The Beginner’s Guide To Travel Hacking

Objective

Learn the basics of travel hacking, including how to choose a rewards program, how to earn points faster, and how to leverage credit card offers and program promotions to travel for a fraction of the retail cost.

Learning Outcomes

• Understand the three different types of travel reward points, or ‘currencies’
• Learn what to consider when choosing which travel rewards programs to focus your efforts
• Learn techniques to earn points easily and quickly
• Learn the basics of your credit score, and how applying for new credit cards to take advantage of promotional offers impacts it
• Know which products you should be considering as a beginner travel hacker
• Understand annual fees, and how paying them can actually make sense when developing a reward strategy
• Learn what you could do with reward points

Introduction

I believe that everyone can benefit from reward programs, whether you want to travel smarter by paying less for economy, or travel better by maximizing points to fly premium cabins and stay in luxury hotels around the world. Through rewards programs, I’ve been able to travel extensively in premium cabins and stay at some of the finest hotels; something that would never be possible if I had to pay out of pocket.

It seems most companies these days have latched on to the idea of rewarding loyal customers; from airlines and hotels to bookstores and coffee shops. The basic premise is to reward loyal customers with some sort of brand ‘currency’ for purchases, which can later be redeemed for goods or services.

Unfortunately, most consumers redeem their points for less than they’re worth, or in some cases, not at all. I was guilty of that when I first started collecting miles.

Hopefully with this beginner’s guide to travel reward points, you’ll have a better understanding about how to earn and redeem them!

Different Type of Reward Programs

Not all rewards programs are created equally, and some are entirely useless depending on your travel goals or location. For example, a consumer based in Vancouver, British Columbia may find great value with Alaska Mileage Plan, but the same program would offer little value for a traveller based in Halifax, Nova Scotia. Before you start collecting, it’s important to distinguish between the different types of points programs available. For the sake of this website, we won’t be considering retail loyalty programs.

Airline Miles and Hotel Points

A points currency associated with a specific airline or hotel which can be redeemed for a variety of products including merchandise, gift cards, or flights. Most people are familiar with the concept that miles are earned for flying a specific airline or staying at a certain hotel brand. Miles and points can also be earned quickly through co-branded credit cards, select retail stores, online shopping portals, and certain promotions. Airline and Hotel points programs can present good value for flight redemptions or hotel stays but offer little flexibility in planning (as you’re generally limited to a specific hotel brand or airline alliance).

Fixed-value Points

As the name implies, this type of points currency can be redeemed for a specific dollar amount towards travel purchases. Generally, the redemption rate is 1 cent per point (cpp), meaning a $500 airline ticket or hotel room would require 50,000 points. Fixed-value points are easy to redeem and allow the consumer the greatest amount of options, but generally provide less value per point than airline miles or hotel program. Fixed-value points can be useful for travellers requiring a lot of flexibility in planning or for those living near a busy airport with frequent fare sales on paid tickets.

Flexible and Transferable Points

These programs are usually associated with financial institutions and typically allow you to transfer points directly to an airline partner or hotel program. This gives you some flexibility when it’s time to redeem points for travel, as you have the opportunity to search for award availability from different transfer partners before committing to a specific program. An example of a transferable points program in Canada is American Express Membership Rewards. Not only does American Express allow for fixed-value redemptions, they are transfer partners with Aeroplan and British Airways Executive Club at a 1:1 ratio. American Express has other airline transfer partners but the transfer rates are undesirable and generally a poor use of points.

How to Choose a Travel Rewards Program in Canada

Choosing the right rewards program can be challenging and depends heavily on your personal travel goals. On one hand, you want to have a diverse portfolio of points to increase flexibility, which is especially important for complex travel plans. On the other, you don’t want to over diversify, as it will take longer to accrue enough points in any one account to redeem for travel.

I generally advise clients to focus their efforts on three programs, choosing:

• One airline program
• One hotel program
• One flexible/transferable program
• Using my own portfolio as an example:

• Airline: Aeroplan
• Hotel: Starwood Preferred Guest
• Flexible: American Express Membership Rewards

I also collect Alaska Mileage Plan, however, I usually earn those points by transferring one of my flexible rewards as needed for a specific redemption and don’t collect them speculatively.

Where you decide to focus your efforts will largely come down to your specific travel plans. I encourage everyone to complete this initial questionnaire for a free consultation. Once completed, I can examine your specific travel goals or habits to offer a strategic plan specific to your need.

How To Earn Travel Points and Miles Faster

A common comment I receive is ‘it takes forever to earn enough points for a meaningful redemption’ or ‘I’ll never earn enough miles’ or ‘I don’t fly very often, so I won’t be able to earn enough miles’.

There is some truth to the above statements, as most people are unaware how to unlock the potential in their rewards programs. In the early days, frequent flyer programs were introduced to reward business travelers and it was almost impossible to earn miles other ways. However, as rewards programs became more profitable, programs started branching out on ways to earn. In fact, more than 90 percent of my points and miles come from alternatives to flying.

Here’s a summary of ways to earn miles quickly:

Credit Card Spending

The easiest way to earn extra miles is shifting your daily spending to credit cards over cash and debit. Everything from coffee to major home improvements, every dollar should be spent using a rewards credit card. This method is only effective for people with good financial management skills who pay off their entire balances monthly. Carrying a balance and paying interest quickly negates any value in the rewards.

Credit Card Welcome Bonuses

The financial services industry is fiercely competitive, which has led to some very generous sign-up bonuses for new credit card accounts. Most premium cards will offer a large welcome bonus for new cardholders and many will waive any annual fee for the first year of membership. In many cases, the welcome bonus will be enough for a roundtrip flight in North America or enough for two free nights in mid-range luxury hotels. Similar to above, this method to build points balances should only be utilized by those with healthy financial habits.

Online Shopping Portals

Most airline programs offer online shopping portals where you can earn significant miles for online shopping. Aeroplan has the eStore with many Canadian and American retailers. Mileage bonuses range from 1-6 miles per dollar, which can add up quickly if you remember to go through the portal when shopping online.

Credit Card Bonuses

Although shifting your spending to rewards credit cards and shopping strategically online will significantly help build your balances, the quickest and easiest way to accrue mass amount of points in a short time is through credit card sign-up bonuses.

There are a lot of myths about how your credit score is calculated, and most people believe that applying for new credit hurts their score. While this can be true, it’s generally opposite when using credit responsibly. When I first started in the miles/points hobby, my credit score was in the mid 700’s, which represents a very good credit score. Not surprisingly it was very easy for me to apply and be approved for multiple cards. Since then, my score is now in the high 700’s, which translates as an excellent credit score – even though I apply for 10-12 new cards per year! Here’s a breakdown of how credit scores are calculated:

Now I don’t recommend anyone apply for a card every month, but I want to highlight the fact that applying for a couple of new products will not harm your score in the long-run. New credit only accounts for 10% of your overall score. Applying for multiple products over a short period may temporarily lower your score by a few points, but will raise your utilization and diversify your report in the long-run, which should work to raise your score as long as you’re diligent in paying off balances in full each month.

It’s a good idea to get a copy of your credit report before you begin applying for new products. I recommend using Credit Karma. They’ve been around in the US for quite a number of years, and recently came to Canada offering a free credit report with no impact on your score.

The Best Travel Rewards Credit Cards for Beginners in Canada

Canada has some great travel rewards cards on the market with competitive sign-up bonuses. It’s difficult to provide a ‘one size fits all’ strategy for credit cards, as it really depends on your travel plans, ability to get new credit, comfort level applying for new products, and most importantly, feelings regarding annual fees.

There is, however, one card I recommend to everyone, even if they don’t have any specific travel goals. The American Express Gold Rewards Card in hands down the best travel rewards card in Canada, in my opinion. So what’s so great about this card?

• Welcome bonus of 25,000 Membership Rewards points after spending $1,500 in the first 3 months of card membership.
• 2 Membership Rewards points for every $1 in spend on gas, groceries, drugstore, and travel. 1 Membership Rewards point for everything else.
• Comprehensive insurance coverage.
• Opportunity to use points for fixed-value redemption

I think for beginners it’s important to have some vague goals before setting out on collecting points. When I first began accumulating points, I focused exclusively on Aeroplan, being somewhat oblivious to all of the other options. When it came time to book a very complex trip around the world, I ended up with much less availability than had I stuck with a flexible/transferrable program. In the end it worked out, but, had I known what I know now, I would have chosen to focus my efforts towards Aeroplan and British Airways Avios. This would have provided the options for long haul travel that I was focusing on with Aeroplan and availability for short connecting flights in Asia – an area where Avios represent excellent value.

Are Annual Fees on Travel Rewards Credit Cards Worth It?

Canada certainly has a few great products on the market to help boost points balances while avoiding annual fees. The American Express Gold Rewards Card is always great value, while cards such as the TD Aeroplan Visa Infinite and CIBC Aerogold Visa Infinite Card often run promotions with generous sign-up bonuses and annual fee waivers.

If you want to get really serious about points, a premium card with an annual fee is almost unavoidable. These cards generally come with the highest welcome bonuses of any products, such as 50,000 Membership Rewards points for The American Express Personal Platinum Card, and provide industry-leading benefits, such as access to airport lounges, hotel status, and comprehensive travel insurance.

American Express also has one of the most lucrative referral programs in the industry, which is really only worthwhile from the premium cards. Using the referral program strategically can dramatically increase your earning potential.

Let’s look at an example of how quickly a couple could accrue points using a premium card as part of their strategy:

Person 1 applies for the American Express Business Platinum Card and earns 40,000 Membership Rewards points after spending $5000 in the first 3 months of membership and pays an annual fee of $499.

Person 1 refers person 2 for the American Express Business Gold Rewards card and earns a referral bonus of 15,000 Membership Rewards points on approval. Person 2 earns a welcome bonus of 30,000 Membership Rewards points after spending $5,000 in the first 3 months of membership.

Person 1 refers person 1 (self-referral) for the American Express Business Gold Rewards card and earns a referral bonus of 15,000 Membership Rewards points on approval. Person 1 earns a welcome bonus of 30,000 Membership Rewards points after spending $5,000 in the first 3 months of membership.

In this example, the couple would earn a total of 130,000 Membership Rewards points.

What Can I Do With All These Points Anyways?

Redeem 140,000 Aeroplan points for caviar service in Lufthansa First Class:

Or 40,000 SPG points for a round-trip ticket to New York in business class on Cathay Pacific and enjoy the comfort and privacy of a seat that converts into a fully flat bed for the long transcontinental flight:

Redeem 96,000 SPG points for a 10 night stay at The Laguna Resort Bali, A Luxury Collection Hotel in a deluxe lagoon access studio room.