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Ask James: Travel Hacking with Credit Cards

Hey James, I know you are against debt, but do you use credit cards for travel hacking to get free flights, hotel stays, extra points, etc? Brenda R

I travel quite a bit for my business. If I’m not leading a workshop somewhere I’m taking trips to expand my portfolio (amongst other things) or traveling with the family. There aren’t too many months that go by where I’m not going somewhere. Because of this, I’ve grown quite accustomed to life on the road and traveling in general over the past 6 years or so.

One of the biggest movements in the travel industry over the past several years is “travel hacking” with credit cards. There are countless websites, blogs, books and podcasts dedicated to this. This form of travel hacking means using credit cards to get access to airport lounges, free flights, concierge service, free hotel nights, points to use for shopping and the list goes on and on.

As some of you reading this already know, our family is debt free and I run a debt free business. We weren’t always debt free. Two years into our marriage we had racked up nearly 45k in debt between credit cards, small loans, medical bills and vehicles. It took us 5 years to wipe out that debt that loomed over our marriage and our future, and I learned a LOT about money and how to manage it in the process.

One of the biggest moves we made was cutting up our credit cards and living on a cash budget. Life without credit cards is weird. We are weird (at least compared to the rest of society these days). We use cash when we eat out, cash for groceries and cash for any other purchase at a store or place that accepts money. The only time we use debit cards is at gas stations (to avoid having to go inside) and for online purchases.

I see people post on Facebook all the time about the latest credit cards they’re using and most of the time I just keep to myself. The fact is, credit cards weren’t designed to help you out. They were designed to help the credit card companies out. So with all that said, here are 5 reasons why I don’t use credit cards for personal use, for travel perks or for my business; and why I don’t think you should either.

1. Credit Cards and Poker Chips

If you’ve been to a casino, you’ve held chips in your hand; whether it was playing craps, roulette, blackjack or poker. Have you ever wondered why they use chips instead of cash? The reason is the emotional attachment that you have to cash is far greater to any attachment you have to a chip. A pile of $500 in $20 bills is far more impressive than five little $100 poker chips. Therefore, it’s much easier to part ways with and slide a $100 poker chip into the pot than it would be with cold hard cash.

It’s the same with credit/debit cards. When you reach into your wallet to pull out two $20 bills to buy dinner, it hurts a little. You earned that $40 and you are now parting ways with it. When you swipe your card and punch in the pin number, the total you pay is merely a number on a screen. You don’t really ever notice it even left your possession.

2. Spending To Get Perks

Several of my close friends are guilty of this. They get a new credit card where they have to spend a certain amount to unlock a reward. One of the popular cards (I think from Chase) requires spending $6,000 in the first three months in order to get enough airline miles for a plane ticket (60,000) to just about anywhere in the world. What inevitably happens is that for the next three months you’ll have one thing on your mind: spending $6,000 to get a plane ticket.

I’ve seen friends buy new toys left and right, insist on picking up tabs at restaurants, paying for movie tickets, rental cars, etc; all in the name of racking up those points.

A plane ticket to just about anywhere in the world is going to cost between $800-$1200. According to countless studies, consumers spend between 20-40% more on purchases when using credit cards. Ironically enough (or not at all), 20% of $6,000 is $1,200, but 40% is $2,400.  So according to all the research out there, you could buy that plane ticket off the savings of using cash alone, and probably a plane ticket for a friend too (if you felt so inclined).

If the research isn’t enough to convince you of this fact, here’s some real world experience from yours truly: I worked at Cabela’s for two years after high school and one of the reasons I quit (even before I learned to hate debt) was because they always tried to get us to push credit cards onto the customers. I always refused to do it, and I was continuously threatened with my job because of it. You see, the average purchase at Cabela’s (at least when I worked there) was around $85. Not bad. But if we could get a customer signed up for the Cabela’s Club Visa, the average purchase would skyrocket to around $240. That’s around a 300% increase! All for the lure of a free hat and 1% points on your purchase to use at Cabela’s in the future. The Cabela’s points will then trigger a vicious cycle in the subconscious of those vulnerable enough to take the bait (so many hunting/fishing puns in the last few sentences): They return week after week to spend money at Cabela’s (where they get the most points per dollar) so they can rack up enough points to one day spend those points on a dream purchase like a new hunting rifle or a fishing boat. Ugh.

3. Shopping with Cash. Shopping with Credit

Like I said earlier, we use cash for things like grocery shopping. Two very different things happen when grocery shopping with cash vs. credit. When using a credit card (or even a debit card really), you tend to buy the groceries you want/need and then you find out how much it all costs when you get to the register.

When you pay with cash and operate on a budget you go into the grocery store with a set amount of cash to spend. Therefore, you pay attention to what goes into the cart and keep a running estimate of the total in your head as you go in and attempt to stay under the amount of cash you brought.

See the difference there? Which method do you think results in spending less money?

4. The Illusion of the Exceptions

Any time I post something on Facebook against credit cards, the comment section is always pretty much the same: I’ll get a lot of people who relate to what I’m saying, some who are curious to know more and then I’ll get some big names in the photo industry chiming in about how they successfully use credit cards for flights, points or whatever other perks the credit card companies are marketing to them at the time.

I know there is a minority of people who use credit cards without going into debt (by paying the card off each month) and simply reap the rewards of the perks offered by the cards. Good for them (although they aren’t immune points 1-3 above).

The real danger here is that this small group of consumers who pay off their cards and reap the rewards act as a free advertisement for the credit card companies to further market to the overwhelming majority of people who will misuse credit cards and fall into the downward spiral of a lifetime of debt.

They brag about paying their cards off and swimming in perks, and it causes their followers and/or those listening to think they can do it too. But the simple math says the odds are exceedingly stacked against them.

5. Thinking for Yourself

It’s astonishing how susceptible we are to marketing. Credit cards have been so vigorously crammed down our throats for generations that when I speak out against them, some people are literally offended that I would say something bad about credit cards. Banks spend more money marketing credit to consumers than any other industry in the world. We’ve become so indoctrinated that we need credit to live that people hold on to this notion like it’s their pet. It’s absurd.

Did you know that three of the biggest companies today that are also lenders were started by people who despised debt? Sears for example makes way more on credit than on the sale of merchandise, yet the Sears catalog in 1910 stated that “buying on credit is folly.” J.C. Penny was founded by a man named James “Cash” Penny who earned his nickname because he utterly detested the use of debt in any way. JCP today would likely cause him to turn over in his grave, as they are a major player in the credit industry. Henry Ford said that debt was a lazy mans method of purchasing items, and he hated the idea of financing so much that he kept the Ford Motor Company from offering it until 10 years after General Motors. The old generations saw the dangers of debt because the marketing of it hadn’t been put in front of their faces every day for decades.

At some point, you’ve got to step back from it all and wonder if you’re thinking for yourself or if you’re just repeating exactly what these companies have brainwashed you into thinking. The problem is that doing so requires putting aside your pride and admitting you’ve been duped, and pride is another thing we hold near and dear to our hearts these days.

How Easily We’re Fooled

How easily are we duped as a society? Take the ongoing mess with Blue Buffalo dog food as exhibit A. Blue Buffalo came onto the scene in 2002 and was marketed as a small company trying to provide genuine and healthy pet food and fighting against the titans of the pet food industry who were selling bags full of meat by-product and chemicals. Since we’re in an age where consumers are realizing all the chemicals and crap we put into our bodies is bad for us, this was the perfect angle to take to tug on the heart strings of consumers with pets. People flocked to Blue Buffalo because they wanted their pets to have healthy food with actual meat in it, even if it costs a bit more (like buying organic).

Turns out, Blue Buffalo was founded by Bill Bishop, a Madison Avenue ad man who previously worked at Tareyton Cigarettes. He was quoted as saying that getting into the pet food industry was a no-brainer because all you had to do was, “slap on a good label, come up with a slogan and off you go,” and “there were already a lot of smoke and mirrors in how pet food was advertised, and that was the sort of stuff we were good at.”

Blue Buffalo is now in the midst of a lawsuit over claims that there food is in fact full on chicken and beef by-product, despite aggressive advertising and claims that their pet food contained none. It was the foundation in which their ad campaign was built upon. Wow.

I know this story has nothing to do with credit cards, but I bring it up because it speaks volumes to how we’re marketed to in this day and age, and how easily we can be fooled if we don’t do our own research.

Conclusion

If you’re still with me, thanks. These longer form articles take a lot of research and time to write, so I appreciate you sticking with me. Many of the most successful people in the world hate or hated debt or even playing with the possibility of getting into debt. Mark Cuban said in an interview with Business Insider that, “…credit cards are the worst investment that you can make. The money I save on interest by not having debt is better than any return I could possibly get by investing that money in the stock market.”

Trying to use credit card points to your advantage is playing with fire. Eventually, you’re going to get burned. Even the people who say they always pay their cards off and only reap the benefits have been burned, I guarantee they have, but they don’t ever talk about that.

If you’re in debt, and want out, I can whole heartedly relate to where you are right now. I’ve been there. I also worked at a bank for a couple years and saw countless people in the same position every day. There’s a way out, and it’s called Financial Peace University. I don’t earn a single penny by recommending Dave Ramsey’s products. I never have, never will. In fact, I led a 10 week class on Financial Peace at my home with 3 couples and it cost me over $250 to lead the class. Once you become debt free yourself, helping others to become debt free becomes a passion, and a ministry. I highly suggest checking out his site and products. The best way to get started is by listening to his radio show via his podcast. Finally, I want to leave you with a really incredible video featuring Clay Tumey, a former bank robber who turned his life around 180˚ and recently shared his debt free and life changing story on Dave Ramsey’s show. Enjoy!

I’ve been on both sides and I can tell you that life without credit cards, without debt, is better. If you have any questions, comments, input, let me know below!

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  • WateryWilly

    How do you deal with car rentals? Most agencies require a credit card. Broke down once far from home, and were unable to get a rental car. Had a debit card, but was told I could only use that in my home town. And cash? They flat out refused to take it, even though I offered to put up $5,000.00. Very irritating!

    • I rent cars with debit cards every time I travel, using a wide variety of car rental companies. The only issue I ever ran into was that one company (Avis) wouldn’t allow me to use my PayPal Debit Mastercard and I had to use my BofA Debit Visa instead. I still have no idea why, it was pretty dumb.

      When using a debit card, they’ll usually put a hold on your account for the full amount of the rental, which isn’t really an issue since that’s the amount you’ll be paying at the end anyway.

      How long ago was this event where they wouldn’t allow a debit card?

      • WateryWilly

        It was Enterprise in Amarillo, TX. I’m from Plano, TX, and it was a no-go. They told me to go try Hertz, but then I got a phone call that the repair could be done while I waited, so crisis averted. And there was evidently no amount that they will put a hold on. Evidently if you are using cash or a debit card, you must be a drug trafficker or something. The powers that be REALLY don’t want us not using credit, that’s pretty evident, but I’ll fight that tooth and nail. I even considered buying a used car, then returning it within the three days you have for a return. Glad I didn’t have to.

  • Phil James

    I have one debit card, one standard credit card and a pre-loaded (pay-as-you-go) credit card. During the last fifteen years I have never used any one of them in a physical store. They are used for mail/internet purchases only. Any amount appearing on the standard credit card is cleared fully every month. Most commonly I used the pre-loaded card, with very few €€ more than I intend to spend.

    That stops me impulse buying extras and has the benefit that if the card details are ‘hacked’ the hacker may have access to, maybe, €10. There’s no way they can get to a limit as they might with the standard card. The debit card is attached to an account where I keep very little money but which I load as necessary from a different account so much the same applies to that as with the PAYG card.

    When in a physical store I often pull out the credit card but hesitate before presenting it to ask, “Any discount for cash?” Generally the result is a reduction of at least the percentage the store would pay the card company which beats any of the card ‘incentives’.

    In the ‘real’ world everything is paid for in cash.

  • Steve Hadeen

    Been there, done that with debt. My wife and I are now debt free and plan to stay that way the rest of our lives. Although we had already been working on it, we, too, were part of a group doing FPU. Great resource. Don’t always agree with everything (but that’s completely normal as most of this life we don’t always agree with everything) but it is, again, a great and helpful resource. Course only helpful if you put the plan into action-lol