Travel Hacking Your Family Vacations: Credit Card Rewards

Learn how you can find the best credit card rewards and travel hack so you can save significant money while enjoying a fantastic and memorable vacation!

Travel Hacks to Enjoy Your Family Vacation for Less

We typically talk about ‘responsible’ financial goals, like paying off debts, saving for emergencies, vacations and buying a house, investing for retirement, and so forth. 

Those are wonderful things to take care of, but money can also be used for fun things as well, including travel. 

Look, these past two years have been stressful for so many families and I understand that many of us would like to literally get away from it all.

TripAdvisor did a survey earlier this year to see how people plan to travel this year. They found:

  • More people are looking to travel in 2022 than pre-pandemic reported travel levels
  • Here’s the interesting takeaway: roughly 3 in 10 Americans (29%) who traveled for leisure in 2019 said it's more important now than before the pandemic to splurge on a big trip
  • 41% of Americans said that traveling to a destination they've never been to before would be more important to them now
  • The top three most important considerations, across the markets surveyed, in future travel plans to visit a destination was to get immersive by seeing new places, having new experiences and learning about history and culture.

Planning a family vacation can be a way to not just relax, but mentally recharge and reset ourselves a bit. 

We’ve changed our destinations and stayed in state for most of our trips. Yeah it was a great money saver, but we also got to rediscover and enjoy some awesome spots here in North Carolina. 

We’d love to expand our horizons this year while still keeping safe and staying on budget. 

If you’re in the same boat, I think you’ll enjoy these next two episodes. We’re going to look at how to travel hack your family vacations so you can enjoy more for less. 

Next week we’ll discuss the logistics of planning an epic vacation on the cheap. This week we’re going to dig in and see if you can really snag a deal with travel hacking and credit card rewards.

That’s why I’m happy to have Daniel Rathfelder on the show. He’s the VP of Card Services over at Coastal Credit Union. He’s going to get into how those regards card programs work and how to get the most out of them. 

In this episode we get into:

  • Finding the right reward card
  • How your credit score is affected 
  • Optimizing your credit cards to reap the rewards and not get into debt

We have a lot to cover, so let’s get started! 

Resources to Optimize Your Travel Rewards and More

Looking for ways to save on your next family getaway? Here are some fantastic resources to check out:

Don't forget to join our Thriving Families Facebook group!

Thank You to Our Sponsor Coastal!

thanks to our podcast sponsor Coastal Credit Union. If you want to live better, you have to bank better!

Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.

As a credit union, Coastal serves its members first including an annual loyalty bonus. We've been members for years and love their service and competitive rates on checking and savings accounts!

Rollover Your 401(k) Easily with Capitalize

We’re grateful for wonderful partners like Capitalize. Not only do they support the podcast, but they help make managing your money so much easier. 

Did you know that it’s estimated that there are currently over 24 million “forgotten” 401(k) accounts? In fact, the average American changes jobs every 4 years

And because of the Great Resignation, you or someone you know might be changing jobs even more 

It’s an extreme case of out of sight and out of mind. Is your old 401(k) in there somewhere, left behind at a job you're no longer with?

One huge benefit with an IRA is you get to choose how your money is invested, not your old employer. 

If you want to consolidate your old 401(k) and have more options with how you invest, it may be time to roll them over into an IRA.  

With Capitalize, they handle the process from start-to-finish – for FREE. They handle the process from start-to-finish, and yes that includes calling the 401(k) provider on your behalf. 

Find out how and get started today

Travel Hacking Using Credit Card Rewards

Elle Martinez: Many people have different ideas about travel hacking with credit cards. To double check we're on the same page, here's how I describe it.

Travel hacking is where you can get a discounted vacation- in some cases practically free one- by strategically using credit card rewards. Those rewards can be points, miles, and cashback.

Now you accumulate those rewards by using your credit cards for purchases. Many hackers gained the most by signing up for new cards because typically that's where the big bonuses and rewards are.

Now you could, and others have benefited from this, but how exactly does this work? How do the credit cards stay in business?

Daniel Rathfelder: Utilizing points to redeem for travel is not a new concept. I mean one of the most popular travel cards out there is the Delta sky miles, American express card, for example. That's been around for ages. I think we've all probably gotten an offer in the mail for it or something.

It's definitely one of those, those products that allows people to utilize sometimes their daily spending and redeem that for travel.

From an industry side, Travel cards are built around two key components. One is high interchange on travel merchant categories. So if you're using your card at say a Delta airlines or a Southwest or spirit or whatever, those particular vendors pay a higher interchange percentage on that transaction.

I'm just going to make a round number two and a half percent and so that credit card provider gets two and a half percent of your transaction for that as income. That's why you see usually the travel cards have slightly more appetizing rates or rewards rates than what you would see on a normal like cashback card, where they have to kind of blend the whole thing where like a grocery store, obviously doesn't pay two and a half percent of your transaction. They're more like 0.8 or 0.9% so very different in some of those strategies.

But utilizing a card to make the purchases that are specific to optimizing that reward offer and possibly the introduction of getting a new product definitely allow somebody to redeem for free flights and whatnot.

How Travel Reward Cards Work

Elle Martinez: Yep. There's always costs. I found this fascinating because of how we use credit cards. We have a cash back credit card that we typically use for a big purchase or vacations. We put it on the card and immediately pay it off. That way, if there's any problems, it doesn't mess with our regular checking and savings.

And they can deal with the credit card company. There's always going to be some, trade-offs not just with travel rewards, but with credit cards themselves. Before you sign up for one. There are a few things to consider so that you maximize the reward while not getting burned.

Daniel Rathfelder: The things to think about are what are you actually using in your daily life? You can relate this to that; you're not going to get yourself in trouble, which is the second piece of those rewards cards. Which is those typical high interest rates that you'll see.

You'll start to see the best rates for some of those travel cards in like the 16% number. That's pretty high as an industry. Whereas like lower cash back card or a non rewards card, you can get as low as like eight, 9% on a lot of those. It's very different in the approach and what you want to accomplish with.

How to Find the Right Credit Card Rewards for You

Elle Martinez: If you've been online, looking at anything financial or travel related, you've probably seen those ads about signup bonuses on some of those cards. Typically you have to spend so much within the first three months to get those really great bonuses, but how do you know which rewards are good for you and your family?

Daniel Rathfelder: Yeah, I'll start with annual fee. That's a big one. A lot of the times they'll waive the annual fee for the first year. But then you're from a credit side, you don't usually want to open and close credit cards very quickly. So you're going to be charged at annual fee for multiple years before that, even if you only use it once, put it in a file cabinet or a safe and put, tuck it away for a number of years. So that in mind, it's not just a, one-time kind of hit there's re continuation of that fee.

The bonus stuff is great but a lot of the time and, and what we study in the card industry is how to activate a consumer into a product because none of it pays for us from an activation side, if they're going to use it once and never use it again.

That's why the annual fee sometimes exists. That's why there's three months of incentive, because they're trying to build a behavior for you to use that card.

That's why that happens. So those incentives say, a 60,000 mile bonus or something like that. It was there with a annual fee of say, $95 in waves for the first year.

Then there's probably sometimes like a $20,000 bonus. If you spend say $1,500 in your first three months. A pretty attractive offer, right, right out of the gate. again, Think about what you're doing making sure you can pay that vacation off, or you get a 16, 17, whatever the APR is associated with the card.

Then you're going to be paying that $95 fee the second year, the third year, and probably the fourth year. If you don't use your card ever again, and that's always built into that and you never get those introductory points typically again. The rewards, rates can be anywhere from two to 5%.

Are Those Credit Card Travel Portals A Good Deal?

Elle Martinez: This is serious business for sure. If you decide to go with reward cards, you got to know the ins and outs of it to maximize those bonuses. For some cards, they incentivize you to use their travel sites.

Daniel Rathfelder: The other thing to look for is there's some companies that will be specific to using their travel site. So you can only get that like say on the 5%, which is on a couple of different providers, you have to go through their specific travel.

Spirit airlines, for example, would just typically known or jet blue, low rates on airline fees. You're not going to fly jet blue. You're not going to fly spirit. They have not even options typically at some of those sites.

Be prepared for slightly more expensive flights like American airlines or United or Delta or something like that. You'll pay similar prices or the same price as you would if you book directly through Orbitz, but it's Hey, we're going to use that site.

The reason that they do that is they avoid that interchange a loop because they don't pay; like a orbits, for example, they'd have to pay a percentage for that interchange fee. If you go direct to a site that's owned by the institution, they don't pay that. They just debit the card. They create a backend electronic process and say, okay, I'm just fine and they avoid that. That's why those points systems are a little bit higher through those, those sites.

Is the Annual Fee Worth It?

Elle Martinez: It's probably the personal finance nerd in me, but I was fascinated by how these programs work, especially with the psychology of getting cardholders to develop new habits. There were also a couple other points that caught my attention, like annual fees. I was not aware until digging into it recently.

How varied in how much it could be between cards. I was speaking with someone who's pretty much a professional travel hacker. Don't worry. You'll hear from him in the next episode. He recommended the card and the annual fee was just under $400 but it had a ton of bonuses on top of the one we eventually got.

Considering how much he and his family traveled compared to how we do it, I can understand why he went for it and it just didn't work for us on the number side.

That's why it's so important for you to sit down and look at the numbers to make sure you understand how you're spending and that if you're going with a credit card, it aligns with that.

Which Reward Cards Are Best? Cash Back Cards, Points, or Miles?

Daniel Rathfelder: Yeah. That's a really good conversation to have and to think about when you're going into, what card should I get? How often are you going to use it? If it's kind of a one-time thing a year, like that's how my family offers. We take one nice family vacation a year. That's what we do.

We might go and disappear like to beach or something a couple of times a year, but that's about it. It's not this grandiose, Hey, let's travel and have everybody do that.

A lot of the times, if you're not a frequent traveler or using it for booking frequent travel, the benefits for travel are sometimes less than if you were to look at just using your everyday cashback card.

Even putting all of your general purchases on it, including your travel, a lot of companies will allow you to bank that cash back piece and let it sit off to the side. Then when you're ready to do that vacation, go ahead and dump that over.

It's just an easier way to maybe maintain a lifestyle and not have to change behaviors and not have to watch, make sure. Hey, did I make sure I made the payment on this other card before the due date and don't have credit reporting history or late fees or anything like that. Definitely a couple of different avenues, but it depends on how much you travel.

Elle Martinez: Speaking of paying off for your family, there's another thing to consider when you're trying to find the best rewards card for you. Which is the right option- points, miles, or cashback?

Daniel Rathfelder: Yeah, so miles, a little bit harder to do because as seasonality changes and so forth, it's not something as tangible as cash, right? Like we all know what a dollar represents. We don't really understand 10,000 miles represents, like it's a little bit of a question and that 10,000 mile piece can change.

It's actually interesting, like the cost of gas, for example, for everyone has gone out including airline industry. You know, what you could get for 10,000 miles a year ago is very different than what you can get for 10,000 miles today. And it sometimes like, Why doesn't that compute?

Why do I need 25,000 miles for the trip that I only need 10,000 last year? But yet the way that the mile odometer kind of runs on the rewards points is always the same. It doesn't change the card. Now I know that some people would say, well, that's a pretty direct relationship to the cost and cash.

Yeah. But if you're getting a cashback card, you at least know, maybe I can choose a cheaper flight or maybe I can choose a flight live another carrier or whatever. That would be a little bit less. So it again, depends on how often you travel.

A lot of times, like you were saying your friend's recommended a card that he uses all the time. It sounds like he's a frequent traveler. He probably enjoys going to the airport lounges. But in that same token he, he probably enjoys flying the same carrier or the same airline pretty regularly. There's no bonuses because he's flying an airline with maybe using their card and, you know, free checked bags or free upgrade or something like that.

Again, it's all built into that financial model for them, but yeah, that, it's very different.

The other thing I'll say a lot of people do is they'll actually sign up with a business and use their credit card with a points model or something like that to accrue. Then sometimes use that for personal personal gain if they're traveling a lot for business.

That's a fairly good avenue because at least, it's possibly under the business for the credit reporting side. At the same time from a financer accounts payable piece, that's an easier ask to make sure that those are paid on time.

How Your Credit Score is Affect When Opening New Reward Cards

Elle Martinez: Since we're talking about opening up new accounts, one concern I heard from families was how doing that affects your credit score.

Daniel Rathfelder: I think the one common misconception people have when they talk around credit score is they think, well, if I do this, how many points do I lose off my credit score? That's not necessarily the case.

It kind of depends on your full picture, but what I will say is every inquiry that put on your credit report, which this would be an inquiry. If you apply for a card and get a card or even just apply, it does add to the risk of what the model sees so that typically lowers your score.

If you had a great credit score and then did 20 credit card inquiries to apply and see which ones you got approved for, maybe you've got to proof for all. That would cause a lot of detriment to your credit because you did 20 inquiries and then possibly you open 20 accounts up. Even though if you never put a balance on any of them or paid them on time or whatever, it, it is more risky to a lender to give you a loan later.

That's really what a credit score is: a representative of is the associated risk or it's really a probability of bankruptcy.

If you have more inquiries or open more cards to get more bonuses we, as a financial institution are going to go, Hmm, they're a little bit more of a risk because if something were to go wrong in their life, a life event happens, which those happen all the time.

They now have say $60,000 available for credit card debt, almost at the drop of a hat. Right. they could go all of that credit card debt, and then we might be on at the same time if we extend to them alone.

So it's not necessarily a direct relation, but yes, it does affect your credit. Then closing the credit cards after you're done using the points that actually has a more negative effect than just opening the card.

Now, some people even us as a financial institution might recommend that for certain cases, but in a lot of the cases, if you have a good credit score and start closing credit card accounts that will lower your score, at least temporarily until that back.

Being Wise with Travel Hacking Using Reward Cards

Elle Martinez: I hope you enjoyed seeing how those credit card rewards programs work. Before we finished up, Daniel had some great advice to keep in mind.

Daniel Rathfelder: Honestly, it's kind of pick and do the planning, right? Any part of your financial life should be somewhat, at least the majority planned. What does that monthly budget look like? What savings? What's retirement? Generic things; right?

Even the credit card component, like you were sharing traveling with your family, possibly in the fall, how often are you going to do that?

Is that like once, every couple of years? Try to maybe take ourselves out of the pandemic for a couple of minutes, but pre pandemic or post pandemic. What does that look like for your family? Is that going to be an every year thing and then start to figure out, okay. If I do that every year, what it's going to cost?

This is my fee. I can calculate what my rewards are going to be now on what they're going to be next year. Start doing just some really, really simple math. I mean, this is back of napkin, use your iPhone calculator, math. It's not super hard.

Then is that something that you feel is that there's risk and your other pieces of your financial life that would, if you opened up a credit card, You'd have to put something else on it. Would you ever pay interest on it or could you pay it off?

Those are really important. And then I'm going to go back to my earlier point. Could you just live with a cashback card? I mean, again, all of these providers, they typically have it cashback card without a travel rewards component to it that a lot of those don't have annual fees.

As a benefit you would compile and get the cash and use the cash when you're ready for that vacation. Then do you need a manage it? Is there a credit score issue? Is it easier for you to control?

Support the Podcast!

Thank you so much for listening to the podcast! If you enjoyed this episode and found it helpful, here are some ways to support it.

  • Spread the word! If you enjoyed this episode and think it can help a buddy get on the path to dumping debt and becoming financially free, please share.
  • Leave a review. Honest feedback and reviews make a big difference and gets the word out about the podcast. Leave your review on Apple, Spotify, or Audible.
  • Buy me a cup of coffee!

Need an Extra $5K in Your Pocket?

Learn how to find, save, and earn more money in this free email course!