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A common theme on this blog is an emphasis on financial simplicity. Get the big things right and automate them.
Anything that causes you to apply more effort with your personal finances should produce outsized results. One example from my life has been using credit card travel rewards.
Kim and I traditionally put the vast majority of our spending on a credit card that provided cash back rewards of 1-2%. This strategy produced about $500 per year on average.
About four years ago, we started experimenting with credit card travel rewards. Since then, we apply a bit more effort to select and sign up for 2-4 credit cards each year. We then put most of our spending on them as we always have. For our efforts, we typically reap several thousand dollars per year in nearly free travel.
Read on to:
- learn key lessons I’ve learned over the past few years,
- discover strategies to shorten your learning curve,
- understand how we’re adapting our strategy during the pandemic, and
- see if this is a strategy that makes sense for you to incorporate as well.
Do No Harm
Before going any further, it is worth stating the obvious. Many people get in trouble by spending more than they can afford by using credit cards. This is why I traditionally haven’t written much about credit card rewards.
If you have not mastered the basics of personal finance, using credit cards is like playing with fire. You have to be careful or you can get burned.
However, readers of this blog tend to be financially literate and responsible. Using credit card travel rewards is a strategy that I personally use and recommend to friends and family when appropriate. Not sharing this strategy is being paternalistic, when I strive to be transparent in my writing.
As with everything we write about, personal finance is personal. I am not suggesting anyone should do anything you are not comfortable with.
After reading that disclaimer, you may decide you’re not interested in learning more about obtaining and using credit card travel rewards. If so, more power to you. Skip the rest of this post and come back next week.
For those who are interested, read on for examples of the value I’ve received, lessons I’ve learned, my favorite travel rewards cards, and how we’re adjusting our strategy to match our new travel habits in a COVID-19 world.
Why I Love Travel Rewards
Let’s start with why I love using credit card travel rewards so much. In two words, it’s lucrative.
Our prior strategy of putting all of our spending on a cash back card gave us back 1-2% on our spending. Over the course of a year, that amounted to a few hundred dollars each year.
Signing up for one of the best credit cards per year and spending enough to earn the welcome bonus can provide over $1,000 in value. For those willing to put in more effort and sign up for a few cards each year, this process is replicable creating thousands of dollars of value each year to use toward travel expenses.
In our experience, it is very easy to get returns of well over 20% back in travel rewards on all of your normal spending by opening a few new credit cards each year. While this is reason enough to consider this strategy, the tax benefits make using these rewards even more valuable.
Tax Advantages of Using Rewards
Consider the following example. If you were going to book two flights that cost $500 each and 5 nights in a hotel at $100 per night, simple math says that would cost $1,500.
But consider how much you would have to earn to take home $1,500 to spend. Depending on your effective federal plus state tax rate, you may have to earn $2,000 or more.
Think of travel rewards as coupons or vouchers. They are not income, so they are not subject to income tax. Earning $1,500 worth of travel rewards gives you $1,500 of spending power.
Early retirees may have a low effective tax rate. But having the ability to spend money to travel without generating more taxable income can be advantageous when obtaining ACA subsidies which are determined by your taxable income.
Better yet, many travel rewards are able to be redeemed in a way that avoids the high taxes that accompany commercial airline travel or hotel accommodations.
Taxes and fees on a domestic flight can be greater than 25% of the cost of the ticket. When flying by redeeming airline points, you not only save on the ticket price. All of the fees and taxes disappear as well, with the lone exception of the September 11th fee of $5.60 per person per flight.
Hotel rooms can also have outrageous taxes. One study shows the lodging tax rates of the top 150 cities in the USA range from 13-17.9%. It is not uncommon to pay local and state sales tax on top of hotel taxes on the same transaction. Using hotel rewards for travel can enable you to avoid these taxes.
Some Of Our Wins
There was a bit of a learning curve when we started using credit card travel rewards. The first time we attempted to use travel rewards for a ski trip in 2016 was a mixed bag. We got two free cross country flights saving us nearly $1,200. But I bungled the booking of our hotel and couldn’t accumulate enough points for a rental car in time for our trip.
We quickly learned strategies that I’ll share below that lessen the learning curve. Since then, we’ve been able to accomplish the following:
- Kim and I did a ski trip in 2017. We were able to get two round trip flights from Baltimore to Salt Lake City on Southwest airlines and four nights in a (at the time) brand new Hyatt hotel. All came from the rewards from a single credit card. We also rented a 4WD SUV in peak ski season, paid for with the rewards from a second card.
- When looking for our early retirement destination, we paid for three round trip flights from Pittsburgh to Salt Lake City, 10 nights in an AirBNB, one night in a Hampton Inn, and 11 days of a rental car with travel reward points.
- Since moving west in the summer of 2018, our family has taken three cross country flights (9 flights total). I’ve also attended two FinCon conferences, in Orlando and Washington D.C. That’s eleven roundtrip cross-country flights, six during the peak holiday season. All were paid for with credit card rewards, saving us thousands of dollars.
Other Credit Card Benefits
We put nearly all of our spending on credit cards which we then pay off at the end of the month. This provides several benefits in addition to any credit card rewards.
Whether we like it or not, our credit scores impact multiple facets of life. Your credit score affects whether you are approved for a mortgage or other loans and the rate of interest you will pay on them, whether a landlord will rent to you, some insurance rates, and even your likelihood of being hired for certain jobs.
Some people worry that using multiple credit cards may hurt your credit score. There is some truth to that.
It’s important to know what factors affect your credit score. Hard inquiries when opening accounts and decreased credit available when closing cards will temporarily hurt your credit score.
However, our strategy of using credit card travel rewards has helped far more than it hurt our score. Putting our normal spending on credit cards provides an ongoing payment history since we no longer have any mortgage or car debt. Having multiple credit card accounts means we have a lot of credit available and thus a very low credit utilization rate. Keeping a few cards with no annual fees open for years provides a long credit history. All of these factors help us maintain an excellent credit rating.
One thing I love about using credit cards is the simplicity of tracking our spending. Rather than keeping multiple cash receipts or using budgeting or spending apps, we have the vast majority of our transactions on our credit card statement. It then takes just a few minutes per month to enter them into our budget tracking spreadsheet.
Our Simple Credit Card Strategy
Our approach to using credit cards is to apply an 80/20 analysis to the process, looking for the few important actions that will deliver the majority of the desired results.
The first principle is to look at the welcome bonus that credit cards are offering before signing up. We traditionally got 1-2% cash back on all of our purchases with no thought or effort.
Any action that would merit applying time and effort would have to add considerably more value. That added value comes through the bonuses that credit card companies use to incentivize signing up for a new card.
Once you understand this principle, it is worth your while to be aware of the value of the reward and what is required to earn it. Typically, this requires spending between $2,000-5,000 on the card within three months after you’re approved for it.
Our relatively frugal family can have a hard time hitting those numbers. We look for times when we know our spending will be higher.
For example, last summer we were doing a kitchen renovation and knew we would be buying new appliances. Each March or April, we buy ski passes for the next winter. When we know we have these larger expenses looming to supplement our normal spending, we look for a new card.
Repeating this simple process 2-4 times each year has enabled all the free travel outlined above as well as an assortment of other shorter flights, hotel stays, etc.
We keep a spreadsheet tracking when the annual fee is due and what perks the credit card provides. If the ongoing value of the card exceeds the annual fee, we keep it. If the value doesn’t justify the fee, we close it before the fee is due.
There are a few universal principles that everyone considering using credit cards for travel rewards should understand.
One is this understanding that you can get outsized value by signing up for new credit cards and making sure that you spend the minimum amount within the specified timeframe to earn any welcome bonus offer.
Another is that you want to be purposeful with how many cards you apply for and how you go about applying for them. Don’t get overzealous when getting started.
In our household, either my wife or I will sign up for a card. We do not add the other person as an authorized user.
Applying for too many cards too quickly can result in missing out on valuable welcome bonuses, excessive credit inquiries that can hurt your credit score, and it may prevent you from getting cards you want in the future. Opening too many credit cards can lead to being rejected for future cards by some providers.
Beyond that, your strategy will depend on your travel desires. Factors to consider include where you’re traveling from and where you want to go, the style of travel you prefer, preferences for particular airlines or hotel chains, etc.
With that in mind, I’ll share both the general types of cards and the specific cards that we’ve found most valuable in our four years of experience using travel rewards for ourselves and helping friends and family members with this strategy.
Most Valuable Rewards
I’ve found the most valuable credit card rewards are the Chase Ultimate Rewards points.
For maximum simplicity and flexibility, Chase Ultimate Rewards points can be redeemed for cash back or the purchase of gift cards. Redeeming rewards in this way, one point equals one cent.
You can book travel directly through the Chase Ultimate Rewards website where your points go further, increasing their value by 25-50% depending on which card you have.
You can also transfer Chase Ultimate Rewards points to airline and hotel partners where your points may go even further. This includes ten airline partners, including British Airways, JetBlue, United, and my personal favorite Southwest Airlines. Hotel partners include IHG, Marriott Bonvoy and World of Hyatt.
I generally recommend people new to using travel rewards start with a card that provides Chase Ultimate Rewards points if they can hit the spending requirements to obtain the bonus for three reasons:
- The points are easy to redeem to eliminate statement credits,
- Booking travel through their website or transferring them to partners makes the points even more valuable, and
- Chase may limit the number of credit cards from any company you can get in a twenty four month period.
How to Get Chase Ultimate Rewards Points
My wife and I each have used the Chase Sapphire Preferred Card which currently is advertising 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. It has a $95 annual fee. If you only plan to sign up for one card, I would choose this one due to the value and flexibility of the reward points.
The 60,000 reward points are worth a minimum of $600. This value increases to $750 if redeemed through Chase Ultimate Rewards towards travel, and potentially more if points are transferred to a partner airline or hotel.
Other cards offer Chase Ultimate Rewards Points. When we were landlords, we opened a Chase Ink Business Preferred Card. This card is currently advertising 100,000 points as a welcome offer, but you have to spend $15,000 in the first 3 months from account opening to earn the bonus.
These offers vary. Just a few months ago the spending requirement was only $5,000. We’ll keep this page updated when offers change. This card, which has a $95 annual fee, is an excellent choice if you are a business owner and are able to hit the spending limits.
Chase’s premier card is the Chase Sapphire Reserve Card. We haven’t pulled the trigger on it yet, due to its $550 annual fee. However, it’s on our radar for when we’re confident we can resume normal travel.
This card has valuable features for frequent travelers including points being 50% more valuable when redeemed through Chase Ultimate Rewards, a $300 annual travel credit, entry to 1,000+ airport lounges worldwide and a $100 application fee credit towards Global Entry or TSA Pre✔®.
Easiest Introduction to Travel Rewards
For someone new to the world of travel credit card rewards, it’s hard to go wrong with the Capital One Venture Rewards Credit Card, currently advertising a welcome bonus 60,000 miles if you spend $3,000 on the card within the first three months after opening the account.
These 60,000 miles have a value of $600. The Capital One Venture Rewards Credit Card and the miles are extremely easy to use. You simply pay for a travel expense with your card and then apply your miles to pay for travel expenses. This card has a $95 annual fee.
There is also a Capital One Venture One Rewards Credit Card that has a lower spending limit of only $500 in the first 3 months and no annual fee. The 20,000 point bonus alone is worth $200 in free travel credits.
These are simple, intuitive and valuable cards for someone new to credit card travel rewards.
A similar card that we’ve used in the past was the Barclay Arrival+ card. That card has since been discontinued.
The upsides of these types of cards in addition to their ease of use are flexibility with which you can use them. Miles or points can be redeemed for any expense coded under the travel category. We’ve used these cards to pay for rental cars and AirBNB rentals.
Varying Rules and Values
The discontinuation of the Barclay Arrival+ card highlights one of the few downsides of using credit card travel rewards in general. Getting the most value from this strategy requires keeping up to date on constantly changing offerings, rules, and regulations from the different credit card providers to get the best value.
Several offers have substantially changed between when I originally wrote this post in mid-March and eventually published it in October of 2020. Some of the introductory offers improved, while others became less lucrative or harder to achieve. We’ll keep this page updated and periodically alert you on the blog so you’re aware when offers change and outsized rewards are being offered.
Co-Branded Airline and Hotel Cards
Cards offering Chase Ultimate Rewards, a similar Membership Rewards® program with American Express, and the Capital One® Venture® Rewards Credit Cards are valuable because they offer a variety of travel reward options. There can also be great value in credit cards that partner with specific airlines or hotel chains.
After these flexible reward programs, we have historically focused our strategy on airline miles or points with our preferred airlines, because they have been more valuable for us than hotel points. We tend to stay with friends or family a lot when traveling. When that’s not an option we like using AirBNB’s for the ability to cook our own meals and have more space with our young daughter. Still we have gotten value out of a number of both airline and hotel specific credit cards.
Favorite Airline Cards
Southwest Airlines’ Rapid Rewards® is our favorite airline rewards program. In addition to the ability to transfer Chase Ultimate Rewards Points to Southwest Airlines, Chase offers several co-branded credit cards with Southwest Airlines.
There are also two business card offerings for those of you who are business owners, the Southwest Rapid Rewards® Performance Business Credit Card and the Southwest Rapid Rewards® Premier Business Credit Card.
This combination of offerings gives abundant opportunity to earn Southwest Airlines’ Rapid Rewards® miles. These miles are extremely easy to use compared to every other airline.
To redeem Rapid Rewards® points, you simply go to the Southwest Airlines website, enter your desired travel departure, destination, dates, and number of travelers. Fares can be displayed in dollars or points. You simply select points, book your flight, and the points are deducted from your account.
These points are extremely valuable and convenient when traveling with our family of three and particularly when traveling in peak summer or holiday travel seasons when we currently do the bulk of our travel due to our daughter’s school schedule. They are also easy to accumulate.
Using the co-branded Southwest Airlines cards also can enable you to earn a Southwest Companion Pass. It entitles you to take another person with you for free every time you fly on Southwest.
I earned a Companion Pass, which is good until the end of 2021, using sign up bonuses earlier this year. Hopefully, I’ll want to use it by the time it expires!
Last year, we discovered that Delta had daily direct flights from Salt Lake City to Pittsburgh. So we signed up for the Delta SkyMiles® Gold American Express Card, when they had a similar offer to the one they are currently advertising: Earn 60,000 bonus miles after you spend $3,000 on the card in your first three months after signing up. They waive the $99 annual fee for the first 12 months.
We ended up being able to get two of our three round-trip flights for Christmas in 2019 for free by using the rewards from this one credit card. A secondary perk is everyone who books their flight on the card can check their first bag for free. Being aware of that perk, we packed all of our things into two suitcases and saved an additional $120 on the trip.
American Airlines, United, British Airlines and More
I highlighted Delta because it was a good fit for our needs. There are also co-branded cards for American, United, and British Airlines.
The big advantage of any of these airlines over Southwest is that they are all part of alliances with other airlines. This gives more options for international travel, if that is your preference. Miles can also be moved around between the airline reward programs within the different airline alliances to make your miles stretch further.
CardRatings keeps an up to date list of the current offers for each of the airline’s co-branded cards. You can find them here.
Favorite Hotel Cards
We’ve traditionally put the least time and effort into hotel rewards points because we’ve found better value elsewhere. That said, this can be another area that offers tremendous savings.
My wife’s past job required occasional travel, typically staying in Hilton properties so we started experimenting with hotel rewards by signing up for a Hilton Honors credit card to add on to the points she alread had accumulated. There is currently an offer for a similar Hilton Honors American Express Card with no annual fee and a welcome offer of 80,000 points if you make just $1,000 in purchases in the first three months of card membership.
We’ve since found better redemption value with Hyatt, Marriott Bonvoy and IHG Hotel reward points. All are partners with Chase Ultimate Rewards, where we used the points to experiment. Each of these chains also have their own co-branded hotel specific cards.
New Strategies During the Pandemic
I originally wrote and planned to publish this post in mid-March. I held off on publishing it for two reasons. It felt wrong to publish a post about traveling when all but the most essential travel was shutting down and travel was being discouraged. I also didn’t know how valid the strategies that had worked so well for us in the past would work going forward.
There was talk of airlines and hotel chains filing for bankruptcy and many credit card rewards programs were being dialed back. These are still possibilities and trends haven’t totally shifted back to pre-pandemic norms. We have started doing a little bit of travel and I’ve noticed credit card reward programs are again getting more generous. So the strategies are still relevant.
We’re all adapting to a new way of life. For us, travel and adventure are an integral part of our lives. But we’ve shifted to a focus on more local microadventures. So our travel rewards strategy is changing as well.
If I was starting today, I would still begin by looking at cards that offer Chase Ultimate Rewards points. These are excellent options if you can hit the relatively high spending limits.
Easy and flexible redemptions with Capital One® Venture® rewards as outlined above are also still a good place to start. This is especially true if you prefer to stay in AirBNBs over hotels, as seems to be a trend during the pandemic.
We’re not currently eligible for some of these cards due to having used them recently. The ones we are eligible for either have too high of a spending threshold or too high an annual fee to make them attractive to us given uncertainty of future travel.
Deemphasizing Airline Rewards
In the past, we focused on airline rewards because we found great value there. At the moment, being packed into an enclosed metal tube is not appealing. Any of the airlines could still declare bankruptcy, merge with another airline, or simply discontinue or devalue airline miles before we could use them.
In the event that airline travel becomes more appealing, we are sitting on a Southwest Companion Pass that is valid through the end of 2021 and over 150,000 Southwest miles between Kim and I. We also have enough points for a few free flights with other airlines.
Emphasizing Hotel Rewards
We’re shifting our focus to accumulating hotel rewards. We’ve begun doing shorter driving trips and it is nice to have options to stop and get a good night’s rest without dropping over $100 just to sleep in a bed and get a shower before getting back on the road. We’re also looking ahead to next summer, when we’ll likely do a cross country road trip to see family if flying is still unappealing at that point.
We recently applied for the IHG® Rewards Club Premier Credit Card. You can currently earn 140,000 IHG bonus points with this card by spending $3,000 in the first three months after being approved. This card has an $89 annual fee that is waived for the first year.
IHG is attractive because they have hotels virtually everywhere including Holiday Inn, Crown Plaza, Staybridge and Candlewood properties.
IHG points are valuable. I anticipate getting 7-11 free hotel nights in the more budget end Holiday Inn hotels or a few nights in higher end luxury properties from this card. It shouldn’t be hard to get a value of around $1,000 for signing up for this one card.
There is also currently an opportunity to earn 100,000 IHG bonus points on the IHG® Rewards Club Traveler Credit Card after spending only $2,000 in the first three months after opening the account. This card has no annual fee.
Marriott properties are also very easy to find in most locations. These points stretch about equivalently to IHG points. I would personally choose either a card offering Marriott Bonvoy or IHG points depending on who had the best offer at the time I was looking.
The Marriott Bonvoy Boundless™ Credit Card currently enables you to earn 75,000 points if you spend $3,000 on the card in the first three months from account opening. You also receive an additional Free Night Award (valued up to 35,000 points) every year after your account anniversary.This card has a $95 annual fee.
For those that want Marriott Bonvoy points, but would have a hard time hitting the minimum spending requirement or prefer a card with no annual fee, the Marriott Bonvoy Bold™ Credit Card is a good alternative. It currently requires you to spend only $1,000 in the first three months after opening the card to earn 30,000 bonus points. It has no annual fee.
Hyatt and Hilton Honors
Hyatt points provide the best value of all the hotel reward programs in my experience, but their properties are not as easy to find as Marriott and IHG. Conversely, Hilton properties are everywhere, but we’ve found their Hilton Honors points don’t stretch nearly as far as the other major hotel chains for comparable accommodations.
You can view all the current offers on hotel co-branded credit cards here.
Cash Back Rewards
If the idea of signing up for a new credit card for the bonus has your interest, but you don’t anticipate resuming travel in the foreseeable future, cash back credit cards may be of more interest to you.
CardRatings maintains a list of the current offers on the best cash-back cards. As you can quickly see, the cash back rewards are not nearly as lucrative as what is possible with travel rewards. For that reason, this is not a strategy we will personally pursue.
However, if you need to get a new card, these bonuses are an easy way to earn a couple hundred dollars with very little effort.
Interested In Credit Card Travel Rewards?
For readers who share my interest in travel credit card rewards, we’ve established an affiliate relationship with CardRatings. This creates an outlet for us to make money to support the blog while writing about this topic that I personally love and use.
It also motivates me to stay abreast of the newest developments and best offers for my own benefit and to share them with you. This will help us all to travel more while spending less.
If you want to support the blog when you sign up for new credit cards, we will earn a commission if you click on the links in this post to do so. I’ll be keeping this page up to date as a reference, with updates to any new offers as they become available.
It won’t cost you anything more and you’ll be getting the best current offer on the internet through CardRatings. Thanks for your support and happy traveling!
Can I Retire Yet has partnered with CardRatings for our coverage of credit card products. Can I Retire Yet and CardRatings may receive a commission from card issuers.
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at email@example.com.]
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