• Sunday, July 14, 2024
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BusinessDay

How to balance travelling and paying off debt

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In just two short months, I’ll be headed to Spain to go see one of my best friends who is teaching there. It’s a dream come true for me, as aside from paying off debt, travelling is my true passion.

But how is someone who is so focused on paying off debt, able to travel abroad? Through travel hacking! I was able to book my flight to Spain for a mere $63 in taxes, and 40,000 miles.

But, what is travel hacking? And how can you use it to travel while working towards other financial goals?

What is travel hacking?

Travel hacking is the term used for people that use reward-based credit cards to receive a sign-up bonus in order to redeem free travel.

Oftentimes these sign-up bonuses are enough for a free trip, and smart consumers are reaping the rewards quite often. Then they simply cancel the card before the annual fee is due (most cards waive the annual fee for the first year).

If you are curious about getting started with travel hacking, here are some tips to get started.

Check your credit report

Before you even apply for a new credit card, you should check your credit score as well as your credit report. Your credit is an important factor in determining whether you get approved for a card, so you’ll want to verify that you are in good standing and that there are no errors on your report.

You can check your credit report for free once a year at AnnualCreditReport.com, and get your free credit score at Credit Karma.com. And yes, these are completely free options that don’t need your credit card information. Plus, I personally use and like them.

Assess your situation

As great as travel hacking is, it isn’t for everyone. If you already have credit card debt, or if you know that you spend more with a credit card, then travel hacking isn’t a good fit for you. It won’t be worth it!

The key to travel hacking’s success is to assess your situation beforehand and truly know yourself and your spending habits. It’s easy to get lured into spending more for the rewards, but that doesn’t really make sense, does it?

Assess your financial situation as well as your consumer behaviour to determine if travel hacking is something that you are comfortable with. Travel hacking does affect your credit in a few ways, but maybe not in the way you think. Any time you apply for a credit card, your credit score will drop a few points because of an inquiry.

If you get approved, you may find out that over time your credit actually improves. If your credit limit is higher, and you only use 10-30 percent of your available credit, your credit utilisation will be low, which can have a positive impact on your credit.

However, if and when you close your card to avoid the annual fee, your credit score is likely to take another hit. If you have excellent credit, a few points won’t make a huge difference, but it’s important to know the ramifications of travel hacking on your credit.