Alamy “Stop trying to keep up with the Joneses.” It’s the cliched mantra you’re supposed to mutter under your breath when a neighbor pulls a new car into his driveway or a Facebook friend posts pictures of a luxury beach vacation while snow cascades down outside.
For the most part, it’s good advice. Buying luxuries and expensive new toys you can’t really afford is something every prudent spender knows to avoid — even if we sometimes backslide and whip out the credit cards for a big splurge.
However, credit card rewards have changed the rules. Now, the penny-pinchers have become the Joneses — without overspending — through a process called “credit card churning.”
“We’re in Jamaica right now, and we flew here for a total of $96,” said Holly Johnson, freelance writer and founder of the site ClubThrifty. “This fall we’re going to London and Paris for less than $200, including our hotels and airfare.”
Johnson has gotten thousands of dollars in gift cards and statement credits, and it started when she received a credit card offer from Chase (JPM) in the mail.
“Basically, they were offering me a $100 statement credit if I signed up for the card and spent $500 within the first three months,” she explained.
Johnson, who spends $500 a month on groceries for her family, signed up for the card, used it for groceries and paid the card in full immediately. “Once I discovered how easy it was, I kept going,” she said.
Here’s How to Start
It may sound like a simple path to saving money on luxury vacations and receiving gift cards, but credit card churning requires you to be fiscally responsible, too.
“Get your finances into shape by rockin’ a budget and stop wasting money first,” said Jacob Wade, an A/V systems engineer and blogger at iHeartBudgets.
Wade advises that rookies keep it simple by picking a desired travel destination and work toward the appropriate rewards with one or two cards.
“And for those who are even more adventurous, check out the FlyerTalk forums to find the latest deals and ask any question you may have,” said Wade, who outlines case studies on his Travel Hacking page.
Also, “if you can get your significant other to alternate signing up for cards with you, you can get twice the rewards with half of the dings on your credit,” said Johnson.
Effects on Your Credit Score
Opening and closing credit cards has a direct impact on your credit score, so responsibility is key when it comes to harnessing the power of credit card churning — or “travel hacking,” as Nate (aka personal finance blogger Johnny Moneyseed) calls the process.
“I would argue that if you have great credit, and you’re paying off your balances, the credit card companies aren’t really going to be that concerned with a few credit inquiries on your credit report,” explained Nate.
To protect your credit score, he advises that you use credit cards like you would cash — and never create a balance you’ll have to carry on a card just to get the bonus points.
Johnson actively monitors her credit score and her husband’s through Credit Karma to ensure they don’t go lower than 720.
“People tend to think that life gets better when you keep your score over 800, when it doesn’t really matter all that much,” she explained. “You don’t get a special ribbon or anything. We open and close cards all the time and still have scores in the mid 700s. We just bought a house with no problems.”
Wade protects himself and his wife by having them alternate signing up for cards every three months. His credit score hovered around 800 before he got into travel hacking. After he added six cards, it dropped to 760. But three months later, his score went back up to 790.
When to Stop? Are You Kidding?
When you can travel to London and Paris for less than $200, book a last-minute domestic flight for $7.50 or stay in a swanky hotel for free, it can be difficult to imagine seeing an end date to the practice of credit card churning. So why would you?
“I’ll be doing this until they take it away,” Wade said. “It allows our vacation fund to act solely for food and excursions and gives us a free vacation two or three times a year.”
Nate agrees. “I plan on doing this forever,” he said. “It doesn’t make sense to me — being the responsible credit user that I am — to throw away free flights and hotels.”
Johnson plans to stop, but only when she has an incentive to do so, which won’t be anytime soon. “We are 100 percent debt-free aside from our small mortgage and have no intention to borrow money ever again, so I don’t see why we would ever stop.” she said. “It’s just too lucrative.”
Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She’s also the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. Popular posts include: