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The Pros and Cons of Playing the Credit Card Game

I’ve been playing the travel game for a long time now, but for those who decide to do it by taking advantage of credit card sign-up bonuses, do so at your own risk.

Credit cards, without a doubt, are the fastest way to accumulate free miles to a free trip. If you’ve got a good credit score, some of the best travel credit cards like the Chase Sapphire Preferred, Barclaycard Arrival World MasterCard and even the United MileagePlus Explorer offer huge bonuses just for signing up. The only caveat is that they often require a minimum spend (anywhere in the range from $1,000 to $5,000) in the first couple months of account opening. But if you’ve got the tenacity for learning how a frequent flyer programs works, the rewards are often far more than what the credit cards claim what you’ll get in return.

For instance, the typical bonus is 40,000 miles, or what Chase claims to be worth about $500 in flights. If you transfer these to an airline program, which you can with some rewards programs, they’re worth a little bit more at $560 at the traditionally accepted value of a frequent flyer mile, 1.4 cents. However, if you can use them in a region where flights are very traditionally expensive, like southern South America, they are inherently worth more. A typical flight from North America to that region prices well into the $1,000 range. With United’s MileagePlus program, that same exact flight (with a free stopover!) costs 60,000 miles plus taxes. Using these figures, a mile then becomes worth 1.7 cents. This makes 40,000 miles really worth $666.40 on the conservative side, depending on the actual cost of the flight.

People often take advantage of these promotions for the redemptions they offer. I’ve met more than a couple of people who admit they churn credit cards for the sign-up bonuses on a regular basis, often canceling well before the annual fee is assessed. And though it’s probably okay to do that every now and then—I’ve done it once or twice—there are those who get so hooked onto it, they’ve got Excel spreadsheets and alerts set up for when it’s time to move on to the next credit card.

But how do they manage to do things like meet the minimum spending requirement each cycle? There’s an infamous trick within the community that utilizes Vanilla Reload cards, reload cards that can be added to accounts and gift cards, and prepaid debit card programs like American Express Bluebird, which allows cash withdrawals. If you can find a vendor that is willing to sell you a Vanilla Reload card with a credit card, that amount can then be loaded into your Bluebird account. This essentially enables someone to make monthly payments on things like their mortgage and rent using their credit card, without spending their money on frivolous things. Gift cards (future forms of payment) would also be a prime target for this scheme, but are obviously nowhere nearly as popular as the Bluebird method.

Of course, you do this with the risk of putting your financial history on the line. I’ve met some people who’ve claimed that their credit score improved with credit card churning, but this is not a tactic I would encourage people to employ on a regular basis. Unless you’ve got good financial habits in place—such as paying your credit card off in full every month or carrying close to zero balance each month—credit card churning is a little bit like playing with fire.

Some of the big banks like Chase have been known to suspend reward points for those they catch that use and abuse the system. In drastic cases, they’ve closed down accounts. You know what? For the most part, I’m behind those suspensions. It’s pretty much the same mentality as a Wall Street banker finding a financial loophole to exploit. It’s about gaming the system to profit, and while I’m sure you can say that maybe the rules should be more stringent, it doesn’t really matter. I’m not saying that you shouldn’t sign up for a credit card at all because, in fact, that would be stupid.

In fact, besides obtaining that big honeymoon you’ve always dreamed about, some of those very same credit cards offer incredible travel benefits. The United MileagePlus Explorer, for instance, offers a free checked bag, expedited services and decent travel insurance along with de facto Silver status. The Chase Sapphire Preferred offers many of those things as well and also gives a 7% bonus back on all points earned throughout the year. I haven’t owned a car in years, but I know I’m automatically covered for insurance every time I rent a car. You can’t even imagine the peace of mind that gives me.

I’m not discounting the fact that I’ve accumulated approximately 120,000 miles through sign-ups alone in the past couple of years, though it’s not my main source of collecting miles. I still prefer to do it the old-fashioned way—by flying—and have accumulated about 300,000 miles through that fashion. (Some airlines like to give you a bonus if you’re an elite member but that’s a completely different topic entirely.)

The main thing with credit card signups is that it’s easy to get excited when you see what those rewards can actualize. I mean, the Grand Caymans look pretty good, no? Just remember the bigger picture, which is about figuring out a way how to incorporate these tools into your current lifestyle, not the other way around.

The Pros and Cons of Playing the Credit Card Game via @maphappy
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