Use Credit Card Sign-Up Bonuses Like a Side Income for Vacation spending
Unnecessary spending goes against most early retirement pillars of wisdom. Some of us want to travel and still save a large portion of our income. This can be achieved by using credit card sign-up bonuses to augment travel expenses. How can you reach the spending goals needed for credit card bonuses if you keep the expenses in your financial budget really low? Good question. For those of us that are looking for early retirement, but are not in the extreme niche, it is possible. It takes a couple of ingredients to get the successful recipe: planning, timing, and flexibility. Just for the record, paying interest on credit cards is not compatible with financial independence. If you carry credit card balances, the interest will eat up any rewards you could be getting in the long term.
- If I said to you I will trade you a round trip flight pretty much anywhere in the US for $89, would you take it? The answer is of course.
- What about putting cell, cable, auto insurance, etc. all on the same card for a short period of time to get 42,000 miles that could be transferred to United, Marriott, British Airways, etc.? Again for the amount of work and $0 fees it money you already spend, so YES.
- What if you put your mortgage on a card and had to pay a 2.5% transaction fee to a third party to get the credit card points? You might be tempted to say no, but the answer is still a yes for many situations.
In the first two examples above, it is pretty easy to see how you can get a dramatic discount on your vacation by using the initial credit card sign up bonuses to help offset your costs. On the third it seems like a no at first glance. This would not be a good long term strategy, but for the initial sign-up bonus I would argue it makes sense. Let’s say it is a $25 fee on a $1,000 mortgage payment. If you are trying to stock up on points to pay for a vacation, then the 2.5% fee is just vacation spending now. If you are trying for a 75,000 point card spend in a short time and you other expenses can’t get there, then this maneuver might just work (say $5,000 in 3 months). You might be paying $25 for close to $300 in travel, so the fee could be considered a travel discount. I would even classify the cost in Mint as vacation, not fees. As I said, if you are always putting the mortgage on a credit card and have to pay an additional fee it is generally not worth it.
In terms of planning, you have to choose your basket of reward programs. You could base it on just highest cash back or go for more rewards by picking the airline that has the best routes from your home city. Even more advanced would be to pick a primary airline program, a hotel program, and a flexible reward card. I will use the example of United Airlines, Marriott Hotels, and the Chase Sapphire Preferred Card (Chase Ultimate Rewards). With about $6,000 of spending in 3 months you could end up with 36,000 United points, 72,000 Marriott points, and 42,000 Chase Ultimate Reward (UR) points. Currently, UR points are estimated to be worth about $.017, United points are $.014, and Marriott points are worth only $.008. At those current estimated value levels, that is about $1,794 in travel rewards available. The United amount goes up to 56,000 if you time it to get the 50,000 bonus instead of 30,000 point bonus. That is enough for a round trip flight and a couple of nights in a good Marriott in a big city. The United card also get you priority boarding and fee 1st checked bag (would save 2 people $100 on a roundtrip flight with 1 bag each).
So what about the Ultimate Reward points? Well, you can convert those to either program (hence the higher estimated value per point). That means you could add a second round trip flight or upgrade to a 4-5 star hotel (or maybe both). The flexibility of the UR points makes them really valuable. They can transfer to about 12 different programs (only one way though, once you move them its final). That means you can let the points sit there until you decide which way to use them. Did I mention the cost to you for all of this is $0? For the actual trip you would pay some airline fees/taxes, but that is it. If the spend is too high, you could spread the cards out by staggering them slightly. Also, if you are married, each spouse can do this and you could get double the points listed above. Just remember to cancel the Marriott and United card after your trip, but before the annual fee is due in one year to avoid the fee. You might also call about 1 month ahead of the anniversary and get the retention department to waive the annual fee. can you still transfer UR points after closing the card?
I should also mention that Marriott let’s spouses transfer points to one another’s account when there is a pending reward being redeemed (some rules, but it helps make only one reservation). I found this out recently and got my wife to open a new Chase Marriott rewards card with a 70,000 point bonus (it’s back down to a 50,000 point bonus at sign-up now). Those extra points will help us get a fantastic stay in the Caribbean in early 2016. In addition, Marriott gives you the 5th night free when you use points for a stay. That means a 7 night stay will only cost us 6 nights of point (like a bulk discount).
If you have excellent credit this process can be done multiple times per year. There are usually multiple versions of the cards and sometimes you can have more than one of the same card. Just be sure to research before you get a second one, you might be wasting your time. It is not unusual to get 1,000,000 points in a year. For a couple of hours of work a month, managing some credit card payments and spending requirement dates, you can have a really nice vacation for almost nothing. Anyone with a business can do it even more frequently as those cards are independent from the personal cards in terms of being able to open them at the same time (it can still ding your personal credit, but balances won’t show up on your credit report).
You could also time a credit card sign-up to be around the time you have to pay your 6 month car insurance bill or some other large expenditure. If you know a large car repair is close, get a new card. Don’t get the card at the auto shop that gives you a 5% discount. Spending $2,000 to get a $100 would be fine, but why do that when the same $2,000 can get you $500 (or more) towards your next vacation or annual trip to see family.
There are countless articles about ideas on ways to get the minimum spend (you can look at some of the travel hacking sites for ideas), but once you get to things outside of your budget, it makes less and less sense to me. For one, you have to alter your cash flow to do things like buy gift cards in bulk (you might have to hold on to some of them for months). I also don’t want to be tempted to spend in online portals for things I don’t need. If I am already going to buy diapers, then buying 2 months’ worth to hit the spending requirement would be worth it (always good to keep extra diapers around anyway and if a sale comes up your cost per diaper goes down so buy away!).
The last ingredient is flexibility. Be prepared to adjust the dates slightly, stay slightly further away from the maximum amenities, or go to a destination based on a Marriott instead of the exact island in the Caribbean is your first choice. If you plan far enough ahead and aren’t locked in for everything around dates/location/etc. you can travel for almost nothing. If you are heading to a wedding in Cancun and your dates and resort are locked in, it’s more difficult to completely eliminate the costs. The Barclays Arrival card would let you cash in points for the flight and hotel, but you may not have enough to cover everything if you can’t use points for at least one of them. Either way, flexibility is the main factor in making these points work for you. Also, plan ahead! There can be some great deals at the last minute, but I would rather take my time and get the costs as low as possible. Be sure not to wait too long as the points can be devalued at any time. Basically, don’t save up a million points. Get enough to use and try to use them often to prevent that from ruining your plans.
As a final note, Delta and Starwood Resorts can also make a good pairing. I will leave it to the travel hacking bloggers to point out the best credit card deals, but doing a Google search or looking at Flyer Talk message boards will help you find the best offers out there.
I plan on flying United to the Caribbean with my wife and two kids (no baggage fess with the card), staying at a Marriott (combining points from the wife to get 7 nights!), and using the Barclays card for any tours or miscellaneous costs in about a year and a half. That being said, I am still stockpiling Ultimate Reward points and American Airlines points just in case. Either way, we will have a very nice Caribbean vacation for about the cost of meals only. I estimated we will save about $5,000 between airfare, lodging, and transport. That means we are paying for a budget vacation and getting a pretty awesome one!