Credit card miles are a great way to take advantage of money you’re already spending to earn rewards and advantages. I am not a qualified financial advisor, but I’ll offer you some insight we’ve gotten over the past couple years.
First and most important, except in emergencies you should never, ever use a credit card for a loan. If you can’t pay it off in 30 days, you shouldn’t use a credit card. The miles you receive will be negated by the excessive interest you’re paying. Credit Cards only benefit people who are capable of living within the salary they earn and are diligent in managing their accounts. This idea pairs well with the Budgeting For Location Independence post in that you should figure how much you can afford to spend before spending.
The best way to use your credit card is to pay for costs (food, gas, rent, utilities) that you pay anyway to receive a percentage back. This applies to other expenditures like entertainment and travel as well. But the main point is that having a $12,000 credit limit doesn’t mean you have $12,000 to spend on luxuries and toys you can’t pay off within 30 days. That is digging a hole that quickly becomes difficult to dig out of.
As an example, over the next year, Eva and I plan to spend about $50,000 on travel and expenses. If we have a credit card with 1 mile per $1 spent, we would get back 50,000 miles which is worth $500 if we chose to cash it out. There are also cards that offer 2 miles and 3 miles, doubling a tripling your return. Using those miles for flights (for example) you can often get 1.5X their value for travel. So those same 500 miles could be worth $750 toward a flight.
Do you have bad credit or no credit? I was there too. To start, I couldn’t get a credit card because I hadn’t had one since before college and as a result, I had a low credit score. I purchased a car and co-signed for my wife’s and was able to get a Walmart card to start building my credit. After this, my bank – Bank of America – offered me a card. Now our score is up and about every 6 months we apply for about 2 more cards.
The cards we apply for now have a Bonus Miles incentive. Typically, credit card companies will give you between 40,000 ($400) – 80,000 ($800) miles if you spend $1000-$4000 on their card in the first 90 days. If you spend $1000/month for rent, that’s $3000 in 90 days right there.
A word of warning, not all miles are created equal. Our Chase & Barclaycard miles are universal and can be traded for airline miles with United or Delta or redeemed for cash if we choose. Our Hilton card gives us points, but hey basically doubled the room prices to accept them. Accordingly, we no longer use their card.
There are some things to be thoughtful about. Having a lot of credit cards gives you a higher credit limit and if you manage it well, will give you a good credit score. BUT, if you have a LOT of credit cards that have annual fees, those can add up when you should only really be using the cards that offer the best rewards. But closing a credit card can adversely affect your credit score because it reduces your total credit availability and sometimes the average age of your credit line.
The solution is to contact the credit card company and ask first, for incentives that offset that Annual Fee. Secondly, if that doesn’t work, ask if they can change you to a card that doesn’t have a fee (be certain to use your miles first). And as a last option, you can close the account, thus lowering your credit score, at least temporarily. Often this threat will get you a better offer.
Some other benefits you can get with credit cards: Our United Explorer Plus card gives us free checked bags, priority boarding & 2 free passes to the United Club once a year. Our International Hotels Group card offers a free complimentary night at one of their hotels once a year. Our Hilton Honors card offers Rental Car Insurance Coverage. Many offer free TSA Precheck.
Right now, though, we use our Barclaycard because it gives us 2 miles/$1 spent on everything + 5% rebate on travel (flights, hotels). And we’re preparing to switch to a Sapphire Reserve card which has 3 miles/$1 spent on travel/dining and Priority+ Select Travel Lounge access at 1000+ airports.
There’s a lot more information about this available online and in podcasts. The expert, in my opinion, is here: https://thepointsguy.com.
These are our experiences. To put them into perspective, we used our Chase Points last month to pay for 2 one-way tickets to Melbourne Australia in January, and as I see it, that was just a bonus for paying my bills using their card.
Tips For Using Credit Card Miles:
- Earn free money by paying your bills.
- Always pay off your cards within 30 days.
- Only apply for cards when you’re certain that you can earn the bonus miles in the next 90 days. It’s free money.
- Use the card that gives you the most points. Generally, 1 mile = 1%, 2 miles = 2%, 3 miles = 3%. 1% of $50,000 = $500. 3% of $50,000 is $1,500.
- Buying flights on the credit card site can give your miles more value.
- Understand the benefits of your cards and take advantage of them.