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Travel Hack Your Summer Vacation to Save Money

Travel Hack Your Summer Vacation To Save Money - TaxAct Blog

The term travel hacking sounds shameful at worst and like a scam at best, but travel hacking is simply taking advantage of the sign-on bonuses credit card companies offer in order to subsidize the cost of a trip. The risk, of course, is finding yourself overspending and creating credit card debt.

How travel hacking works

Step 1: Apply for a credit card offering a bonus.

To illustrate what this means, here’s a fictitious scenario: An imaginary airline called Celta Airlines offers a branded credit card with fictional credit card company, BMEX. Any customer who signs up for the credit card receives 50,000 miles if they spend $2,000 within the first 3 months of opening the card.

Step 2: Spend $2,000 within the first 3 months to unlock the bonus.

Step 3: Use the miles or points to book airfare or accommodations. Ta-da! You now have free (or at least much cheaper) travel and/or hotel stays for a trip!

And, as a bonus step, be sure to join loyalty programs for hotels and airlines. Many programs offer additional ways to earn free hotel stays, plane tickets, car rentals, gift cards and more.

Before you think this is too good to be true, I can tell you from personal experience and conversations with other travel hackers, it does work. The only detail to be mindful of is ensuring you don’t overspend and generate credit card debt.

What not to do

Overspend

Ever wonder why credit card companies offer big sign-on bonuses or healthy rewards as incentives to use their cards? Many offer these enticing deals because they hope people who open the card aren’t diligent users and eventually carry a balance and pay interest. This tactic is a big money maker!

Basically, your rewards are subsidized by anyone who overspends and is therefore unable to pay off the balance on time and in full. To successfully travel hack using a credit card, choose one that allows you to comfortably spend the required amount to unlock the bonus. This will help to insure it doesn’t push you into credit card debt.

Not pay off the balance

Carrying a balance on your card and paying interest nullifies any rewards you receive. Why? Because the amount of money you pay in interest can exceed the value of the free rewards.

To truly take advantage of your rewards, always pay your card off on time and in full.

Get scared of the annual fee

Many cards with big sign-on bonuses come with an annual fee. They often range from $59 up to $450 or more.

Sometimes the fees are waived for the first year.  In that instance, as a diligent travel hacker, you can close down the card right before a fee gets charged. However, there are other times when a fee may actually help you.

For example, let’s say you frequently fly American Airlines and check a bag at least twice a year. The checked bag will cost $25 per leg of the journey, which equals $100 in fees on two flights. Your credit card annual fee is $95, but offers free checked bags as a perk. In this instance, you’d simply need to check a bag twice a year on a roundtrip flight for the fee to pay for itself.

Forget about the flight taxes

While you can hack the travel system a bit, you can’t escape all costs. Unfortunately, it always costs something to book your trip with miles. And that cost comes in the form of taxes.

The good news is taxes on domestic flights are often quite low. However, international travel wildly vary. That’s why it’s best to play around with your miles on your preferred carrier to see which route charges the least, getting you get the most bang for your miles.

What about my credit score?

At this point, you may wonder if opening and closing all these cards impacts your credit score. The truth is, it does – so proceed with caution.

It’s important to have a strong (meaning well into the 700s) credit score before you start playing around with travel hacking. Opening a new card or two within the span of a year will probably ding your score around 10 to 20 points. However, this can be recouped in the following months.

Opening and closing cards will cause some movements as well. But if you’re only opening one or two cards a year, it may not be as drastic as you think.

One secret to maximize rewards

Couples who typically travel together – especially married couples – should resist the urge to travel hack on joint cards. The chances of getting miles for two roundtrip tickets are much easier if both parties individually open a card.

That said, you may want to stagger when you apply for each card so you both aren’t spending $3,000 in 3 months. Make sure whatever cards and reward programs you sign up fit your budget.

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About Erin Lowry

Erin is the founder of BrokeMillennial.com, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Erin lives and works in New York City. She's developed quite the knack for finding deals and free events. Connect with Erin on Twitter, Facebook and Google+.

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