Spend any length of time on personal finance sites and you’re bound to run into stories about using credit card rewards points to travel for significantly less than paying cash. I’ve always wondered how it works and whether it’s really better than my cash-back option.
I get 1.5% cash back on my credit card. Over the past several years, that’s netted me between $450 and $550 annually. Not too shabby. On most travel cards, every dollar spent is worth one point, and each point is typically worth a penny. That would make it seem like cash back is a better option.
However, because of the travel points sign up bonuses, a few categories where spending is worth double points, and favorable treatment for booking through the credit card’s travel platform, you can make points go much further than 1.5% cash back.
So I’ve finally decided to dive in. Here’s my plan.
Running the Chase gauntlet
First thing’s first — don’t play the travel rewards game unless:
- You pay your credit cards in full every single month.
- Your normal spending will allow you to hit the required minimum spend to get the points bonus. (This can include expected big purchases that you time right.)
- Having multiple hard inquiries on your credit report in a short time will not be a problem.
The strategy I’m using is the one outlined by ChooseFI, called the Chase Gauntlet. For the moment, I plan to open the first four cards:
- Chase Sapphire Preferred for me ($3,000 spend in 3 months for 50,000 bonus points) (Sign up for your own here and I’ll get a 10,000 point bonus, which is good karma for you and will make me think of you fondly on a future trip.)
- Chase Sapphire Reserve for my wife (same as above) [Updated: We went with the Reserve over the Preferred.]
- Chase Southwest Rapid Rewards Premier Business ($4,000 spend in 3 months for 60,000 bonus points)
- Chase Southwest Rapid Rewards Plus ($1,000 spend in 3 months for 40,000 bonus points)
I expect to complete the spending on these cards to reach the bonus threshold around March or April of 2018. That will allow me to hit 110,000 points on the Southwest cards early in the year, which means for the remainder of 2018 and all of 2019 I’ll qualify for the Southwest companion pass.
The companion pass allows the cardholder to book almost free travel for a named companion (in this case my wife) on any Southwest flight they take, even if the cardholder books the trip with travel points! That’s an amazing perk, and quite honestly one that would make me loyal to Southwest for many, many years.
So by April 2018, this is what I expect my travel rewards situation to look like:
|Card||Account holder||Bonus points||Spending points||Total points|
|1||Chase Sapphire Preferred||Me||50,000||4,250||54,250|
|2||Chase Sapphire Preferred||Wife||50,000||4,250||54,250|
|3||Chase Southwest Rapid Rewards Business||Me||60,000||9,000||69,000|
|4||Chase Southwest Rapid Rewards Plus||Me||40,000||1,000||41,000|
My actual spending will be about $18,000, with some dining and travel earning double points on the Sapphire cards. Between the minimum spend and the bonus points on the Southwest cards, I’ll have 104,000, which means I’ll need to spend an additional $6,000 on those cards to hit the companion pass threshold.
I’ll have to plan that spending into my budget, but between a semester of college and half a year of pre-paid daycare I think it won’t be as daunting as it sounds. Add in pre-paying car insurance for six months and I’m already over $7,000 right there.
What to do with all those points
I primarily plan to use the points for airfare, which will go much further with the Southwest companion pass.
Lucky for me, my parents have a few timeshares, and I can use some of their timeshare points to stay at places worldwide for relatively modest exchange and guest fees. That’s obviously a bonus not everyone has, but hey, you gotta take the opportunities when they’re there.
Because I’m near Salt Lake City, Southwest has a ton of routes out of here. That should make it pretty easy to go to many of the places we’re considering. There are more than enough timeshares in the U.S., Canada and Mexico to keep us entertained no matter the season.
Reading about how The Luxe Strategist swung a trip to Hawaii with points, that is very appealing. I’ve never been to Hawaii, but I hear good things. I’m sure all of those travel hacking tip stories will be more in my wheelhouse now that I’m dabbling in the lifestyle.
To gauge how much this was going to cost/save, I ran a set of flights to Cabo San Lucas in February next year. (We’re probably going in August, but Southwest doesn’t have its itinerary out that far yet.) If I were paying with cash, three seats roundtrip from SLC to Cabo would cost $1,611. With points and a companion pass, I’m looking at about 58,500 points and $245 in taxes and fees. Those are all free points from the sign-up bonuses. If I had spent the $3,000 I used to get that bonus on my cash-back card, I would have gotten $45 back. Add that to the $245 I still have to cover and I would get $1,611 in flights for $290.
I’m not a math whiz, but that looks like a good deal!
I’ll keep you posted as I start really seeing the spreadsheet numbers bear out in real life. And, of course, when the trips actually happen, too.
Do you travel hack? Got any amazing tips or words of caution? Help a brother out!