Travel Hacking is becoming extremely popular in the Financial Independence (FI) Community. For those of you who don’t know, travel hacking is taking advantage of credit card sign up bonuses by hitting the minimum spend and canceling the card. If someone completes this cycle multiple times again they can accumulate large amounts of credit card reward points. Those points can be used to purchase travel (Aka: expensive plane tickets), book hotels, and even rent cars. Travel Hacking is a great way to save money on travel, but unfortunately it is not for me. Therefore, I will not recommend it to anyone else.
Why is Travel Hacking BAD for me?
I started my Financial Independence journey off listening to the teachings of Mr. Dave Ramsey. He is against any type of Debt, but especially credit cards, student loans, and car loans. As I started to absorb more FI content I stopped using Dave Ramsey’s recommendation of complete debt eradication. I stopped aggressively paying down my low interest student loans, and started saving more in retirement accounts (401ks, Roth IRAs, etc). Fortunately, I eliminated all credit card debt. This was also around the time I discovered travel hacking. I was mesmerized by the stories of people going on amazing trips at a fraction of the cost or earning the Southwest Airlines companion pass and receiving a free ticket on any flight. I was hooked!
I opened my first Chase Sapphire rewards card and started to accumulate a balance to hit the minimum spend. I paid the balance off and a few weeks later received 50k in rewards points. Seems like everything worked out…right? Wrong! I spent much more than I would have because I was consumed with hitting the minimum spend by the end date. I racked up $3,000 in purchases (a large percentage of those purchases being from Chick-fil-A & Chipotle). I used the points to purchase plane tickets that I probably could’ve purchased with the savings from Chick-fil-A & Chipotle. After realizing what happened, I cut up the card making it out without paying any interest whatsoever.
However I listened to a podcast a few months later and was mesmerized again by the same stories and experiences that others were having and thought I would give it another shot. Bad idea. Once again I did not track my expenses properly and spent way more than usual. Only this time racking up a balance that I couldn’t afford to pay in full, about $2,800.
|Total Interest Paid||$166.61|
This chart shows the last five months of my credit card debt. It also includes the amount of interest that has piled up. By the time I finish paying the debt I will have paid for my $600 plane ticket (in interest) that I used my 50k Rewards Points points on.
Travel Hacking isn’t for me because:
As much as I would like to think that I am the most disciplined with my money, I’m not. Part of the reason I started this blog is to be held accountable for my financial actions. Even if it is random people on the internet. I now know that I don’t have the discipline (yet) to manage a credit card even with the ‘benefits’ of reward points.
I didn’t know what I was up against
Credit Cards companies invest millions of dollars (maybe billions) every year to get people like me to sign up for credit cards. They have large amounts of spending data on 25 year-old Americans, and can probably predict what I will do/buy next. They even have money to offer bloggers huge incentives to post links to credit cards on their blogs. For all I know, the credit card companies coined the term “travel hacking”. I think taking on the credit card companies huge budget and extensive research may be a losing battle. At least one that is not worth the return. I just want to keep things simple for now.
Now travel hacking isn’t all bad and people have been able to go amazing places and do amazing things with the strategy. I just think that as a 25 year-old in the ‘accumulation phase’ of his FI journey I should be focusing my time and energy in other areas. If you happen to be someone who has complete control over your spending and will be able to pay off every credit card bill on time, then Travel Hacking may be for you. Until then I think I will stick with cold, hard cash.