cashless transactions. Wallets are almost vanishing these days. Your cell phone case can now hold a couple of credit cards and your driver’s license.
In addition to this, you can also pay your bills automatically when you have a credit card. This allows for easier management of all financial liabilities.
Of course, this makes sense when you don’t pay extra fees for using credit cards. Some utility companies do charge extra for credit card payments compared to bank account payments.
With any financial product such as a credit card, there are some important precautions.
Nevertheless, if you have the ability to spend wisely, having a credit card can, in fact, bring more advantages and rewards.
Take advantage of sign-up bonuses and rewards
To encourage sign-up from those who want to apply for a card for the first time, issuers usually have attractive sign-up bonuses. There are credit cards with cash bonuses and those that come with points or rewards.
Some may think that this is only a marketing ploy, but if you know how to maximize the built-in rewards that come with your card, you can truly make the most out of every dollar you spend. Now that’s another reason why paying in cash should be reconsidered.
What are the different rewards you can get for signing up?
The most common way of rewarding credit card users is to offer cash back. This means you get money in return for spending.
You can even sign-up for a credit card that doubles your cash back if you reach a certain amount of spending. That’s definitely hard to beat offer and is especially rewarding if you are an above average spender.
Another attractive rewards package is by virtue of miles. Frequent travelers are fond of this option because the miles you earn can eventually pay for travel tickets and other travel-related expenses.
Some credit card issuers offer double, even triple miles earned for each eligible transaction. Sign-up bonuses will also come bundled in with the card.
There are card issuers that give a cashback reward if you reach a certain amount in spending after a qualifying time frame.
There are cards that offer bonus points for signing up that you can redeem exclusively via partner merchants and businesses.
Reminders for a first-time card user
Now, don’t get too excited about all the perks that come with signing up for a new card. It’s important to remain responsible with credit cards, handle your card well to avoid negatively impacting your credit score.
First-time card users need to keep track of spending habits and credit limits. As much as possible, pay your balance in full and on time.
It’s also not recommended to take cash advances due to high interest rates.
If you manage your credit card spending well, it will reflect positively on your credit score too. In addition to that, you will become eligible for better credit card offers in the future.
Cards that are highly sought after and returns 2x, 3x or even 5x bonus points.
Think about the card you will apply for today and make the most of sign-up bonuses and rewards. If you sign up for the right card, it may even pay for your next trip.
Rewards hunting and your credit rating
Having a high credit card turnover and carrying many cards at once generally, dents your credit rating. But it is recovered by just paying your dues every month for 6 months or so.
In my personal experience, I got a hit of 5 points when I applied for Chase Disney card, but within 6 months I regained those lost points. And by spending $500 to that card in the first 3 months, I got a $200 Disney gift card. We used that during our recent magic kingdom trip.
Rewards hunting, when done properly and intelligently is good for your credit rating because clearing your balance monthly on a variety of cards shows top-level financial prudence.
Also, having more than a few credit lines actually increases your credit to debt ratio. a number which is derived by deriving your outstanding debt from the total of credit limits across your cards. This is a big factor in determining the credit score.
Public Case Studies on people who used rewards effectively
Greg took credit card signup bonuses and rewards to a great level, he is a financial analyst who uses credit cards for all his day to day spend. His eyes were opened to the benefit of credit card rewards following his first credit card.
The card rewarded him 1% cash back on all spending after paying off balance for the month. This meant he was getting free money for buying things he needed.
He has maintained this approach with over a dozen cards, using the rewards to fund trips around the world.
Daraius Dubash, a former accountant, made the headlines with his story of embarking on trips worth over $195,000 whilst spending under $15,000.
His approach is different from Greg Haney’s cash back approach but the end goal is to take advantage of rewards.
His method, known as “churning” involves signing up for multiple credit cards in a bid to take advantage of lucrative sign-up incentives. Darius and his wife have traveled around the world using rewards accumulated in this manner.
Here are the full details on this story.
Conclusion: Mastering credit card signup bonuses and rewards system involves using credit cards for every purchase possible, meeting the spending minimums and paying off balances in full every month.
Your credit ratings will be better for it and you will no longer dread credit cards but, instead, see them as vital tools in your financial planning.
Readers, what’s your credit card reward strategy? Do you keep multiple cards and use them to maximize your rewards?