Before you start to maximize miles, there are a few questions you should ask yourself. After all, this blog is just as much about financial responsibility as it is about miles. These self assessments don’t necessarily preclude you from using credit cards because almost everyone still needs to pay for basics (like food, transportation, rent, etc) that you should still get rebates for, but this is just a precaution that your time and energy may be better spent in getting the following issues under control.
Are you unable to pay off your complete credit card debt every month?
I don’t pay a single cent of interest on any of my credit cards. I make sure to always pay in full every month. It just doesn’t make financial sense, even if you are getting 2-10% back in some form of miles or points, when you’re paying 16-36% APR on credit card debt. I did want to point out that I distinguished the inability to pay, and choosing not to pay. There are times that credit card companies offer 0% APR and those should be taken advantage of and makes more sense to divert those extra funds towards another bill with interest or temporarily store in an interest generating account.
Are you paying more than 5% APR on any loan?
My current highest loan is my mortgage at 3.25% APR. With interest rates at record low levels, nobody should be paying more than 5% APR on any loan to include car loans, mortgages, or Home Equity Lines of Credits. If you are paying a mortgage with a higher interest rate and you can’t re-finance because you’re “under water” on the house, then that should be your first priority over anything else to ensure your future financial security.
Do you save at least 20% your income?
Again, just a recommendation of self-reflection. I started this blog with the intent of helping as many people travel on the cheap by earning points and miles on stuff they need to purchase anyway but also to promote the goal of reaching financial independence. The definition of what you need to purchase is relative but setting saving goals to pursue does help to avoid unnecessary purchases.
Are you able to control your spending with credit cards?
We’ve all been there. A couple of coffees through out the day, a nice dinner, couple drinks, movie with snacks, taxi rides here and there. Before you know it, all these tiny purchases can really add up. Its even easier to lose track when you physically don’t see a reduction in your wallet. Luckily its easier than ever to track your purchases throughout the day thanks to the smartphone. Most credit card companies have the option to text you every time you make a purchase or cross a pre-determined limit. Additionally there are numerous budget tracking apps like Mint to help you holistically track your spending.