CREDIT CARD SEMINAR PT 4 – WHY SIGNUP BONUSES ARE THE KEY TO FREE TRAVEL
[This article was originally posted in 2014, and a lot has changed since then. Some of the cards I reference no longer exist or have different signup bonuses now. Also, the number of miles required for the trip described below has increased. With all of that being said, please remember the point of this article. Signup bonuses were and still are the fast track to big travel.]
This is part 4 of our series on using credit cards to finance free or discounted travel. Here, once again, is an overview of the series:
The previous article on the different types of cards was my favorite thus far because it not only shows that there are tons of cards and strategies out there, but it also shows that you must try to match your goals to the cards you apply for and use. One thing that I have only hinted at thus far, but will greatly elaborate on today, is the sign up bonus.
If you don’t sign up for new cards and only continue to use the same cards routinely, you will never accumulate the kind of points and miles you need to truly travel free on a regular basis. The exception to this is if you happen to travel regularly for business and rack up points and miles that way. Now, if you only need enough points or miles for one trip a year, you may be fine with using the same card(s) year after year. Let’s take a look, though, at what kinds of bonuses are out there and then see how you feel about them. I would ask “Remember my Greece trip”?, but that horse has been beaten to death so far…well, almost. I have been deliberately teasing you so far by hinting at how I did it, but I still have not shown you step by step how I got those 200,000 Chase Ultimate Reward points, which I converted to 200,000 United miles, which I then used to book my flights. Let me now take you through it step by step, and then let’s see how much the sign up bonuses came into play. This whole series has really been leading to this point, so please read carefully. This is what you have been waiting for. When I decided to start the Greece endeavor, I knew one thing from my initial research: out of all the airline programs out there, United was the best one for getting me to Europe for a “reasonable” number of miles and with no huge taxes and fees. Delta should be my best bet to go anywhere with few stops since I am in Atlanta, but their seat availability at the lowest point levels is so laughable that their points are known in the industry as Skypesos. So Delta was out. American partners with British Airways, but any BA flight from Atlanta to Europe will go through London, and that means mammoth fuel surcharges (levied by BA) that kill the value of my points. So, American and BA were out. Basically, United was my best shot, but thanks to their relationship with Chase, I was actually in great shape.
Step 1: Apply for the Chase Ink Bold card. I did this in April of 2013. The conditions of the signup were simple. Spend $5,000 on the card within 3 months and receive 50,000 bonus Chase Ultimate Reward points. Now, what people often forget when they look at bonuses is that you not only earn the bonus points; you also earn points on the money you spent to get the bonus. So you’re thinking “after Jim spent his $5,000, he had 55,000 Chase points”, right? Wrong. Remember in yesterday’s article where I talked about category bonuses? By putting my satellite television service, home phone, cell phone, internet, and gift cards from office supply stores, I got 5x the points on much of that spend. Now, don’t get me wrong. I put a lot of other non-bonused spend on there as well, but suffice to say, I was closer to 56,000 or 57,000 points, and every little bit helps. [Note: the Ink Bold no longer exists, but the Ink Preferred does, and it offers a huge signup bonus as well.]
Step 2: Apply for the Chase Ink Plus card. I did this in June of 2013. If this sounds confusing given which card I signed up for in the previous step, let me clarify. The Ink Plus and Ink Bold are exactly the same card with one fundamental difference. The Bold has no credit limit and is a charge card, meaning you can put whatever you like on it, but you must pay it off in full each month. The Plus is a traditional credit card, with a limit. The signup offer this time? Spend $5,000 in 3 months and get 60,000 points. I got lucky with my timing folks, as the normal offer is only 50,000 points. So, I completed the spend quickly and was now over 120,000 points between the two cards (again, don’t forget the points I earned in meeting this bonus requirement). If I had wanted to fly both Marci and me to Greece in coach, we were already there. But I wanted Business Class, so we sill needed another 80,000 points. Also, let me point out that at this point, these points are Chase Ultimate Reward points. I will never transfer them to United or any other partner until I know I am ready to book my flights/hotels. Why? Because they still have complete flexibility at this point. Once I transfer them to a partner (United, Southwest, Hyatt, etc.), I cannot transfer them back. [Note: stop me if you’ve heard this, but this card no longer exists. Instead, you could sign up for the Sapphire Preferred for a terrific bonus.]
Step 3: Apply for the Chase United Explorer card. Now, if you click on the link I just provided, you may see that it says “earn 30,000 miles after spending $1,000 in 3 months”. I actually got 50,000 miles for spending $2,000. Why? Because I read another frequent flyer blog and learned that by applying in person at the Chase branch rather than online, I got a much larger bonus. Better yet, they gave me another 5,000 miles by adding Marci as a second user. So, 50,000 + 5,000 + 2,000 (my spend to get the bonus) put another 57,000 in my pocket. This time, however, they were already in the form of United miles. Now, put together steps 1, 2, and 3. 57,000 + 67,000 + 57,000 = 181,000. Almost there, just 19,000 points short. So, I have to spend another $19,000, right? Wow, I hope not, because that’s a ton. Remember, a lot of my spending receives bonus points because of their categories. Let’s say I spent about half of that, $10,000 to get those last 19,000 points. Suddenly, in November of 2013, an amazing feeling came over me. I had the points necessary to book my trip. I almost couldn’t fathom it. Now remember, the overwhelming majority of my points were, at this point, in the form of Chase Ultimate Reward points. United only knew of the 57,000 I had with them from the United card. So, I went to United’s site, clicked on redeem miles, and put together my trip. Sure enough, I found seats available for 100,000 miles each. Just for fun, I went ahead (despite not having the points in my United account yet) with the booking to see what would happen. The result? “You do not have enough points….you can pay $16,000 instead.” So, I opened another browser window, logged into my Chase account, crossed myself despite not being Catholic, transferred my points to United, and then re-logged in to United. This time, when I got to the end of booking the trip, no message about insufficient points. And boom goes the dynamite, folks! I had just scored over $16,000 in flat bed, hot towel, have some more chocolates, would you like me to wave palm fronds for you, treat you like freaking royalty seats to Greece. The cost? $300 in taxes in fees that I was only too happy to pay. Six months later, I still can’t believe it. I’ll be boring people with this story 20 years from now. Now, back to reality. What is the lesson here? Lots of things that will tie up everything I have been covering in this series of articles. Let’s review the numbers…
- I received 50,000 + 60,000 + 55,000, or 165,000 in pure signup bonus points/miles.
- Since I accumulated 200,000 points/miles in total, that means that 35,000 (200,000 – 165,000) came from my actual spending.
- I spent $5,000 to get bonus 1, $5,000 to get bonus 2, $2,000 to get bonus 3, and an additional $10,000 to get the remaining necessary miles. That’s $22,000 out of my pocket (on things I would have bought anyway).
- If I ignore the bonuses, I got 35,000 points/miles from $22,000 in spend. That’s actually not a great earning ratio, at just 1.59%.
- When I add in the bonuses, however, I get an earning ratio of 200,000 points/miles from $22,000, or 9.09%, which is phenomenal. BUT…
- When I look at the two ratios together, minds are blown. $16,000 in rewards from $22,000 in spend is, are you ready for this, a 73% rate of return. I spent $22,000 on things I needed anyway and got $16,000 in airfare for my troubles.
Now, do you remember the scene in “The Karate Kid” when Daniel thinks he is learning nothing about karate and is just being made a slave (sand the floor, paint the fence, wax the cars, etc.)? Articles 1 – 3 in this series were paint the fence, sand the floor, and wax the cars for you. It was all leading to this epiphany. You can do this, because I did this. Lesson 1 was about getting your credit in order. It’s simple. You can’t get these powerful cards with bad credit or no credit. Spend the time to get your credit house in order, and then tread cautiously into this arena. Lesson 2 was about earning and redemption ratios. After reading today’s article, you see why I don’t love those 2% back on everything cards. They absolutely serve a purpose, but flexible point cards and lucrative signup bonuses can blow those other cards away. Lesson 3 was about the different types of cards (cash back vs. fixed point vs. airline/hotel vs. flexible point) that are out there. For my trip to Greece, I used a combination of flexible point and airline cards (Ink Bold, Ink Plus, and United Explorer) to pay for my airfare and a combination of hotel and fixed value cards (Hilton Honors Amex and Barclaycard Arrival) to pay for my hotels. Lesson 4 is the payoff. A real life example of free luxurious travel explained step by step and made possible with the power of sign ups. And the best thing about these sign up offers? There are tons of them. I only showed you three of them today. In the next article, I am going to go over what I feel are the best ones out there and try to tie them to specific destinations and vacations. Thanks for following along! So what do you think? Was this the epiphany I hoped it would be for you? Speak up! I always love to hear from you.