How I Afford Traveling: Step 2--Credit Cards
Credit cards get a terrible rap. However, if you use them correctly and not let credit card companies use you, credit cards can be your golden ticket to traveling the world for as long as you want. As previously mentioned in my first blog post, you need to take into consideration your creditworthiness, as well as your monetary discipline before deciding whether or not using credit cards is for you. If you are disciplined with your money (ie. budget wisely, don't overspend, etc.) and have a decent to good credit score, then you really only need to save a third to a half of your traveling budget and put the rest on a credit card. In fact, doing so can save you hundreds of dollars...
Two Words: Travel Rewards
Travel rewards are essentially free money for the taking. You're going to be spending the money on hotels and flights anyway, why not get some of it back while you're at it? If you want to travel extensively, then make collecting rewards your new hobby. I recommend starting out this hobby and dipping your feet into the world of bonus points by applying for a VentureOne travel card from CapitalOne. Here are their best perks:
Earn unlimited 1.25X miles—that's 1.25 miles for every dollar you spend on purchases. 100 miles is equal to $1 in travel rewards.
20,000 Bonus Miles
One-time bonus of 20,000 miles—equal to $200 in travel—once you spend $1,000 on purchases within the first 3 months.1
0% intro APR for 12 months; 12.24%-22.24% variable APR after that
The part of VentureOne that was most attractive to me was the 0% intro APR for 12 months. That meant that I could put a large portion of my total travel expenses on my credit card and then slowly pay it off in chunks instead of the whole amount right away. Moreover, for a card with no annual fee, the bonus miles are great. I was able to rack up about $500 worth of bonus points that went straight into paying off a portion of my card simply by redeeming my travel expenses.
Paying Off the Credit Card
The most important aspect of using a credit card for a portion of your travel expense is the part where you pay it back. I highly recommend creating a plan to pay it back so that you don't run out of time before it starts accumulating interest. I also recommend putting no more than three months of travel expenses on any single card. That way you can divide the total amount by nine months and have a manageable payment each month. This means when the three months are up, it's time to get a new credit card.
Using the Three-Month Method
You can absolutely take out multiple credit cards and if done right, you will never have to pay interest on your travel expenses, you'll rake in boat loads of bonus points, and you'll make manageable monthly payments on your expenses. Here's an example of how it would work if you traveled for six months:
You Spend $2,000 on a 0% APR VentureOne card From September to November. At this point you stop using the card. You'll have accumulated $225 in bonus points that you can put towards the card. You need to make about $148 a month in payments to pay off the entire amount from the start of using it.
In December you take out another credit card. You can take out the same type of credit card from the same company or a different one, with a different type of rewards program, but it's important to find one that has 0% APR
Use your new credit card for expenses, all the while paying off $148 a month on your previous card. You'll accumulate another $225 in bonus points.
By March when you have returned home you'll need to pay $296 a month towards your credit card bills
April to September : $296
October to December: $148
Ideally you can put a third to a half of your travel expenses on a credit card. In this scenario, let's say you put a half of your expenses on a credit card. This means you'll have $4,000 saved up and you put $4,000 on a credit card. That's about $1,350 a month spent on airfare, accommodations and food for SIX MONTHS of traveling. Once you get back home you'll have to continue to make payments of $296 and then down to $148 before your entire trip is paid for, but then Voila!!
In the case that you're traveling as a couple, but still have separate expenses, then I would recommend taking out a credit card jointly so that splitting the costs are easy.
The above example was using a VentureOne credit card, which like I said is a great beginner travel card. However, you may also want to consider other ones, such as ones that have an annual fee, but come with a great rewards program. Just make sure their benefits outweigh the cost.
How Do You Pay Off the Credit Card While Traveling?
Now this is where my third strategy comes in--- getting paid while you travel! While I traveled Asia I made about $350 a week working 2.5 hours a day 5 days a week. If you are up for putting some work in while you see the world, then you won't even need to save half of your travel expenses, but could even make do with $500 of cash to start as long as your income stream is stable. I'll go more into how to get an online job, getting paid online, and how to maintain a job while you travel in my next blog post so stay tuned!
Note: if you don't want to work while traveling, then you will have to have enough saved to pay the minimum amount on your credit cards and then will have to pay more once you've returned. For example, if you wait until you're back in the above example, you'll have to pay about $592 a month minus the minimum monthly payment from April to September. Still do-able!