Yahoo Finance Travel Hacking for Newbies: the Risks and Rewards
As we approach the busy summer travel season, recent reports suggest airfare prices will be the lowest consumers have seen in several years. According to Hopper, an airfare prediction app, domestic travelers can expect to pay an average of $240 for a round-trip ticket in June, a 12-percent drop compared to last year and a 20-percent price break from 2014.
For a subset of American travelers, however, these prices are still too high. Credit card churners, better known as "travel hackers" who vacation around the world for a sliver of what it costs the rest of us, know how to score airfare hotels and other travel-related expenses to both domestic and international locales for little to nothing.
[See: Best Credit Cards.]
Credit card churning is the practice of opening multiple credit cards to earn bonus miles and other perks, and represents the primary method used by travel hackers to see the world at deep discounts. Ariana Arghandewal, owner of the blog PointChaser.com, booked a $90,000 first-class trip to Asia for her family last summer for just $1,500. Jared Kamrowski, founder of ThriftyTraveler.com and seasoned travel hacker, says he's earned over 5 million miles during the past seven years.
Sounds too good to be true, right? It isn't, though it's not without its risks and disclaimers. "There isn't anything illegal about the practice of travel hacking, as promotions are intended to be pursued by consumers," says Carl Seidman, a certified professional accountant, or CPA, and financial advisor in Chicago. "However, the practice should be approached with significant caution by people who have less-than-stellar credit or financial discipline."
Most travel hackers and financial experts agree that credit card churning is not for consumers currently struggling with debt, or for those lacking the income and spending discipline to monitor and pay off monthly balances on multiple credit cards. "Someone new to the concept of travel hacking will have to first assess the amount of time they can devote to it, as well as their credit score," Arghandewal says. "Applying for mile-earning credit cards requires a credit score well above 700."
[See: 12 Simple Ways to Raise Your Credit Score.]
In addition to having sound financial habits and an excellent credit score, an organizational system of some kind is necessary to effectively manage cards. Kamrowski recommends an app like Mint to keep track of credit card balances and due dates. "I use a spreadsheet to manage all our cards [over 30], and track when they were opened and when they should be closed to avoid annual fees," he says.
At this point, you may be wondering how opening multiple credit cards on a constant basis impacts your credit score. "You'll be surprised that as you open more cards and successfully manage them, your credit score will actually go up," Kamrowski says. However, if you end up spending more than you can afford to reach sign-up bonuses, your credit will suffer as you struggle to make payments. And those sign-up bonuses don't come cheaply: Most require that you spend between $2,000 and $3,000 within the first three months of opening the card. If you open several of these cards within a short time, you may need to spend upwards of $10,000 in just a few months. "For people who pay off their credit card balances each month and intend to spend that sum of money anyway, the promotion makes complete sense," Seidman says. But for those without the means or fortitude to pay off multiple balances each month, the results can be catastrophic.
[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]
"Coming from the perspective of a financial professional, the greatest risk [of travel hacking] comes to people who change their spending habits simply to meet the seduction of the promotions," Seidman adds. The financial impact of missing payments and carrying too much debt across multiple credit cards will quickly overshadow any benefit to travel hacking. "The key is to be conservative - credit card churning is a marathon, not a sprint," says Jared Blank, chief marketing officer for DealNews. "Newbies should start with one card at a time and wait three months before applying for the next card," he advises, and also suggests setting up automatic payments to your credit cards from your bank account. "If you mess up your credit because you've forgotten to pay bills, you may end up with deep problems getting a mortgage or a car loan in the future."
Discouraged yet? Don't despair. "For those who have their finances under control, travel hacking can be an inexpensive way to embark on amazing travel [that's] prohibitively expensive to average people," Seidman says. Indeed, Arghandewal's trip to Asia is exemplary of that, as are Kamrowski's travels. "My wife and I fly international trips two to three times per year and always use points and miles to fly first or business class," he says. "We just got back from Dubai, United Arab Emirates and Spain recently, and stayed in Hyatt and Starwood hotel suites all on points, along with free plane tickets."
While not without its risks, travel hacking can result in some pretty out-of-this-world experiences for very down-to-earth prices. Managed properly, the practice can make the ever-present fluctuations in travel costs irrelevant, something everyone can get behind on this cusp of a congested travel season.
Kendal Perez is a spokeswoman for CouponSherpa.com, a popular source for online, in-store and mobile coupons. She also blogs at Hassle-Free Savings and enjoys yoga, decluttering, craft brew and obsessing over her dogs.
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