I know a lot of people think credit cards are evil and that it is irresponsible to use credit cards. I agree they are a ball and chain if you are carrying a balance. For people who use it as another tool in their personal finance arsenal and never carry a balance, it can be an excellent way to earn some money or cool perks by pretty much doing nothing.
I never knew credit card rewards even existed when I first signed up for a card. My first card was a (now defunct) Washington Mutual card. I didn’t pick this card for the rewards. In fact I didn’t know anything about this card except that it didn’t have any annual fee. They just happened to be on campus during my first week of school and promised me a free t-shirt if I filled out an application. This was just 10 days after I landed on US soil and got my freshly minted social security card. I was told a credit card helps build something called a “credit score” and credit scores are important. Ok sign me up!
I completely forgot about this application. When I discussed this with a friend, he said I won’t be approved anyway as I didn’t have any credit history and suggested I apply after 6 months or so for an American Express blue card. I filed it away in my mind and moved on. Imagine my surprise when I got my new card in the mail after a couple of weeks. The limit was something like $250, but I was happy to have my own credit card. It felt so grown up.
Fast forward 1.5 years, I got a mail saying I had $50 worth of “points” and I could either redeem it or I could donate it to the Democratic Party National Convention. I didn’t know what that was but I looked up the points for the first time. I was pleasantly surprised. My card had 1% cash back. Having got the taste of free money, I started reading up on rewards credit cards. If used responsibly, credit cards are a fascinating tool.
Ever since then, my credit cards have provided me with –
- An awesome 10 day Maui vacation for less than $2000
- Quite a few free round trip tickets within the US
- At least 3 months’ worth of free restaurant meals (twice a week) every year.
- A complete set of Calphalon cookware (valued over $1000).
- Our DeLonghi ice cream maker
- An excellent 10 day vacation in Cancun; again, for less than $2000
- Over $3000 worth of gift cards for home improvement and baby stores.
- Over $1000 worth of Amazon gift cards.
How did we do it? Welcome to the world of credit card rewards churning for travel, fun and profit!
(Note: Applying for a lot of credit cards will have a negative impact on your credit. So it is important to pick one goal and strategize to maximize the rewards for that goal.
I will give a few examples to give an idea on how this can be accomplished.
Travel for free or super cheap by churning credit card rewards
Case Study #1: 10 day Maui vacation. Cost: $2000
$2000 is a high number to qualify as cheap, but the value we got back was significantly more, I call it cheap.
We stayed in an ocean front (not just ocean view) 1 bedroom condo, took a sunset cruise, visited the private island of Lanai on a cruise, rented a great 4WD that allowed us to visit almost every corner of Maui, attended a couple of awesome luau, visited almost every top rated restaurant in the island and had a private snorkeling guide, as I am not a swimmer.
Tickets to/from Los Angeles: We traveled during the peak July 4th weekend and we couldn’t book 2 months in advance due to my husband’s work schedule. So we were looking at $700 apiece for flights to Maui (we didn’t want more than 2 stops). That was too expensive. I looked around to see which airline would work best for us. United had a flight from Los Angeles to Maui with just one stop at Oakland and the United Mileage Plus Explorer card had a bonus offer of 50,000 miles sign on bonus (currently they are offering 35,000 bonus miles) with the first year free. So I applied for one each for my husband and me.
Tickets for Hawaii is not the usual 25,000 miles round trip, it cost us 35,000 miles each. And we couldn’t get 2 award tickets from Los Angeles (I think the number of award tickets in each plane is limited). So I flew from Los Angeles and my husband flew from another airport that was half an hour further away from our home. That saved us even more because the long term parking in that airport was half the price of parking in Los Angeles. The second leg was the same flight from Oakland for both of us, so we had to travel the first 1 hr. separately. We were fine with that and we even got priority boarding.
Cost: Free. Effort: Less than 1 hour for searching for the best flight and best bonus offer. Savings: $1400.
Hotel: Instead of booking directly with the hotel, I looked at VRBO. We got the condo for 50% less than what the hotel was offering (it was exactly in the same place, but we didn’t get the maid service offered by the hotel). The owner asked for 100% of the money paid a week before our stay. I was super nervous about getting scammed, so I opted to pay by credit card by agreeing to a 2.5% surcharge for using a credit card instead of wiring a check.
Cost: $1400 + $35 (2.5% surcharge). Savings: $1400 + taxes (my rate was a flat fee with everything included).
Rental car: After looking at a lot of local rental companies, we decided to stick with Hertz. I signed up for Hertz Gold status in a promotion, making it free. I also rented almost exclusively from Hertz (I could get excellent rates with my American Express card) for a year before our vacation. All of this combined brought our rental rate to less than a $100 whereas the cheapest quote I received elsewhere was $600. We didn’t take the company offered insurance, instead went with our personal insurance combined with the supplemental insurance from our American Express card. We were also upgraded a couple of levels up due to our Gold status.
Cost: $100. Savings: $500+
Spending cash: This is where I had to be very creative. Initially I dismissed this category as something that I have to pay out of pocket because we were not interested in visiting any chain restaurants. I couldn’t find gift cards for any of the local restaurants. But my credit cards came in very handy even in this category.
I signed up for a Chase Freedom card (this was when it had 5% cash back for any top 3 spending categories) and put every single penny of our expenses in the card for a year. At that time, I was able to get $250 check for every 20000 points earned. Along with a sign on bonus of $250, I was able to get almost $1500 back in cash. All of that went into our vacation.
We paid $600 including tips for our private snorkeling guide for a full day (she was worth every penny for this non-swimmer), $200 for the Luau (we got a discount by booking through an American express agent), $350 for the cruise to Lanai, $200 for the sunset cruise with another session of snorkeling, $100 for groceries for our breakfast, picnic lunches & souvenirs, ~$600 for 7 sit down dinners in various great restaurants around the island. We could also get priority reservation using our American Express concierge.
Cost: $550. Savings $1500
Total cost of the vacation without any credit card rewards: $6850. We paid: $2050. A saving of almost $5000!
Case Study #2: 10-days in Cancun for $2000
Again, $2000 might be very high on the surface. But we spent 3 days in an awesome all inclusive resort ($550/night) and the rest of the days at Hilton Cancun, toured most of the ruins in/around Cancun, had a private guide who showed us great sites that are not usually touted in the tourist sites, had authentic Mayan food, swam in the underground river full of stalagmites and stalactites, explored a couple of Cenotes (freshwater sinkholes), took a speed boat through a lagoon full of mangroves, enjoyed a great sunset cruise and the best experience of our trip, floated in a freshwater canal surrounded by jungle to explore a remote Mayan archaeological site.
Tickets to/from Cancun: We wanted to maximize the time we spent in Cancun so we didn’t want a flight that landed very late in the night and we didn’t want more than one stop. Our willingness to take the red-eye lowered our rate, but we traveled during another peak time (Christmas holidays), so the ticket per person still came to $600. At that time I had the Citi Premier Pass Elite card that gave a $99 companion ticket that worked for this trip. And we could pay using points for part of my ticket. I had about $250 in rewards using the sign on bonus for that card (first year’s fee was waived).
Cost: $350 for my ticket + $99 for my husband = ~$450. Savings: $750 ($500 on my husband’s ticket, $250 on mine).
Hotel: I signed up for Hilton Honors American express card AND a Hilton Honors Visa for both me and my husband with 50,000 bonus points. We did everything we could to earn as many HHonors points as possible. Signing up for their newsletter for 500 points, sign us up; signing up for paperless statements for another 500 points, sure. We ended up with 110,000 points in my card and ~80000 points in my husband’s card. Both of us were also gold members at this point. Using the gold member discounted points to book for a hotel room, we ended up with 7 days in Hilton Cancun for roughly 75000 points. The rest we used for buying magazines for free.
With 7 days squared away, I had to look for another hotel for 3 more days. I decided to go with an all inclusive as we had never stayed in one before. I also didn’t want to spend the entire day out of the hotel if we are going to be staying in an all-inclusive (yes, I am cheap!). I wanted to explore everything the hotel had to offer. I looked at various options and settled for one of the most expensive all-inclusives – Excellence Playa Mujeres. It.was.simply.awesome. They had 9 Gourmet restaurants & 11 fully stocked bars within the campus, 24 hr. room service, fully stocked fridge (including unlimited alcoholic beverages), lots of entertainment & shows, free classes (yoga, archery, billiards…), free use of water scooter, kayaks and surfing equipment and excellent service everywhere we went. The price was steep at $550/night but I was able to bring it down to $300 by using an American Express card promotion.
Cost: $900. Savings: $2150; $1400 (estimate based on the rates I found online for Hilton) + $750 in Playa Mujeres.
Food: We didn’t spend a lot on food. While we stayed at the Hilton, we bought groceries for our breakfast and ended up eating a sandwich or pizza for a light dinner. We were out most of the day for those 7 days. We either had an organized tour or a private tour on all of those days; lunch and an evening snack was provided as part of the package. When we moved to Playa Mujeres everything was included including tips. We did tip the person helping us get our water scooter and a few dollars for people who served our drinks at the pool, that’s it. Overall we spent ~$100 on food.
Cost: $100. Savings: $0.
Tours: I wanted to see everything Cancun had to offer. I am not a person who just sits on the beach and enjoys a drink. I had 3 days to do that, the rest of the 7 days I wanted it to be packed. I had a tour booked for every single day. All those tours cost a minimum of $100 for group tours and $250-$350 for private tours. I had $750 left in my budget, so I decided to play with my husband’s credit this time. I signed up for a Chase Freedom Card (again got a $250 bonus and $250 for 20,000 points). For one year preceding our Cancun vacation, we switched to this card for everything. We ended up with about $1250 for spending cash. I happily put everything toward our vacation. We also had to pay ~$100 for our Mexican visa.
Cost: $750. Savings: $1450.
Total cost of the vacation without any credit card rewards: $6350. We paid: $2000. A saving of $4350!
We took this trip in December of 2009. Ever since then I have toned down on my travel for free credit card rewards for a couple of reasons –
- At that time, we decided we would like to buy a house late 2012 or 2013. We had a couple of years to save for a down payment. I also wanted our credit history to be sparkling clean and didn’t want too many hits in our report. So I stopped applying for too many credit cards.
- We know we won’t be taking too many expensive trips, so I started concentrating on getting as many gift cards as possible for home improvement stores for when we buy a house and kids store for when we start a family.
Currently, I have $1500 worth of gift cards to Lowes, Home Depot and Sears; $1500 worth of gift cards to Toysrus, Kohls and CVS and another $400 worth of Amazon gift cards.
Which rewards credit cards are we using to get these gift cards?
- Fidelity American Express card: 2% cash back on everything, no limit. This is our main card that we use everywhere from groceries to charity. The only expense we don’t pay with credit card is our rent; everything else goes via this card. Currently, for people who are looking for simple cash back rewards without jumping through the hoops, this is the best card I could find.
- Chase Amazon Visa: We buy quite a bit from Amazon, so this card is used for everything that we purchase from Amazon and everywhere American Express is not accepted. Chase Amazon Visa offers 3% cash back on Amazon purchases, 2% back on restaurant, groceries and gas and 1% back on everything else. We can directly use the points to shop from Amazon, no redemption required.
- Fidelity Visa: This is my business card. Technically, it is a personal card but I only put my self-employment expenses on this. Fidelity visa offers 1.5% cash back on everything up to $15,000 and 2% after that. The great thing with this card is I can transfer points between this and my Fidelity American Express card for free. So even though the points don’t accumulate fast enough to redeem for a gift card (the gift cards makes more sense at the 25000 rewards point, I could get a $250 gift card. For lower denomination like $100 gift card, I have to pay $12000 points, which reduces the value of my points), I could transfer it to my AmEx account and still use every single point. For people who want a simple cash back strategy but don’t like American Express, this is an excellent card.
After we buy a house, I am planning to get back into the game of churning credit cards to travel for free. This time my destination is Europe and by “travel for free”, I mean really free.
The case study #3 is my proposed strategy to make this happen.
Travel to Europe for free (This time, I mean completely free!)
I have not taken this trip yet. This is still in the planning stages. Right now I am hoping to take this trip by 2015
Case study #3: 2 weeks in Europe (mostly Italy, though I want to visit Paris as well).
Tickets from/to Los Angeles: We are planning to add this trip to one of my husband’s trips to Europe for work. So his ticket will be paid off. We will most likely take Lufthansa, which is a Star Alliance partner. I have long closed the United Mileage Plus Explorer credit card. Now, I plan to open one for me with 30000 bonus points, I could add my husband to this card as an authorized user for another 5000 points. I also plan open a Chase Sapphire card that offers 40,000 bonus points if we spend $3000 in 3 months. Chase Sapphire card points can be transferred to United 1:1, which means I can net 70,000+. We have been using mostly United within the US to get points for my husband when he travels (the status miles from United transfer to Lufthansa). So we already have about 30,000 points each.
|Existing United points||30,000|
|United Mileage Plus Explorer card bonus||30,000|
|Chase Sapphire card bonus||40,000|
|Total United points (United points can be used for Lufthansa 1:1)||100,000|
That should be enough for a business class trip to Europe from the US. We can use my husband’s points to upgrade him to business as well.
Total credit cards so far: 2
Hotel: Remember when both of signed up for Hilton Honors card, I had 110,000 points and he had 80,000. We ended up using only his points, so we still have mine untouched. We have stayed in a few Hilton properties since then, so as of now I have ~128,000 points. I could open a Bank of Hawaii Hawaiian airlines Visa Signature card and Bank of American Hawaiian airlines Visa Signature card. Each of them has 35,000 Hawaiian miles bonus points = 70,000 Hawaiian miles. Hawaiian miles are transferable 1:2 for Hilton Honors points, so with these two cards I get 140,000 HHonors points.
Total credit cards so far: 4
Maximizing the Hilton Honors points: With a total of ~270,000 points, if I book via the ordinary method, I will get ~10 nights in a Category 3 hotel or 9 nights in a Category 4 hotel.
What is the fun in going for the minimum value? We are all about maximizing the value right? So we go for the AXON and GLON rewards.
What language is that?
They are ways to get nights for discounted points and are available for certain card holders – AXON (Hilton Rewards for American Express card holders) and GLON (Hilton rewards for Elite members). I still have my Hilton Honors American Express card and it gives me Silver status as long as I have the card. So I am eligible for both of these rewards.
With redeeming my points for a room using AXON or GLON reward code, I can get a Category 6 or 7 hotels for 9-10 days. The Hilton Sorrento Palace looks very inviting to me!
Spending cash + Food: We don’t have to do anything extra for this as our Fidelity American Express card gives us 2% cash back. If we continue to put all our expenses in this card, in the next two years I am sure I can get enough money to cover all our spending cash and food.
That’s the plan anyway. I will be keeping an eye out for any great travel credit cards to make this deal easier or sweeter. I know quite a people travel for free using credit card rewards. What is your best strategy?
Note: None of these cards are affiliate links. And none of these are endorsed or sponsored by the companies mentioned in this post (American Express, Chase, Citi, Visa or Master Card). I have used all these cards personally and everything in this post is my opinion.