I’ve been travel hacking for years now and have taken some incredible trips, but there’s one thing the travel hacking community doesn’t focus on that I think needs more attention: risks and rewards. Travel hacking will allow you to travel in luxury for cheap, but there are some consequences involved if you’re not careful.
While many other travel hacking sites will typically glaze over these facts, as someone who is a bit more conservative, I like to point out that it’s not a completely free ride. To be realistic, if you’re only applying for one new card a year, nothing bad will likely happen. But if you fall down the rabbit hole, there are some things you need to be aware of. Here are the risks and rewards of travel hacking.
The rewards of travel hacking
The obvious benefit of travel hacking is the cheap luxury travel you can get. For example, I flew first-class on Emirates from Dubai to Toronto. That flight typically costs about CA $13,000, but I ended up paying just $100 or so in taxes. I didn’t even have to pay any annual fees when signing up for credit cards while accumulating points for the flight.
On a trip to Boston, I redeemed five nights at the Residence Inn Downtown/Seaport. It cost me 200,000 Marriott Bonvoy points thanks to the book five nights on points, pay for four promotion. Since there was a football game during the same weekend I was there, the cash price was US $450 a night. That’s a total of US $2,250 or CA $2,780. Sure, I probably paid about CA $480 in annual fees to accumulate that many points, but clearly, it was worth it as the value of my points was well above what I consider average (.9 cents per point).
Then there are the overall benefits that come with having specific credit cards. For example, I’ve become an airport lounge snob. I hate sitting in the common areas. Each lounge visit saves me US $32. Thanks to my American Express Platinum Card, I’ve also been able to take advantage of priority lines at Pearson International Airport. Having no foreign exchange fees saves me at least 2.5% whenever I make a purchase that’s not in Canadian dollars, and free travel insurance is always a plus.
The rewards of travel hacking are clear, and you don’t even need to apply for a ton of credit cards to reap the benefits.
The risks of travel hacking
It’s really easy to humblebrag about travel hacking rewards, but there are also some risks involved. Many travel hackers will never talk about this openly as it’ll take allure away from the whole travelling for free dream. I’m not saying all of the following will happen, but it’s something you need to be aware of if you decide to start applying for multiple credit cards.
Your credit score will drop
Whenever you apply for a new credit card, your credit score will drop a few points. If you’re only applying for one new card a year, this won’t matter at all since your credit score will eventually go back up. However, let’s say you’re aggressive with applications and get six new cards in a one year span. That’s a lot of hits you’re taking to your credit. If you need a major loan such as a mortgage, lenders deny your application since you’ve been aggressively credit-seeking recently. If you know you’re going to need a significant loan shortly, avoid applying for many credit cards.
You could get shut down
American Express has recently taken a hard stance against people who abuse welcome bonuses. There have been multiple reports where American Express has shut down the accounts of people who are constantly applying for new cards and then cancelling them before their annual fee posts. Amex is under no obligation to give you a reason why you’ve been shut down, but if it does happen to you, you’ll lose any points that are still in your account. To avoid this, either keep your American Express cards or wait at least 24 months before applying for the same card again.
Other credit card providers are also cracking down. They’re clearly monitoring certain accounts that have had unreasonably activity and are no longer approving them for new products.
You could miss welcome bonuses
When you travel hack, you need to make sure you get the sign-up offers that come with credit cards as they’re the quickest way to earn points. The issue is, these bonuses will often come with a minimum spend requirement. For example, you may need to spend $1,000 – $5,000 within the first three months of cardmembership.
If you sign up for a bunch of cards and have no plan on how to meet the minimum spend requirement, then you could miss out on the offer. This is the biggest mistake you could make, so be sure to have a spending plan in place. Additionally, some credit cards only allow you to get the welcome bonus once every 12 months or once in your lifetime. Always read the terms and conditions to ensure you’re still eligible for any available offers.
It’s not easy for travel families to travel hack
Even though travel hacking as a family is possible, making redemptions can be complicated in certain situations. For example, getting three or four seats in economy with points is pretty easy. However, since most families can only travel during the peak season, they’ll pay peak prices. That means you need to save more points.
In addition, if you want to fly business class with your kids, it’s going to be hard if you’re not planning well in advance. Most loyalty programs release award seats 320 days before a flight. That’s the optimal time to try and secure four seats. If you don’t book something right when that window opens, seats may not be available later as airlines will try to find a paying passenger. Spots in business will open up again 20 days before departure, which is great for flexible people. The problem is, most families aren’t that flexible.
Terms and conditions could change
Whenever you earn rewards, your goal should be to burn them as soon as you possibly can. You want to do this because loyalty programs can change their programs at any time, which could devalue your points. For example, that flight to Asia you were hoping to get for 120,000 Aeroplan points could later be 150,000 points since Air Canada now considers your dates peak.
As a casual points collector, there’s always a risk when saving up your points. But, unless you’re constantly redeeming your points, there’s nothing you can do about it. It’s just something to be aware of.
Do what you’re comfortable with
After reading the list of risks, you might be wondering if travel hacking is even worth it? The reality is that if you’re a casual travel hacker, the risks are very minimal. It’s highly unlikely anything bad will happen at all. The risks typically only come when people get more aggressive with their credit card applications.
Even though I’m a huge advocate for travel hacking, I do think people should only do it in moderation and when they have a goal in mind. I personally don’t apply for a credit card unless I believe I can get at least $500 in value from the welcome bonus. There are people out there who will apply for cards for a lot less. To me, that’s a mistake.
Everything in life has risks and rewards. It’s up to you to decide what makes the most sense for you. If you think applying for one new credit card a year is too much, then only do it once every two or three years.
Travel Hacking for Lazy People
- Part 1 – What is travel hacking?
- Part 2 – How to travel hack
- Part 3 – Credit card welcome bonuses
- Part 4 – Switching credit cards
- Part 5 – Travel loyalty programs in Canada
- Part 6 – Calculating the value of your reward points
- Part 7 – Creating a travel hacking strategy
- Part 8 – Earning rewards point as a family
- Part 9 – The risks and rewards of travel hacking
- Part 10 – Travel hacking walkthrough and tips
- Download the full eBook here