Do you like free travel and free money? Well, you’re reading the right article. I generally open up a few new credit cards every year to accrue miles/points as I spend, but to also get lucrative sign-up bonuses. Utilizing credit card sign-up bonuses is core to almost every backpacker’s arsenal and I try to exploit this as much as possible. You can use this strategy for free flights, free hotel rooms, free upgrades, and cash back.
Here’s a great example: Last year I used a 50,000 mile sign-up bonus from a Citi American Airlines credit card for a roundtrip flight to Europe. This saved nearly $1,000, but could have saved more depending on where I wanted to fly.
Basic Rules to keep in mind when opening up a Credit Card:
- Don’t ever spend more than you normally would to get a sign-up bonus or accrue miles/points. The idea is to get these benefits from your usual spending.
- Don’t every carry a balance! This is when interest charges can start to add up. I always pay my credit cards off every month.
- Don’t pay the Annual Renewal fees. Most credit cards will waive their annual fees for the first year. Make a mental note of when that will occur in 12 months and call right before the fee hits. Many times I’ve gotten these fees waived, or I’ve gotten a large miles/points bonus to pay the fee. If neither of those happens and you don’t use the credit card much, go ahead and cancel it out. In general, there’s only 1 or 2 credit cards that I accept paying the annual fee for.
Credit Card Basics & Benefits
Credit Card Sign-Up Bonus
This is what it’s all about. Most credit cards offer 25,000 – 30,000 miles/points sign-up bonuses all year long. While that’s a good value in itself, you’ll want to wait for the 50,000 mile/point sign-up bonuses that occur a few times per year. As a rule of thumb, you can almost always find at least one branded credit card that’s offering a really lucrative bonus. How much is 50,000 miles/points worth? Well, this varies depending on the card, but you can get around $1,000 in value if used properly.
The major downside to the sign-up bonuses is you typically have to spend a required amount before you’ll receive the bonus. This generally ranges from $1,000 – $4,000 over a 3 month period, but can be higher depending on the credit card and bonus. Spending minimums do change periodically. Anytime you see 50,000 miles/points being offered for less than $3,000 spent, you’ve come across a good deal. Don’t forget one of the core rules. Don’t spend more to get the bonus! If you normally spend $750 per month, don’t get a credit card that requires you to spend $3,000 over a three month span.
Maximize the Amount of Miles & Points per Dollar Spent
Each credit card typically specializes in certain spending areas. For example, some cards offer extra points for gas and grocery store purchases. Others offer extra points for travel related purchase like plane tickets or car rentals. Just use the credit card that will accrue the most amount of miles/points per dollar spent.
Most credit cards will waive the fee for the first year and then charge $50 – $200 thereafter. I refuse to pay these annual fees unless I absolutely love the card. Most of the time I’ve been able to get the annual fees waived by calling to cancel my credit card right before the annual anniversary. Don’t forget that credit card companies rely on you spending money on their cards. They will do anything to get you to keep them open. When you make this call, always ask what incentives exist for current cardholders. For example, last year I paid the $195 fee on my American Express Premier Rewards Gold credit card in return for 25,000 points. Since I value 25,000 Amex points at ~$500, this was a no-brainer. It also sometimes makes sense to pay annual fees on airline cards to get your first checked bag free, which saves $50 per round trip. Otherwise, just cancel the credit card before the fee hits if you can’t get it waived.
Waived Bag Fees
Most airline sponsored credit cards will waive the 1st bag fee for their card holders. This often means that you’ll see $50 in savings per round trip. If you fly on a specific airline more than others, it will make sense to hold that card. This benefit can easily add up to a few hundred bucks per year if you fly a lot.
No Foreign Exchange Fees
This comes standard on a lot of travel credit cards, but not all, so you should make sure which of your cards have this benefit. This will save you 3 – 7% per foreign transaction that other credit cards will charge.
Travel Insurance Benefits
Most travel credit cards have a variety of insurance benefits that a lot of people don’t even know about. My favorite is Auto Rental Collision Damage protection. Whenever you rent a car, the clerk is going to ask you if you want collision protection. Always say no, it’s a complete scam. Your credit card will often provide protection for theft or damage to your rental car. There’s a few general rules to these insurance benefits. For starters, you have to have made the purchase with that card. So if you rented a car with your American Express card, you’ll want to call them if something happens with your rental car. Second, the cardholder and spouse are generally covered. For certain benefits, immediate family members are also covered. Below is a list of some common benefits that will come standard on most travel credit cards:
- Travel Accident Insurance
- Rental Car Insurance
- Trip Cancellation Insurance
- Trip Delay and Interruption Protection
- Baggage Delay Protection
- Lost Luggage Protection
- 24/7 Travel Assistance
My Favorite Travel Credit Cards
Citi American Airlines Credit Card (AA) – this is probably the best airline credit card out there. It’s easy to accrue a lot of points, there’s generous award availability with AA points, and you get 1 free checked bag. This card offers standard travel insurance and no foreign transaction fees. Look out for the 50,000 point offer. The annual fee is $95 per year.
Chase Sapphire Preferred Credit Card – offers 2x points on all travel and 2x points at restaurants. No foreign transaction fees with standard travel and car rental insurance included. These points can be transferred to many participating frequent flier programs. Look out for the 50,000 point offer, which is offered a few times per year. The annual fee is $95 per year.
American Express Premier Rewards Gold Credit Card – offers 3x points on flights, 2x points at gas stations and grocery stores, 2x points at U.S. restaurants, and 1x points on everything else. No foreign transaction fees with standard travel and car rental insurance included. These points can be transferred to many participating frequent flier programs. Look out for the 50,000 point offer, which is offered a few times per year. The annual fee is $195 per year, but it includes a $100 airline credit.