Credit Card Churning

Let's suppose that you:

  • Have a high credit score (~725+),
  • Never miss a payment or carry a balance,
  • Have a great grip on your budget,
  • Can spend about $1,000/month on a credit card without increasing your expenses,
  • Travel frequently, or intend to in the near future, and
  • Enjoy managing complexity.

If—and only if—this is the case, you might want to consider credit card churning (also called travel hacking).

Most credit cards include some sort of scheme whereby you get a certain number of points (on a certain airline, or at a certain hotel chain) for each dollar you spend. It usually takes a long time to earn anything valuable this way; you might get one airline point for every dollar, but a round-trip domestic flight usually costs at least 25,000 points.

However, credit cards often come with sign-up bonuses: if you spend a certain amount of money in a certain amount of time, you'll get a big pile of extra points!

The game of churning is to:

  1. Get a credit card,
  2. Put your ordinary day-to-day expenses on it until you've hit the minimum amount for the bonus,
  3. Get a new card and repeat ad infinitum.

For example, I recently signed up for a card which gives me points with United Airlines. If I spend $3,000 on the card within three months (which I comfortably can without increasing my spending), I'll receive an extra 50,000 United points. That's two domestic round-trip flights for virtually no work.

If I'd gotten a 2% cash-back card instead, I'd have $60. Four flights are worth substantially more. Anecdotally, I've found that my effective discount averages out to around 20%.

There's a ton of advice out there governing which cards you should get, in which order, and under which circumstances. That falls well outside the scope of this book. Churning is a deep rabbit hole.

The definitive community is the r/churning subreddit; I'd suggest starting with their wiki.

Caveats

If any of the prerequisites don't apply to you (i.e., you occasionally miss a payment or otherwise don't have a firm grip on your finances), you absolutely should not be churning! Get the rest of your financial house entirely in order first.

Similarly, if you find that churning is encouraging you to spend more to meet the minimum spending requirements, quit! The goal is to save money, not spend it.

Signing up for a card temporarily lowers your credit score by a few points. If you're planning on taking on a large loan in the next six months or so (a mortgage, say, or a car loan), you might want to avoid churning. Your credit score affects your mortgage rate, so you'll want that score as high as possible. A lower mortgage rate can save you much more money than churning will.

An additional downside to churning is that it discourages you from freezing your credit, which is otherwise an excellent thing to do. You're balancing risk with reward. I happen to churn at the moment, but that choice is under frequent review. I certainly wouldn't blame you for eschewing it and safely freezing your credit instead.

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