So how can you earn free points and miles without flying? The answer is the credit card churn. Before I continue, some disclaimers (and with apologies to Dave Ramsey): This post is merely an overview of suggestions and should not be taken as financial advice and is not tantamount to financial planning. Also, the credit card offers change constantly, and you may not be eligible for all of these credit card offers depending on your credit history or your history with that specific credit card company.
Credit cards joined the frequent flier world a long time ago when they started to partner with airlines and hotels to offer miles/points as perks for spending money on their cards. Credit card sign up bonuses and spending bonuses are the quickest way to building up a massive bank of miles/points, and responsible use of credit cards can be a boon to a traveler. Some ways credit cards tie to mileage and point accrual:
- American Express membership rewards: one point per $1 spent on the credit card, with some promotions running where you can earn more than one point per dollar in certain spending categories. Amex reward points can be redeemed through American Express for merchandise, concert tickets, hotel reservations, or airline tickets. Also, you can transfer Amex points to certain airline and hotel loyalty programs. The Amex Platinum card comes with a hefty $450 annual fee but also carries automatic Hilton Gold status, offers a $200 airline fee credit, lounge access to 500+ airport lounges across the world, etc.
- Chase Ultimate Reward points: These are probably the most valuable credit card points being issued right now as they are transferable to many top tier airlines and to the Hyatt reward program. There are multiple Chase credit cards on the market right now that offer huge sign up bonuses and very large spending bonuses (Chase Sapphire Preferred, Chase Ink Bold Business, Chase Ink Plus Business). Chase also has quarterly promotions where spending in certain categories yields 5 chase points/$1, up to $1500 in spending.
- Direct Mileage cards: Most airlines have credit cards that yield miles for each $1 spent, and if you are loyal to a specific airline or if you’re locked into a specific airline, these cards can be very valuable. Most miles earned are redeemable miles, but some cards offer spending bonuses in the form of medallion or elite miles (Delta Reserve Amex, Delta Platinum Amex, Citi AAirlines card, etc). These cards do not offer the flexibility of Chase points, but on Delta for example, a traveler can earn medallion status without ever flying on a plane.
- Direct Hotel cards: Some hotel chains have arrangements where spending on certain cards will yield hotel points per $1 spent. Some of these cards now also carry hotel status as long as you are an active holder of the card. The Citi Reserve Hilton conveys Hilton Gold status (with an ability to hit Diamond after $40,000 of spend on the card); the Starwood Amex card offers 10,000 Starpoints after the first purchase, and Starwood points are viewed by many as the most valuable reward points/miles in the industry. Chase Hyatt Visa also has a card out there now that will offer two free nights after completing a minimum spend.
So what is a churn? In short, a credit card churn is when you apply for a card, receive the sign up bonus (if any), then spend the minimum for the next points reward, and then you let the card sit (or just cancel it before the year is up). Some cards carry annual fees, so you need to manage this carefully, but many cards are worth their annual fee and then some. Many hard core churners will apply for 10+ cards/year to reap the massive point and mileage bonuses, and some will only keep a few cards after the first year because many cards offer a free first year with no annual fee until year two.
What are the risks? If you do this properly, there really aren’t too many risks. There is a myth that every time someone runs your credit that your FICO score drops; this is simply not true but it can be depending on how many credit inquiries are being requested and within how much time. For that reason, I recommend that everyone view his/her credit report before applying for any new credit. Your credit score is calculated from a variety of factors, including your actual debt:potential debt ratio, your credit history, your average length of credit, history of bankruptcies, etc. If you have any potential negatives on your report, then you can either get them repaired or work toward improving your credit history. Once you determine that you are ready to apply for new cards, pick just two or three to apply for around the same time, and try not to choose cards from the same company. For example, I would not apply for 3 American Express cards or 3 Chase cards at the same time. This will red flag the underwriters, and you are likely to get denied. Even if you are denied, you can usually call the reconsideration line, and as long as you have a good credit history, you will often be approved.
How do you spend this much money responsibly? The answer lies in two different methods: 1. You should transfer spending normally done by check/cash to spending done by credit card (as long as this does not incur additional fees and as long as you can immediately pay your credit card off, leaving no balance to accrue interest); 2. The Bluebird manufactured spend method! (This method will come in a new post, but you should keep an eye out for Vanilla Reload cards in your local CVS/Walgreens/supermarket). There are many large size transactions that we instinctively pay by check (taxes, rent, mortgages, etc) that can be paid through Bluebird cards with NO additional fees/transaction costs.
To make these churns work, you need to carefully track your spending, and you need to track your points. Not all spending is “eligible” spending according to the cards, so make sure you read the fine print and understand what will count and what will not. Most importantly, these methods require fiscal responsibility and financial maturity; you can’t spend as if you’re the federal government because unless you have an illegal money printing press in your basement, you will soon run out of money (but will have a ton of points/miles that you now can’t afford to use).
This blog post from today walks through the 10 best credit card offers currently active for May 2013.
