(News Nation) – Social media travel hackers say you can fly for free, and it all comes down to your credit card points.
One popular strategy is known as credit card stirring. This opens and closes cards to earn sign-up bonuses and rewards. The subreddit dedicated to charning has over 600,000 members.
A 2023 survey by Harris’ poll found that almost 40% of Americans use credit card points or rewards to pay for their trip.
According to Allied Market Research, the global travel credit card market was valued at $16.4 billion in 2022 and is projected to reach $48.5 billion by 2032.
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Claim: Credit card points allow you to travel around the world for “free”
Tiktok and YouTube travel hackers look simple by stirring up credit cards. They flash dozens of cards and explain how others can enjoy a champagne trip on a beer budget.
“Get cheap flights with this trick” (Tiktok) “Credit cards scurry through 101” (Tiktok) “How to travel the world for free: Credit cards 101” (YouTube)
Sign-up bonuses can lead to great rewards, but churning can be at risk.
“You have to go through this really carefully. I think social media sounds really simple and easy,” said Clint Henderson, editor of Points Guy, a credit card rewards website.
Henderson has 27 credit cards and a very good credit score, but he also tracks all of his spreadsheets and pays the full amount each month.
“If you’re going to get into this hobby, you have to be a really knowledgeable consumer,” he said.
(Getty Images)
How to run credit cards and travel hacking work
Credit card companies offer sign-up bonuses to attract new customers, and travel credit cards have some of the best welcoming offers.
These bonuses allow new cardholders to earn extra rewards such as cashback and air miles that can be used on flights and hotels.
“Churning” is when consumers repeatedly open new credit cards to take advantage of the sign-up bonus, then quickly close the card to avoid annual fees.
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Keep in mind: you need to spend money to save money.
With your Capital One Venture Rewards card, you can earn 75,000 miles if you spend $4,000 within the first three months. The Chase Sapphire Preferred Card has a similar sign-up deal worth 100,000 bonus points if you spend $5,000 in the first three months. Both cards offer an annual fee of $95.
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It’s not for everyone
If you are one of about 50% of credit card holders carrying debts each month, you are a bad idea.
“If you balance and pay interest, it’s going to cancel the reward you might have earned from the card,” Henderson said.
Data from the Consumer Financial Protection Bureau (CFPB) strengthens that point.
In 2022, consumers who owed Monday to month liabilities paid 94% of all interest and fees, but earned just 27% of their compensation at major credit card companies.
If you tend to spend too much, you should think twice again. To win a welcoming bonus, new cardholders will need to spend thousands of dollars, and they can drive people to buy things they don’t otherwise have.
Instead of chasing rewards, consider signing up for a new card when you have a natural spending spake, says Ted Rossman, a senior industry analyst at Bankrate.
“Whether it’s a big holiday, holiday shopping, or a home renovation,” Rothman said.
It can hurt your credit score
New credits account for 10% of your FICO credit score, and opening a few accounts in a short period of time will allow you to temporarily lower your score.
This is because applying for a credit card will lead to a “hard investigation” of your credit report. This is when lenders assess their credit abilities.
A rapid successive, multiple harsh inquiries are interpreted as a sign of financial instability and have a negative impact on your score.
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“If you’re looking to get a car loan or a mortgage, you don’t want to open a lot of credit cards,” Henderson said.
Rothman said it’s best to wait about six months between card applications.
“Look before you run. Don’t turn it off and open 10 credit cards at once,” he said.
Close your credit card immediately can also hurt your score, so both experts recommend downgrade to a card with no annual fees instead of closing it completely.
“In fact, it’s best to keep it open, as it makes it more credits available and make it less,” Rothman said.
The card issuer has been cracked
Credit card companies want long-term customers, and therefore have restrictions that discourage many people from stirring up.
“Chase has a 5/24 rule and can only open five credit card accounts within two years,” Henderson said.
Bank of America has something unofficially known as the 2/3/4 rule, limiting to two new cards in 30 days, three new cards in 12 months, and four new cards in 24 months.
American Express limits each customer to one welcome bonus per card per lifetime. Previously, you could earn multiple welcome offers on the same card.
“This game has been much more difficult over the years,” Henderson said. “But it’s completely legal.”
Overall: Will credit card companies appear first?
For disciplined Spenders who pay credit card bills on time, churning is a way to maximize reward points, but the data shows that the card issuer is still out ahead.
According to the CFPB, credit card companies charged more than $130 billion in interest and fees in 2022. In comparison, consumers have earned approximately $40 billion in rewards on generic credit cards from major issuers.
However, consumers who repayed their monthly balances paid just 6% of the interest and fees they charged in 2022, earning 73% of their total compensation.
“Don’t be afraid to have a credit card. Know what you’re doing,” Henderson said.
