The path to financial independence is not about living a life of deprivation. You can travel more than you realize for free or very cheaply using travel rewards. This is an easy way to reduce a large expense in your annual budget! The general idea is that you use credit card rewards (earned through sign-up bonuses) to cover your travel expenses.
This strategy isn't for everyone!
If you have a poor credit rating, you use credit cards to make it from paycheck to paycheck or you are about to apply for a large loan, this strategy is not for you.
Find the right travel rewards card for you
First, consider what travel you and your family like. Do you have a honeymoon to a tropical location coming up? Or maybe a family location to a theme park? Do you value flight miles or more maybe hotel reward points? Understanding what travel rewards are offered by different cards will help you narrow down your search. Also consider the annual fees that different cards have (and if they are willing to waive for the first year.)
Understand the spending requirements
Most cards will have a minimum spend requirement to earn your sign up bonus rewards. In order to reach your spending requirement, put your food and gas and some discretionary spending on the particular card that you have signed up for, and use that card exclusively until it is finished or nearly finished, then pivot to the next card. Don’t be in a rush - as long as you complete the minimum spend requirements in the specified amount of time you will earn your rewards.
Utilizing additional earning opportunities
If you live a very frugal lifestyle and do not have enough expenses to run through the card, plan your minimum spend around a big purchase. The card can be used to pay your property taxes or income taxes, and if you are close but need a little extra, you can get a jump on holiday shopping.
Use your reward card with purpose
Travel reward cards usually offer more in terms of rewards than cash back cards. For example, if a cash back card offers 1.5% in cash back then spending $3,000 will earn you $45. However, with a card that offers travel rewards, that same $3,000 in spending may get you between $600-$1,000 in free travel. In order to maximize your rewards, stop using your credit card sporadically, but instead use it with intention and purpose.
Do NOT open a department store card
This is a waste of an application. Department store cards often have a low limit and can only be used at their store. The rewards you get from department store cards is often very low. Don't waste an application to save $10 on your bargain clothes when the alternative is getting hundreds in free travel.
Now you understand the basic of using credit cards responsibly to earn free travel!
Understand how this strategy
affects your credit score
When you open a line of credit, the company offering the credit does a hard pull on your credit score. The hard inquiry will decrease your credit score by 2 to 5 points, and this rolls off after a few months. Then the credit card company also looks at your utilization. If you have a $20,000 limit and only owe $100, this is a low utilization rate. A low utilization rate is looked at favorably and can boost your credit score. Again, this strategy of using credit cards for travel rewards is only recommend for people who can keep a $0 balance month-to-month.