The Mirage of Free Travel
Why chasing points while in debt is a financial trap.
Meet Alex
Alex needs a vacation. He sees an ad online: “Earn 50,000 bonus points! Free Flight!” It sounds perfect. He applies for the platinum credit card to “hack” his way to a free holiday.
He buys the flight, buys dinner, and buys souvenirs. He earns the points. But Alex has a problem. He already had $3,000 of debt, and now he has added $2,000 more. He decides to pay it off “later.”
The Mistake
Alex ignored the math. The bank isn’t giving away free money; they are betting that Alex won’t pay his bill in full.
1. The Losing Battle
This is the most important math equation in travel hacking. Credit cards usually offer 1% to 2% back in value for every dollar you spend.
However, if you carry a balance, the bank charges you an Annual Percentage Rate (APR) of around 20% to 25%.
Key Takeaway
Interest eats rewards instantly.
Figure 1: Comparison of typical Reward Rates vs. Average Credit Card APR.
2. The “Sinking Ship” Effect
Let’s watch Alex’s finances over 12 months. He has a $5,000 balance. He earns points worth $100 at the start, plus points on his monthly spending. But he is paying 22% interest on that debt.
Total Rewards Earned
~$220 value
Points usually devalue over time.
3. Where Does Your Money Go?
Alex decides to just make the “Minimum Payment” so he can keep his cash for more travel. This is the most dangerous trap.
On a high-interest card, the majority of a minimum payment goes strictly to paying off the Interest. Only a tiny fraction actually lowers your Principal (the original amount you borrowed).
- Money lost to the bank (Interest)
- Money reducing debt (Principal)
Should You Travel Hack?
Follow this simple path to decide if credit card rewards are safe for you right now.
STOP IMMEDIATELY
Do not use points cards. Focus 100% on paying off the balance. The interest is costing you more than the flight is worth.
Next Question:
Can you pay off the full balance every single month?