Two words – Free. Vacation.

No, this isn’t a scam. I am being 100% honest. If you want a free vacation, all you have to do is be intentional with signing up for credit cards and aligning their bonuses with your goals.

Let’s dive into how you should be evaluating a credit card and their different bonuses to stay aligned with your goals. The first step is to identify your goals. Sounds simple enough, right?

You Need to Identify Your Goals

What matters most to you at this very moment?

Is there a habit you are trying to break?

Are you looking to achieve this goal in a short or longer time frame?

Your goals can and most likely will change over time, so just try to think of the most relevant ones to you at this point in your life. Whether your goal is getting as much cash back as possible to put towards a larger goal or even just hedging your always late credit card payments, there is a card for you. You can have more than one goal, however be careful not to overextend yourself with this.

For example, Jake and I have a terribly awful case of the travel bug, we were bit HARD. So because of that, we align our credit cards and their bonus offers with the goal of getting as much free travel as possible. This means we use sites like Nerd Wallet and The Points Guy and use their awesome filters to search for the best travel rewards cards.

Check out this article that outlines financial goal setting!

How to Evaluate Cards

Now that you have your goals in mind, you can start comparing cards and their benefits. There are a lot of websites that will make this process super easy for you (Nerd Wallet and The Points Guy are our faves). But there are still some fancy terms used in these comparisons. Please note that what we review below is important however if you are paying your monthly balance entirely and on time each month, then they will not affect you.

If you are paying your monthly balances on time and in full, then the only real thing that you should be using to compare is the bonus offers with different cards. The rest is just fancy terms that won’t apply to you.

What On Earth is APR?

APR (Annual Percentage Rate) represents the interest rate for the full year. The point of this calculation is to show you the total interest accrued since not all cards compound interest within the same time frame (monthly, quarterly, etc.). Credit cards can have different APR’s for different transaction types (cash advances, regular purchases, etc.).

APR = periodic rate x number of periods in a year

You should not be worrying about APR unless you’re letting your monthly credit card balances carry over… which you really should not be doing.

Umm… and APY?

APY (Annual Percentage Yield) is the rate of return of an interest rate however APY takes compounding interest into consideration. APY is more relevant when you are comparing savings accounts since this will be the total interest you will be earning for the year. You might hear someone refer to this as EAR or Earned Annual Interest.

APY = (1 – periodic rate) x number of periods – 1

Again, this is more relevant for accounts earning you money. APY will always be greater than APR because APY factors in compounding interest.

Ever Heard of Compound Interest?

This term is referring to when you earn interest on pre-existing interest which in turn gets added to the principal sum or a deposit or loan. You should always be asking how often interest compounds when looking at all types of accounts.

Do You Hate Fees?

What a coinkydink, me too! Most of the top cards that you will be comparing will have annual fees. These may be waived in the first year but if your plan is to have the card for longer than a year, you’ll have to pay it at some point. Well, maybe not. We recently learned that if you call the credit card company, you can often finagle your way out of paying the fee for that year. Let them know that you will be canceling directly because of the fee and you have a good shot of getting it waived again.

Side note: If you are in the military (active or reserve) you can often get these fees waived and other perks as well. Be sure to call and ask the company ahead of time.

So What’s The Best Card?

The point of doing all this research for a credit card is to get the best deal. The simplest way to do this is to compare the bonus offers. Which bonus offer helps you reach your goals quicker? Remember, personal finance is personal so there is no one-size-fits-all card.

When you are comparing bonuses, try to be realistic. If the card requires you to spend $10,000 in 3 months of opening the account for you to unlock the bonus then ask yourself if you really spend $10,000 in three months. If not, there are ways around this that we will outline below.

Some bonuses are a one bonus per lifetime deal and some companies allow you to use the same bonus more than once. However, you still must wait a certain amount of time before reapplying. For example, Chase recently switched from a 24 month reapplication for bonus to 48 months. This means that if you opened an account with them and received a bonus, you would not be able to receive that same bonus again for another 48 months.

So How Do You Even Activate These Bonuses?

As bonuses vary from card to card, so does the activation requirements. When you are comparing cards, the biggest might not always be the best suited for you. Despite that, if you are willing to get creative you can always make it work.

Almost all bonuses mandate a required spend in a specified time frame. Some may just require a single purchase to be made using the card, which is a personal favorite of mine.

You have a couple options to make this required spend in the time frame given. If the amount of money is less than or equal to what you would normally spend in that period of time then you can just use the card to pay for all of your expenses. Make sure you immediately pay off the card though.

If the amount is more than what you would usually spend, then you can pre-pay bills like rent or utilities, buy gift cards that you can then use to purchase items in the future or use it to make a first time deposit into a bank account.

Here’s An Example

So let’s say the threshold to get the bonus is spending $3,000 in 3 months but you only spend $2,000 in 3 months. Well, you can prepay $1,000 worth of bills or get $1,000 worth of gift cards that you will use for all your purchases. Although you would need to have an extra $1,000 hanging around so you can pay off your monthly balance.

You can prepay bills, pay rent and buy gift cards by using some of these items: Bluebird (prepaid re-loadable card), Plastiq (pay rent and bills), Rentler (pay rent) and even the IRS lets you use a credit card to pay your federal taxes. Some of these may have fees to pay with a card but more often than not you can google discount codes to redeem for every use.

Here is a list of bank accounts that can be funded with a credit card. This is a double whammy if you use this with a bank account bonus offer, which will require a minimum deposit for a reward of a specific dollar amount.

People Do This For A Living

Yup. People use the method described above to literally pay for all of their expenses or at least a large portion of them. These are the clever people who pave the wave for people like me, who want to learn how to earn free vacations.

They travel the world for free, sometimes luxuriously too. They show others how to get free vacations too. They get paid through hacking these bonus offers.

These people are called “churners” because they literally churn through credit cards and bonus offers. They use strategies like manufactured spend to game the system. Manufactured spend is when you use a rewards earning credit card to purchase a cash equivalent. The rewards gained from these transactions are greater than any fees incurred in the process.

Be cautious if you decide to try out the manufactured spend strategy. It is legal but it is can get flagged as money laundering since very similar methods are used by criminals to do so. This is why a lot of companies are tightening up their rules around reward cards as this becomes such a popular topic. For example, Chase denies anyone who has had more than 5 cards in the past 24 months or not allowing members to use two bonus offers by Chase at the same time.

Check out this article for more side hustle ideas!

Redeeming Points

Most companies have an incredibly user-friendly dashboard that outlines your bonus points and what they are worth in different scenarios. If your card is a travel card for example, you will see the dollar amount of your bonus points if used towards travel vs. if you cashed out. Most of the time you will be given a higher dollar amount if used towards travel. These companies even have a portal where you can book all of your travel from. A nice feature is that you can transfer your travel points from account to account, so you can get the best bang for your buck.

A Word of Caution

As mentioned above, don’t overextend yourself with these credit cards until you have a good grasp on how to easily get the bonus offers without spending money you wouldn’t normally spend.

Never spend money that you don’t have. It is easy to use these cards for your normal monthly expenses when you start. Then once you want to cash out on the bonuses quicker, you can always use some of the methods outlined below to access your rewards faster.

Always pay your monthly balances. Never just pay the minimum amount due. Just because you have a new credit card doesn’t mean you have more money! Be careful and use these wisely. This can spiral out of hand quickly and can get completely out of hand if you aren’t careful about usage.

For more on how to avoid lifestyle inflation, check out this article!

Final Thoughts

If you are spending money anyways, then you might as well be getting points for these transactions. Otherwise, you are leaving money on the table. Just remember, never over complicate it for yourself otherwise you could run into some trouble. As long as you are wise and do your due diligence, you will be able to get a free vacation too!

Bonus!

MaxRewards, winner of the FinCon18 Tech Start Up Competition, is designing an app that will do all the hard work for you. It evaluates your spending to see what kinds of credit card bonuses would be the most beneficial for you and then it walks you through step-by-step how to apply and use these cards. I am PUMPED for this app to launch. Be sure to sign up for the early launch special here!

As always if you have any questions hit us up in the comment section below, or send us a message through our contact page!