In my last post I shared some of the amazing travel opportunities that can be enjoyed for pennies on the dollar or even for free. Free travel can enable the enthusiast to travel more. But it can also enable those of us who would pay some amount to travel anyway to divert those funds to other priorities.
There are lots of tricks that help enable free travel. But today I want to share the single most powerful technique by far: signing up for a credit card that is offering a big sign-up bonus.
You’ve likely seen such opportunities before. Perhaps in the airport or in flight, you’ve been pitched to sign up for an airline credit card offering, say, 50,000 airline miles.
I never used to sign up for such offers. Partly, when something seems too good to be true, I am suspicious of it and tend to steer clear. But also, I used to think that I just couldn’t do better than the credit card I had which gave me 1% back on all purchases. As a result, for years I didn’t take the time to understand what was being offered. Until one day I did.
Why do Credit Card Companies Offer Big Signup Bonuses?
Credit card issuers like American Express, Chase, and Citi, to name a few, each offer many cards with large sign-up bonuses. Sometimes the bonuses are cash: $500, say. More often, the bonuses are 50,000 or more airline miles or hotel points. Sometimes, the bonuses come in the form of “bank points,” which are often superior. I will touch on bank points below and discuss them in more detail in a later post in this series.
The credit card issuers are betting that they will make more money by having you as a customer (through annual fees, interest charges, and the fees they charge merchants) than they will lose by paying you a bonus for signing up for their card. And in the case of most customers, they are evidently right. If this practice weren’t profitable for them on average, they’d stop offering sign-up bonuses. But, in fact, they are offering bonuses now more than ever. According to a recent post on The Points Guy’s website, credit card issuers paid an estimated $22.6 billion in rewards in 2016, up from $10.4 billion in 2010. This is big business for them.
How You can Profit from Credit Card Companies’ Offers
But the credit card issuers’ bet that they will profit from any given customer is by no means guaranteed. It is a bet. And that is where the opportunity arises. You are free to get the bonus and then not go on to become a profit center for the issuer. It is somewhat like a store selling an item at a loss in the hope that after you’ve been lured in by the sale item, you will also buy other items that are profitable for the store. If you do, the store profits from you. If you only buy the item on sale, the store loses. But it is their choice to sell an item at a loss, and you are allowed to buy only that item, if you wish.
I know of about 100 credit cards that are worth considering on account of the sign-up bonuses they offer. I’m putting together a “Best Credit Card Signup Offers” list of those cards that ranks them from most to least valuable.
For the sake of this post, however, I will take what I consider to be the #1 most valuable credit card offer on the market today and share with you the possibilities for free travel that getting just this one card can unlock.
But before I do, I want to pause to plead with you: if you carry credit card debt, please, do not open credit cards. Get out of debt first. Period. That is more important for a number of reasons. If you are in debt, opening credit cards is likely to hurt, not help, your financial situation.
That major caveat aside. . . .
The Best Credit Card Available as of the Time of this Post
[Update: to see the best cards currently available, visit my Best Credit Card Signup Offers.]
The #1 credit card offer available today is the Chase Sapphire Reserve. Let me start by telling you the “bad news” about the card. Then I will tell you the good news that way more than makes up for it.
The “Bad News” is Twofold: Minimum Spend: To get the 100,000 point sign-up bonus, you must spend at least $4,000 on purchases on the card within the first 3 months of account opening. That figure may intimidate some. Later in this series I will share tips for how to meet the minimum spend if it is a stretch for you. (And the answer is not to buy things you wouldn’t ordinarily buy.) Annual Fee: The card comes with a $450 annual fee that is not waived the first year. That sounds outrageous and like a deal-breaker, right?
The Good News: Well, as the saying goes, it takes money to make money. Yes, you must pay a $450 annual fee almost right away. But, in exchange for doing so—and once you’ve spent the $4,000 (not including the annual fee) on purchases in the first 3 months—you get the following, which is the good news that more than makes up for the bad: 100,000 Chase Ultimate Reward Points: These are an example of “bank points,” which I mentioned above. They are very powerful because they are quite flexible. You can transfer Ultimate Reward points 1:1 to 11 different airline and hotel travel partners. Alternatively, and more simply, you can use them to purchase most any airfare, hotels, car rentals, and cruises at a rate of 1.5 cents per points. So at a bare minimum the 100,000 points are worth $1,500 in travel! It is possible in some cases to get more value from the points by transferring them to partners like Hyatt. But for the sake of argument, let’s value the 100,000 point sign-up bonus at $1,500. $300 Annual Travel Credit: If you spend $300 or more on travel purchases, you receive a $300 statement credit. Because it is an annual benefit, you can get it each calendar year. Let’s say you spend $300 on travel sometime in 2017, buy a $300 gift card from an airline on January 1st of 2018, and then close the card right after that charge is reimbursed. In that case, you will have received $600 in travel reimbursements while only having paid the $450 annual fee one time. So I value this credit at $600.
The Final Tally: Subtracting the $450 annual fee from the $2,100 of benefit ($1,500 + $600), you are left with a whopping net benefit of $1,650. That is enough for two people each to take a $350 flight, plus enjoy 5 nights in a $150/night hotel and 5 days of renting a car for $40/day. A 5-day getaway for two from just one credit card.
When to Apply for the Chase Sapphire Reserve According to a post earlier this week on The Points Guy’s website, the last day to apply online for the Chase Sapphire Reserve with the 100,000 point sign-up bonus is Wednesday, January 11. After that, the online bonus will drop to 50,000 points. According to that same post, Chase has suggested that you can get the 100,000 point bonus by applying in a physical Chase branch through March 11. So if you’re interested in this card, you should act fairly soon. That said, although I consider this the #1 card out there at the moment, you shouldn’t rush into doing something you aren’t prepared to do. There are plenty of other good offers out there that aren’t expiring so soon. (Last note on this particular card: for reasons I will cover down the road, you almost certainly will not be approved for this card if you’ve applied for 5 or more credit cards in the past 24 months.)
In future posts both in this series and beyond, I will tell you about other credit cards with great sign-up bonuses. For now, I just wanted to paint a picture for you of how, in general, you can leverage credit card sign-up bonuses for lots of free travel.
This post is the second in the following series:
- Imagining the Possibilities of Free Travel
- Leveraging Credit Card Sign-up Bonuses for Free Travel (this post)
- Understanding Credit Scores and the Effect that Credit Card Applications Have on One’s Credit Score
- Which Credit Cards to Get to Maximize Free Travel
- 5 Creative Ways to Meet the Minimum Spend Requirement in Order to Get the Sign-up Bonus
- How to Use the Miles and Points You Earn
- How to Decide Whether to Keep or Cancel Credit Cards
Question: What general questions or even worries do you have about signing up for credit cards? I’d love to hear from you so that I can address your concerns in the comments or in the upcoming posts in this series. You can leave a comment by clicking here. And if you liked this post, sign up here so that you never miss a future post.