There is always so much talk in the media about rising credit card debt. Current affairs programs like to air segments on people with crippling credit card debts and the years it takes to pay it back. Banks are always being criticised for high interest and other charges. In general, credit cards get a bad rap, but there is another side to them. Credit cards are the number one tool for travel hackers.
Now let me start this by saying I definitely do not advocate using a credit card because you actually need credit. If you cannot pay your card off in full by the due date, then do not get one. You are better off paying for your travel in cash rather than paying interest.
Credit cards though can be an amazing tool for travellers. You can learn to earn enough points to make travel a lot more affordable just through everyday spending. It does take a little more thought and planning, but the benefits outweigh that effort.
We have been able to book numerous long haul flights with points saving us thousands of dollars. Our last trip from Australia to Europe was in business class, mostly paid for with points. There is always a tax component to the airfares that must be paid in cash, but when that costs less (sometimes a lot less) than economy flights and the flights are in business, it’s a no brainer.
So how do I use credit cards to travel?
- Signup bonuses. Credit card companies regularly offer large bonuses to get you to signup for their card. They often also waive the annual fee for the first year. So it is possible to get thousands of points for no cost. The only other requirement is to spend a certain amount in a given time frame. A recent deal we took advantage of gave 75,000 Qantas points with no first year annual fee and we just had to spend $2,500 in the first three months. So by using the card to pay for everyday expenses I would have to pay for anyway, and ensuring I pay the card off each month to avoid interest, I have gained 75,000 points for no dollar outlay. From Australia, 75,000 will get you return to most places in Asia, or one way to the US or Europe for a few hundred dollars in fees and taxes.
- Points earned on spending. Once you’ve got those cards, you can also earn more points as you spend. There are many different earn rates, so it’s a good idea to learn exactly how many points you get for different types of transactions. Some credit cards will pay more for supermarkets, some more for restaurants. Some have a good earn rate on overseas or travel related items. Some don’t pay at all on utilities or certain types of payments though, such as BPay, so sometimes an alternative method to pay needs to be found. In general Amex cards have a higher earn rate than MasterCard and Visa. I have three different credit cards I use to maximise the amount of points I earn.
- Free flights. Yes, some credit cards come with free flights. These are usually premium cards that have with an annual fee. You could likely get the flights for slightly less than the annual fee, but if it’s bundled with a signup bonus and other benefits, it can be good value. (Note that in Australia the free flight is a domestic flight.)
- Travel insurance. Some premium credit cards come with complimentary travel insurance. This has saved us quite a bit over the last few years. Of course you need to read the terms and conditions carefully and then decide if the insurance suits. We did this with our last trip, and found that hot air ballooning was not covered. Since we knew we wanted to do that, we chose to purchase alternative insurance.
- Lounge access. Some cards come with free lounge passes, allowing you to escape from the crowds in an airport, and have some food and drinks while waiting for your flight. Other cards allow access just by themselves, such as Amex does to their own lounges worldwide. Yet more have partnerships with programs such as Priority Pass, which have various allowances for lounge access.
Until four years ago, I had never had a credit card, but after learning the above, I have had many. I have learnt that there is no benefit in being loyal, so I sign up for a card, spend what I need to, put the card in a drawer until the points show up, then cancel before the annual fee is due, and repeat. A downside of this is that every time you apply for a new card your credit rating takes a hit. Over time it improves again, but if you are planning to take out a home loan soon, this may not be a good thing to do.
So don’t think of credit cards as something evil, instead think of them as a tool. Start looking for the current deals, and see if they can help you. Use them appropriately, and you can really extend or enhance your travel.
(Note: deals and offers vary worldwide. All my examples are from Australia as that is where I am based and the system I know)
Looking for other ways to earn frequent flyer points? See my post on How to Earn Qantas Points – Without Getting on a Plane.