15 hours Ago By Andrew Dorn
(NewsNation) — Travel hackers on social media say you can fly for free and it all comes down to your credit card points. One popular strategy is known as credit card churning — opening and closing cards to earn sign-up bonuses and rewards. A subreddit dedicated to churning has over 600,000 members.
A 2023 survey by The Harris Poll found nearly 40% of Americans have used credit card points or rewards to pay for travel.The global travel credit card market was valued at $16.4 billion in 2022 and is projected to reach $48.
5 billion by 2032, according to Allied Market Research. Are vending machines a lucrative side hustle?Claim: You can travel the world for “free” with credit card pointsTravel hackers on TikTok and YouTube make credit card churning look simple. They flash dozens of cards and explain how others can enjoy champagne travel on a beer budget.
“Get cheap flights with this trick” (TikTok)“Credit card churning 101” (TikTok)“How to travel the world for free: Credit cards 101” (YouTube)While sign-up bonuses can lead to great rewards, churning can be risky. "You have to go into this really carefully and I think sometimes social media makes it sound really simple and easy," said Clint Henderson, managing editor at The Points Guy, a credit card rewards site.Henderson has 27 credit cards and a very good credit score, but he also keeps track of everything in a spreadsheet and pays in full each month.
"You really have to be a knowledgeable consumer if you're going to get into this hobby," he said.(Getty Images)How travel hacking with credit card churning worksCredit card companies offer sign-up bonuses to attract new customers and travel credit cards have some of the best welcome offers.Those bonuses allow new cardholders to rack up extra rewards like cashback or air miles, which can be used on flights and hotels.
"Churning" is when a consumer repeatedly opens new credit cards to take advantage of sign-up bonuses and then quickly closes the cards to avoid annual fees.What is Signal, the chat app used by US officials to share attack plans?Keep in mind: You’ll have to spend money to save money.With the Capital One Venture Rewards card, you can earn 75,000 bonus miles if you spend $4,000 within the first three months.
The Chase Sapphire Preferred card has a similar sign-up deal worth 100,000 bonus points if you spend $5,000 in the first three months. Both cards have a $95 annual fee.What they’re not telling you about credit card churningIt’s not for everyoneChurning is a bad idea if you’re among the roughly 50% of credit card holders who carry debt month to month.
“If you're carrying a balance and paying interest, that's going to cancel out any rewards you might have gotten from the card,” Henderson said.Data from the Consumer Financial Protection Bureau (CFPB) reinforces that point.In 2022, consumers who carried debt from month to month paid 94% of all interest and fees charged, but earned just 27% of the rewards at major credit card companies.
You should also think twice if you’re prone to overspending. Earning welcome bonuses can require new cardholders to spend several thousand dollars, driving people to buy things they otherwise wouldn’t have. Instead of chasing rewards, consider signing up for a new card when you have a natural spending spike, said Ted Rossman, senior industry analyst at Bankrate.
“Whether that's a big vacation or holiday shopping or a home renovation,” Rossman said.It can hurt your credit scoreNew credit makes up 10% of your FICO credit score and opening several accounts over a short period can temporarily lower your score.That’s because applying for a credit card leads to a “hard inquiry” on your credit report, which is when a lender evaluates your creditworthiness.
Multiple hard inquiries in quick succession can be interpreted as a sign of financial instability and negatively impact your score. Stuck between renting and buying a home? How to calculate what’s best for you“If you're about to try to get a car loan or a housing loan, you don't want to open a bunch of credit cards,” Henderson said.Rossman said it’s best to wait about six months between card applications.
“Walk before you run — don't go off and open 10 credit cards all at once,” he said.Closing a credit card too soon can also hurt your score, so both experts suggest downgrading your card to one with no annual fees instead of closing it entirely.“It's actually better for your credit score to have more available credit and to be using less of it, so it's best to keep it open,” Rossman said.
Card issuers have cracked downCredit card companies want long-term customers, so many have restrictions to discourage churning.“Chase has a 5/24 rule where you can only open five credit card accounts within two years of each other,” Henderson said. Bank of America has what’s informally known as the 2/3/4 rule, limiting you to two new cards in 30 days, three new cards in 12 months and four within 24 months.
American Express limits each customer to one welcome bonus per card per lifetime. Previously, you could earn welcome offers on the same card multiple times.“This game has gotten much harder over the years,” Henderson said.
“But it’s perfectly legal.”Big picture: Do the credit card companies come out ahead?For the disciplined spender who pays their credit card bills on time, churning is a way to maximize rewards points, but data shows card issuers are still coming out ahead.Credit card companies charged consumers more than $130 billion in interest and fees in 2022, according to the CFPB.
By comparison, consumers earned about $40 billion in rewards on major issuers' general-purpose credit cards.But consumers who paid off their balance each month fared well, paying just 6% of interest and fees charged in 2022 while earning 73% of total rewards.“Don't be afraid of credit cards, just know what you're doing,” Henderson said.
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