Marcus Webb
There is Travel Hacking and then there is travel rewards optimized for a regular traveler. In this post I outline what I believe is the minimal-effort way to get real value from credit card rewards while saving money along the way.
The two-card strategy that covers most travel
The Two-Card Strategy for Travel Rewards. In travel hacking circles, you’ll come across those that swear by the two-card strategy. For most travelers, having two travel-focused credit cards cover all the useful redemptions. For example, card one could be a no-foreign-transaction-fee travel card such as the Chase Sapphire Preferred or the Capital One Venture X. This travel card has a earn rate of 2 to 3 points per dollar on travel and dining at rechargeable (points) and transferable to airline and hotel partners. The second card is a flat-rate cash-back or rewards card for everything else. This would be the Capital One Venture (2x everything), the Wells Fargo Active Cash (2% cash back), or other such simple card. The majority of users earn reasonable points without having to remember which card to use. Card one would be for travel and dining while card two would be for everything else.
The highest-rely on move is collecting sign-up bonuses on cards you would use anyway.
When someone refers to “hacking” in terms of travel rewards, they are often referring to the various techniques used to earn very large amounts of points, and to redeem them for high value. For me, the biggest “hacking” move for earning travel rewards is taking advantage of sign-up bonuses for travel cards that you will actually use. You’ll typically get 60,000 to 80,000 points for spending 4,000 to 5,000 dollars in the first 3 months. These points can redeem for as much as $1,600 in travel purchases, depending on the way in which you use them. This form of “hacking” is based on a few simple principles: the open/spend/earn methodology (open a new card, spend money on it to earn a sign-up bonus, repeat); an interval of 12 to 24 months between opening a large number of similar credit cards; the actual planned spend rule (spend the money on the card to earn the sign-up bonus only if you were going to spend that money anyway).
The redemptions that produce real value
While each point of value has its own price depending on how you wish to redeem them for travel, cash-back or a credit to your account’s outstanding balance is generally considered to be the worst use of your points. (1 cent per point, typically.) Next up the ladder would be to use your points for travel at 1.25 to 1.5 cents per point (for example, the travel portal feature of the Chase Sapphire Preferred’s Rewards). Finally there are the highest-value of all: redemption for awards via transfer partners for travel on premium-cabin airline flights. These can provide huge value in exchange for relatively few points. I personally know someone who spent 75,000 points for a business-class ticket to Europe instead of $4,000 for a cash fare on the same flight. Clearly, in this case, the value per point of 5.3 cents was a huge draw and far exceeded the alternative of cash. And remember, as previously noted, getting there (in style—on an airline’s best available business- or first-class flight—can be far more enjoyable than some grueling series of connecting flights. As with so many travel-related things, there is a trade-off at work here. The flights of greatest value are typically offered by the fewest number of airlines. But to get to your destination quickly and with style, perhaps it is worth the time and trouble? I went the hard way for a bit and then found my second method took only about 40 minutes to arrange as opposed to the lengthy series of steps that required for the prior method. Confirm twice and you will be on your way!
Hotel points are mostly not worth the chase
Another big travel hacking mistake is throwing energy into earning and using hotel points. Historically, hotel loyalty programs have provided greater value to those traveling frequently in hotels than to those traveling mostly by air. And, for whatever reason, hotel point values have drastically decreased for most programs over the last 5 years or so. The median redemption of points for most hotel programs today return only 0.5-0.7 cents per point of value, typically a fraction of the value one can receive from good airline awards. (Yes, getting Status with Hotel programs is worth it for heavy hotel travelers, in my experience — in part because the few hours you have to earn Status each year are worth far more than any other points program for occasional guests. Indeed, for those travelers, status is far more valuable than any set of points. For those of us, however, traveling mostly by air, hotel points are typically best spent on cash payments at the Hotels we desire to visit.)
What to skip in this space
Manufactured spending. It sounds exotic. But the reality is buying large amounts of gift cards to spend in order to reach minimums on bonus offers. It involves quite a bit of time and can carry quite a bit of risk. Churning credit cards. A hobby for some. But the credit score hit can be large and the amount of time to research the deals, sign up for the cards, keep track of spends, etc can be substantial. Tracking all the award charts and transfer partner sweet spots in detail is for those that seek to extract every last last penny of value from their points. Most people will only ever make a handful of redemptions of “big” value and so it’s not worth their time to follow. The rest of this guide are things that you can learn in a few hours or less and start using within a week or two, and will give you solid value in your travels for very little time and money spent.
How to think about the real cost
Track your spending on a daily basis during the trip in comparison to your initial plan to stay on budget during the second half of the trip when the first half went over budget. Build a small contingency in your budget (10-15% of the total amount you plan to spend) to cover for that inevitable sick day when you have to spend a night in a hotel, for a bus that breaks down and you have to take a flight instead, or for that once in a lifetime opportunity that you wouldn’t have thought of spending money on in advance. Do not base your trip’s all in cost off of the headline price of flights, hostels, etc. as there are usually hidden fees, other costs of getting from point A to point B, as well as small daily expenses that can add up quickly and cause most travelers to underestimate their budget by 20-40%.
