By Dr. Jim Dahle, WCI FounderLots of people, including high-income professionals like doctors, engage in what is popularly called credit card or travel hacking. The basic idea behind it is to work the system of deals offered by banks, hotels, airlines, and other companies so that you get all the positives with few, if any, of the negatives.
Done well, this can be a significant boost to your income, and it could allow you to direct more of your cash toward your financial goals, spend the same, and reach your financial goals even faster. You don't have to go whole hog either. It's OK to do just a little. There is some “free lunch” here, even if it isn't quite as free as it might appear at first.
The Easy Pathway with Credit Cards
There is an easy, minimal hassle pathway available when it comes to credit card and travel rewards. This is basically what Katie and I have chosen to do. We fly mostly on one airline, stay mostly in one chain of hotels when possible, and use cards we've had for years that offer 1%-5% back on what we spend. This takes extraordinarily little effort, but it does provide us with convenience, upgrades, and a discount of around 2.5% on just about everything we buy.
A simple example is that all of our gas goes on a 5% cash back PenFed credit card we got years ago (I don't think it's available anymore). We buy a lot of gasoline between long road trips, a diesel Super Duty truck, a full-size SUV, and a wakeboat. So, it does add up. And we get it all at a 5% discount. That's 25 cents a gallon when gas is $5 a gallon (and yes, we buy plenty of expensive gas). It wouldn't surprise me if those quarters add up to $500 a year.
The fun thing about credit card rewards is that they're generally considered discounts, not income by the IRS. When you consider your marginal tax rate, that's really more like an extra $1,000 in income a year. And it's not inconvenient at all. You get to pay in the most convenient way possible: the bill is paid automatically each month out of your checking account, and the “cash back” is automatically applied to the bill each month. Easy peasy.
The More Challenging (But Profitable) Pathway
That's not what most people are talking about when they're discussing credit card or travel hacking. The people who are really into this have a spreadsheet with 20 or 30 different credit cards on it. The big money really isn't in the “2% of all you spend cash back or points” cards. The big money is in the signup bonuses. For example, if you put $5,000 on a card in the first three months, maybe you get enough airline points to buy a coach ticket across the country. That might be a value of $800. That's like 16% back. Way better than 2%. And again, it's not taxable.
Then, you set that card aside (maybe even close the account) and work on the next one. As long as you don't screw up much, you never pay interest on any of these accounts, and if you pay fees, the rewards for doing so eclipse them dramatically. There are websites, blogs, podcasts, and Facebook groups dedicated to this art, filled with people who fly Delta One across the world, stay in the fanciest resorts, and come home two weeks later no poorer than they left.
More information here:
From Wedding Planning to Owning 16 Credit Cards
What Is a Credit Card Chargeback?
The Downsides of Credit Card Hacking
Lest this all sounds like peaches and cream, we probably need to take a few minutes to discuss the risks and downsides involved in these techniques. As I mentioned at the beginning, if done well, there is some free lunch here. It just isn't as big a meal as many think.
#1 The Value of Your Time
It's easier for doctors and other high-income professionals to hit the minimum spend targets these cards require. They spend more every month, so hitting the $3,000 or $5,000 minimum spend can often be done in just a few weeks—not a few months like most people. However, this doesn't just happen instantaneously. There is some work involved. You have to do research; apply for cards and programs; read statements; close accounts; get on the phone occasionally; redeem rewards; and if you're smart, maintain a spreadsheet and calendar with all the details. That takes time, effort, and motivation, all of which are in limited supply for all of us. What is the opportunity cost of that time, effort, and motivation? For a doctor, it could be pretty high, whether it is seeing more patients and doing more procedures or spending more of your limited time with those you love and doing things that stave off burnout.
#2 You Should Probably Love to Travel
A big percentage of these rewards are travel-related. Some people like to travel more than others. I like to travel but not nearly as much as a lot of people, and I know some people who don't like it at all. When travel isn't a big reward to you, hacking doesn't seem nearly as fun. I wish everyone would have the time and money to do more than all the traveling they want so they can learn, as I have, how much travel they can do before they'd rather be at home. I assure you everyone has a limit. Mine is two international trips a year, which is probably about 1/3 of what Katie likes.
#3 Don't Screw Up
Every program is unique with its own set of rules and methods to game the system. It doesn't take too many screwups to eliminate the benefits. If you forget to pay a bill and start getting charged interest at 30%, you can wipe out an awful lot of months of 2% cash back or even an entire signup bonus. Fail to cancel a card in time and you may get another annual fee that eliminates most, all, or more than the benefit you were seeking. If you're going to do this with any degree of seriousness, maintaining that spreadsheet with all the details seems pretty critical.
#4 You Must Overcome the Additional Spending
Credit cards are a great way to spend for someone like me who has a hard time spending. It is simply less psychologically painful to pay with a credit card than it is with cash. If you're a natural hoarder cheapskate saver like I am, this can help you spend more of your money, hopefully on things you enjoy. Most Americans, including most high-income professionals who read this site, are not in that category. Their main financial problem is not that they don't spend enough. Their problem is they don't save enough. Studies are pretty clear that we spend more when we use credit cards, especially when we're thinking primarily about the rewards coming from that spending. A typical study in this space shows a credit card user spends 12%-18% more than someone paying cash. That seems about right to me. Even if you're getting 16% back on your spending, if you're spending 16% more than you otherwise would, you're not getting much of a free lunch. It's even worse if you're only getting 2% back.
“But I'm immune to that effect,” you say. Well, I've heard doctors say for years that they're immune to pharma advertising too. Yet Big Pharma keeps doing it. That's weird. Why are they wasting all their money? Hint: They're not. Banks, airlines, and hotels aren't wasting their money offering these programs either. Not only do you almost surely spend at least a little more when using credit cards, but most people will have a little screwup eventually (see #3 above).
#5 The Cocktail Party Effect
People love to talk about their speculative investments over cocktails. You know what other financial topic they enjoy? That's right, hacking. However, the effect is similar. Others hear only about successes, not failures. Nobody is going to mention that one month you forgot to cancel that card with a $500 annual fee. They just talk about flying first class to Istanbul. The equivalent of cocktail parties happens every day in online communities. It's easy for a blogger or podcaster to minimize the downsides too, especially if their revenue comes from hawking credit cards.
#6 Distraction
This might be the main thing WCI columnist Tyler Scott was worried about when he wrote the following (which was subsequently put out on social media by our team and heavily discussed in the aforementioned hacking communities):
It should be noted that Tyler has written about successfully using credit card points to book free international business class airline tickets and said he wasn't interested in doing it again.
You see, time spent learning about travel hacking is time you're not spending learning about personal finance, budgeting, investing, student loan management, retirement accounts, tax reduction, estate planning, and asset protection. When you objectively look at all those subjects and put them in rank order of importance, travel hacking isn't going to be at the top of the list. If you're not learning about travel hacking in addition to all that stuff, there's a real problem. Worse, some people might feel like they're doing great with all this financial stuff because . . . well, look at all the rewards they're getting! Meanwhile, they find themselves at mid-career with student loans, a big mortgage, a tiny nest egg, and plenty of burnout.
You're not going to travel hack your way to wealth. You've got to do the other stuff well, too. I'm sorry, that's just the way it is. It's a fun distraction. It can be a profitable hobby. But don't lose the forest for the trees.
More information here:
Should I Fly First Class? Is First Class Worth It?
How to Add Adventure to Your Life
The Bottom Line on Credit Card Hacking
Travel and credit card hacking is an optional activity that can add some pretty cool stuff to your life. But make sure you understand the downsides, and, for heaven's sake, make sure you're using that spreadsheet to keep track of it all.
Every now and then, those of us at The White Coat Investor enjoy writing about our travel adventures and what lessons (financial or otherwise) we can learn from them. Now, we want to hear from readers for what we're calling the WCI Travel Club. If you have gone on a trip that taught you lessons about finance, medicine, or life, we’d love to have you write about it so that we can include your story in subsequent Travel Club columns. Email [email protected] for more info.
What do you think? Do you travel/credit card hack? Why or why not? What are your favorite methods? What's the best deal you've had so far?
Almost 20 years ago, we hacked our way out of credit card debt by hacking cards. We each signed up for credit cards with sign up bonuses, used balance transfer checks at 0% (no fees—how crazy is that!) and deposited the money in accounts earning 5% interest. We were floating around $150k for 2 years by the time we paid off our debts. We were broke at the time, so my time was well spent on this and it was fun.
Now our time is more valuable and I sign up for cards every few years when a new one comes out (US Bank Smartly credit cards is offering 4% back so that caught my eye).
It is fun to hack! But after doing it a few years, it’s not the best use of your time.
I remember those days! I accelerated my student loan payoff by doing the same with 0% balance transfers.
All Excellent points!!
1. We travel extensively and in the past have thought we should try credit card hacking for #2(Travel). But the potential downsides of #1, #3 and #4 crosses off that advantage.
2. The cocktail party bragging #5 hits a home run. I shrug off when people say they have credit card for free airport lounges. Honestly, I don’t find them appealing. Why would someone leave for the airport 2 hours earlier so that they can enjoy the lounge amenities. I mostly book flights with shorter transit times in order to reach my destination sooner. Secondly, the food and amenities in the lounge are mediocre at best. They are always crowded. They have much better food options at airport restaurants. Getting average quality free alcohol in the lounge do not impress us anymore.
3. They add no value (to your time or NW) once you are Financially independent. Most cards with 2% back give some returns to enjoy a few perks without having to plan extensively (1-2 free flights, hotel cards with free nights etc).
Not many would intentionally go to the airport that early just for the lounge, but sometimes its unavoidable. Sometimes you have a 6 hour layover. Or you have to check out of your hotel by 11am, but your flight isn’t until 5:30pm. Your right, its not a big deal to not go into a lounge, but having done both, lounges have much more comfortable seating, nicer bathrooms, sometimes a place to laydown and some of them do have really good food.
I have 3 credit cards one of whose whose points I use for travel. It is definitely not a free lunch. One downside of this that you haven’t mentioned is that when flights are canceled or delayed or otherwise go south, the airlines will often not deal with you directly, but instead tell you to “contact your travel agency.” Also the confirmation number for the credit card travel agency is different from the one for the airline, and is often hidden away in fine print. This added layer of bureaucracy/customer service dysfunction complicates the attempt to resolve these snafus.
That is why I only use cards that earn points that can be converted into specific airlines’ frequent flyer miles. That way my ticket is being booked directly with the airline in question, and they can’t play that game. (The downside, though, is you can’t book any flight you want.)
Travel hacking has saved me a ton of money over the years, so I think it can be worth doing if you enjoy travel and travel a lot, but it’s optional (like tax loss harvesting). Don’t let the points and miles tail wag the travel dog!
1. Yes it takes time to learn. But it should be a pleasure. Its a hobby. Plus it is compensated time. The hours and hours you spend will net you tens of thousands of dollars of free travel when you are done studying. Once you study it and fully understand it, you just reap the benefits. I spent many many hours/months studying and understanding the points game. It wasn’t easy, but totally worth it. This year alone so far I have booked $26,000 worth of travel for free and its only March. I’m flying first class across the country in May, flying business class to Singapore next month and booked a business class ticket to London. All this money saved by travel hacking can be invested instead.
2. Most people like to travel, but even if you don’t want to take 10 trips a year, you can use your points to do 1 or 2 super luxury trips that you would never pay for on your own. Flying first class and staying at a luxury hotel will give you an amazing experience and memories.
3. Put everything on autopay. And yes, keep a very simple spreadsheet of when you opened the card and when you need to close by.
4. Only use the cards for things you would normally pay for. I only use it for bills and very easily meets minimum spend requirements.
5. See number 4
6. Yes, you should be doing the other stuff first or at least at same time. Again, this is a hobby, but the sooner you start, the more memories you can build. I think most people that do advanced travel hacking are pretty savvy and financial responsible people who pay attention to detail and that is what attracts them to this hobby in the first place. The people that are clueless about finance and live in debt don’t take the time to learn this, they just put the full expense on their credit card. Tyler Scott’s quote has nothing to do with travel hacking. If you are just focusing on % back you are getting like he is talking about, that is not travel hacking and just a distraction. They have that many cards for the sign up bonuses, not to get an extra 1% back on something.
That is impressive. Approximately how many cards do you open/close a year? How many active cards do you have in total?
Varies per year. There are people that are even more advanced than me, but for me I open maybe 6-8 cards per year. Sometimes less. Others do way more, but they are full time travelers and as long as you open the right cards with the right bonuses that is enough for me to take the trips I want for the year.
Active cards open: I have maybe 12 or so active
Wow. $26k of free travel within 2 months is very impressive! Just curious, how many hours or months of free time does one need to spend in order to turn this hobby into an expertise like you have?
Took me a while. You could accelerate it, but I did it casually like maybe 2-3 hours a week for a few months, then there is weeks or months I didnt do anything. That’s been over several years. So if I had to put a number to it…I would say I spent a good 200-300 hours studying it. Again this is over several years. You could learn the basics much quicker, but I have gotten pretty advanced with it and I wasn’t in a rush. To get the basics you probably just need 25 hours of study if not much less. But for advanced, need more time. I’m sure others have learned it much quicker and I was just slow to learn and made many mistakes.
It’s also different if you are getting tickets for 1-2 people vs a family. Well worth it for international business or first class for 1-2. Not easy to find for 4-5 people when you have a family. Most physicians can afford economy so airlines points game less valuable for that sort of travel than lower earners.
Via email:
I really don’t know why you are taking this super fun and popular hobby the wrong way.
I’m in Devon’s Facebook group. My father owned a travel agency so I grew up traveling all my life.
Never business, though my parents did. Myself and my 4 siblings would comfortably sit in business class with not a care in the world.
My hubby is a radiation oncologist and half French. We live in Hawaii, so we have to travel to see any of our family and friends. Traveling is not cheap. Long haul trips feel different at 55 than they did when I was 16.
Since learning about the world of points and credit cards, my hubby and I have flown to the Maldives on a dive trip of a life time on Qatar Q suites which is something out of this world. 15.5 hour flight from SFO to Doha was the most magical carpet ride we have ever been on, getting champagne and silk pjs with a flat bed for me and hobby that turned into an almost queen bed was out of this world.
We got to the Maldives and snorkeled the first day. Zero jet lag.
Next I took my sister on her 60th birthday to Barcelona via air France business class/ also super amazing.
Up next, we have plans to go to South Africa on Q suites again, to see my husband’s best friend from Cornell in Cape Town. We would never do this from Hawaii on coach or anything less than a flat bed flight. We will return via Jo-burg to go on a safari in Kruger National Park. Then we will fly to Auckland!!! 4 days of sailing there and then it’s back to Honolulu via Fiji!!!!
These are trips of life time which would have costed 10s of thousands of dollars, which I would never ever pay for. I pretty much would not go to these places without the absolute luxury of a flat bed flight.
The hotels are different for everyone, and we are not hotel people, so we often stay at discounted apartments with full kitchen because we enjoy going to markets and cooking.
This summer, be it’s my daughter goes off to college, we are taking her to Tahiti (you guessed it) with business class on points for a dive trip.
So, letting you know, this is not just a silly hobby. People waste their time reading the news for hours or shipping for garbage on Amazon all day long, I create magical memories for my family in ways that would simply not be an option for me. I’m not one to spends 10s of thousands of dollars on trips, but now I feel like I have unlocked this magical skill that gets me to go far away places.
As a palliative care doctor, most people want to travel, whether it’s to see their loved ones or do to magical places, I even remember your first conference Jonathon Clemens said the best money spent was taking his family to Paris.
Also, this is a FUN hobby. It’s like scavenger hunt. Don’t discount Devon and what she does. She’s a ninja in the way she finds deals and trips. I paid her $2000 for her course and have benefited for thousands of dollars of fun travel ( and continue to do so) we still have Thailand Philippines Hong Kong Indonesia and Zanzibar planned for 2026 and I already have the points and the routes figured out 🙂
My husband loves me for it and feels ridiculously spoiled windsurfing in places he could have never imagined!
So, while you tried to have her on the podcast, your email made me think, you still didn’t appreciate the joy of this fun activity.
If you have no money, you should not be playing with credit cards. But plenty of us have plenty of money. I remember in one of your talks you said:
Fly first class, or your kids will.
Well, now I fly first class (my kids happily in coach) and I’ll still leave them money to fly first class when we are gone!
And my response if anyone cares:
I’m not sure exactly why you think I’m “taking it the wrong way.”
This post was written prior to the podcast interview done recently by the way.
I have lots of fun hobbies. This isn’t one of them. But then again, I don’t even like booking trips. Sometimes I don’t even like going on them. So as I pointed out in the post, this is a much better hobby for someone who loves to travel.
But the post wasn’t meant to be some kind of negative thing about travel hacking. It’s simply meant to give people a framework within which to think about it. Maybe the tone came across wrong or something if you took that from it, I dunno. It certainly wouldn’t be the first time I got tone wrong.
At any rate, I’ll share your comment anonymously as a blog comment. There are other comments there from people who do a lot of hacking, a little hacking, and none at all. Anyone can make their own decision about how much they want to do.
Was there anything you saw in the article that wasn’t factual? If so, I’d like to get that corrected.
55 year old 2 doctor couple, one of them a radiation oncologist. Without the credit card hacking, they can’t regularly travel first class and stay in nice hotels?
Unless base expenses are incredibly high, this seems like a situation where they don’t even come close to spending all their money and leave 8 figures to their kids or charity.
Easy to criticize. Reminds me of the old Teddy Roosevelt quote:
But you’re right that a typical two doc couple should be able to afford to just pay cash for first class by their mid 50s if that’s something they value highly.
You’re right about the ease of criticism & thanks for the reminder 🙏
One important thing to consider is that every time you apply for a credit card you are exposing your personal information such as your SSN. This increases the risk of identity theft.
This is a huge reason that I don’t travel hack. Fewer data breaches to worry about.
I started CC points game back in 2014 or 2015. I was introduced to it by few Dentists who have seen the World on points since, so I decided to read more about it- the entire time thinking, this cannot be true.
I own a dental office, so I charge everything on CC or everything that can be paid by CC- regular expenses part of fixed overhead, expenses that already would have been paid by check or a bank transfer.
I was sceptic but gave it a go. First trip we took on points was in 2015. I booked a 4 or 5 star Hotel with points (no cost to me), I got the airplane tickets for four of us (economy) all on points, I got the rental car (with points). Again it was first trip I did all on points and told me wife lets try it, if at hotel reception/at airport counter/rental counter they said no this cannot be done, I was ready to pay for it, like I always had to that point. Turns out it was all OK, I paid only for food and experiences during the entire week. It was mind blowing to me, trip that would have easy cost us $20K+ or more in 2015, cost me few K if even that. Since 2015, we have been all over the place on points.
Do your homework, if you own your office – this is a no brainer, you will have to pay for office expenses either way, this way you are racking points. You do have to put some hours and learn the points game.
Anyways, my 2 cents – I still cannot believe it sometimes when I book everything on points