Let’s get something out of the way. “Travel hacking,” at its core, is not an unethical practice. Rather, it is the art of understanding the rules of credit card signup bonuses, shopping portal multipliers, fare sales and frequent traveler programs in order to extract the maximum possible benefit out of the money you spend and the points you earn on just about anything. Understanding the rules of any system to maximize the benefits to you isn’t shady, it’s smart. Just ask Neo. And while there are definitely “fringe” practices that blur (or cross) the line between ethical and unethical behavior, those things are pretty obvious on their face. Simply taking best advantage of the established rules isn’t one one of them.

I mention this because a recent profile in Rolling Stone magazine of Ben Schlappig, a wunderkind of the travel hacking hobby who runs a fantastic blog called One Mile At A Time, cast a somewhat negative light on the practice by focusing on perceived excesses, disparaging comments and what I believe to be a little-used fringe practice called “manufactured spending.”

Manufactured spending is essentially the practice of purchasing goods on credit cards to earn points and miles and then selling those goods to recoup the expenditure and pay off the card. And even that isn’t necessarily unethical. Obviously, the risk and fees associated with this practice are borne solely by the cardholder. If your purchases sell, you recoup most of your expenditure (minus fees, shipping charges, etc.) and earn points or miles in the process. But if they don’t sell, you’re left holding the loss and/or the merchandise. This is NOT a game I play, nor would I recommend it for anyone who doesn’t have an exorbitant amount of time, energy and understanding of the stuff they’re buying and how to sell it without taking a huge loss.

And, while the credit card companies are happy to earn the transaction fees, interchange income and interest charges that may come from these purchases, they balk at having to pay the miles and points accrued by the cardholders. Sorry, Chase, Citibank and American Express — you don’t get to have your cake and eat it, too.

Regardless, I met Ben (a.k.a. “Lucky”) at a Frequent Traveler University session in Washington last year, and I am convinced that he is a smart, hard-working guy who isn’t unethical and doesn’t have nefarious intentions relative to airline and hotel loyalty programs or banks. Instead, I found him to be humble, spectacularly knowledgeable and very generous with his time and advice. In fact, it was his program and routing suggestions that allowed us to include Europe and Asia in the same travel itinerary for our summer vacation. If it wasn’t for him, we would have missed out on Asia altogether. And, in the interest of balance, Lucky’s take on the Rolling Stone article is well worth the read.

I’m interested…but where do I start?!

The best, fastest, most lucrative way to earn points and miles is generally through credit card signup bonuses. While the thought of playing with your credit score this way may scare you, as long as you’re responsible and pay off your balances IN FULL EVERY MONTH, it shouldn’t. In fact, your credit score will likely rise over time. Ours sure did.

And, while one of the most lucrative strategies in the world of travel hacking is “churning” credit cards (sign up for a card, meet the minimum spending requirement to get the bonus, hold the card until the next annual fee is due, cancel the card, repeat), the banks make the rules and they can change them at any time. In fact, they already have. American Express has instituted a “one bonus per lifetime per card” limit on their personal cards, and Chase has started limiting the number of open cards any given user can have with them at any time. Even still, even one-time bonuses allow customers to rack up huge balances very quickly, and there are plenty of other ways to earn points and miles. Nothing will ever come close to credit card signup bonuses, but it can be done.

First, spend every dollar possible on points-earning cards. Second, many cards offer “category bonuses” where spending in certain categories, (gas, groceries, dining out, etc.) earn 2x or higher points per dollar spent. Know which cards earn which bonuses and use them religiously. Third, always use online shopping portals to make large purchases. These portals partner with retailers to offer some number of extra points per dollar spent. These multipliers can range from 2x to as high as 20x to 30x or more.

The bottom line is that credit card companies WANT you to hold their cards and the points or miles they provide as a bonus are an incentive for you to do that. Airlines and hotels WANT you to hold their loyalty currency because it means you’re more likely to do business with them in the future.

That said, it is always best to start with a goal. What do you want to do? Where do you want to go? What do you want to see? Who do you want to take? From there, you should research the best loyalty programs to meet your needs and develop a strategy for earning the miles necessary to do so. This doesn’t happen in a month or even a year. It takes time, determination and a plan.

To be honest, I didn’t do that. In the beginning, I just signed up for all the best credit card offers, regardless of the program they were in. I racked up millions of miles, but they weren’t necessarily the *right* miles. The result was that we had to pay for some miles (specifically, US Airways) that we wouldn’t have needed to buy if I had a plan from the beginning. I can’t stress this point enough. Have a plan before you start.

So again, as I discussed in Part 1 of this series, there are two sides in this equation: earning and redeeming.

Earning Points

Earning points is actually the easy part. Points and miles are primarily earned through credit card signup bonuses, category spending bonuses and online shopping portals. Using these three methods, you can rack miles and points up very, very quickly. Credit card signups are by far the fastest and most lucrative way you can build point balances. And, contrary to popular belief, your credit score will likely *increase* substantially as long as you apply responsibly and pay balances off in full every month. Oh, and that’s pretty much the golden rule in this hobby – if you can’t pay the balance off in full every month, don’t play the game. The amount you save on travel will be tempting, but you’ll lose out in the end if you’re paying finance charges every month by carrying balances.

As an example of how lucrative credit card signup bonuses can be, if a single person signs up for a Citibank American Airlines card with a 75,000 mile signup bonus after spending $5,000 in three months and a Barclaycard American Airlines card with a 50,000 mile signup bonus after spending $3,000 in three months, they would have at least 133,000 American Airlines AAdvantage miles in their account which is more than enough for a round-trip business-class ticket to Europe from the US.

As I mentioned, online shopping portals can also be very lucrative. Last year I earned a Southwest Airlines Companion Pass (one of the holy grails of travel hacking) by spending roughly $3,500 through a shopping portal that was offering a 36x bonus at Sears. I had purposefully put off buying these items waiting for just such an opportunity to pop up. The Companion Pass provides totally free travel for a designated companion on every single flight the pass owner takes on Southwest. Essentially, flying 2-for-1 ANYWHERE Southwest flies, ALL THE TIME with no blackout dates or restrictions. Even better, it is good for the remainder of the year in which you earn it AND THE FULL FOLLOWING YEAR. In fact, the value we will get out of the Southwest points and Companion Pass over the next two years well-exceeded the value of the stuff we bought. And that’s just one example.

Making things more confusing, there are two general types of programs that points can be earned into: fixed and flexible.

Fixed Points

Fixed points are limited to the program in which they’re earned. These are generally tied to a specific airline, hotel, rental car company, etc. So, in the above American Airlines example, those 133,000 AAdvatage miles are *only* good in the American Airlines frequent flyer program. You can’t use them anywhere else, but you CAN use them for award redemptions with American’s airline partners. This includes British Airways, Cathay Pacific, etc. That said, fixed points are *always* tied to the award chart of the program they’re earned under. The award chart is essentially the rulebook and cheat-sheet for how many points it takes to book a ticket on the airline and all the airlines partners.

Flexible Points

Flexible points are earned in a program that generally has no redemption options at all. Rather, it has a list of partners that you can transfer points into to before redeeming. Generally, these points are earned through and held by credit card companies themselves. Chase Ultimate Rewards, American Express Membership Rewards and Citi Thank You points are all examples of this type of points.

Flexible points are great because they’re generally very easy to earn and they help protect you from devaluations which can happen at any time. In other words, while points and miles are essentially currency, the programs themselves determine the value and can change the rules at any time, with or without notice. So, if one airline devalues their award chard, flexible points allow you to transfer to any number of other programs instead. Think of them as having some built in opportunity cost insurance.

Redeeming Points

The redemption side is where things get can get tougher. Obviously, it is in the best interest of the airline, hotel, etc. to limit award space in the hope that they will sell all the seats or rooms they have. So, finding space can be a chore, especially for families. But again, it is important to understand the system in order to know how and where to look for the award space you seek.  That’s why having a goal to start is a good idea.

First, there are three types of award programs: revenue-based programs, distance-based programs and those based on a published award chart.

Revenue-based programs

The first, revenue-based, is fairly easy to understand. In revenue-based systems, points generally have a fixed value – say, 1.4 cents per point. So, a $100 fare in this type of system would cost 7143 points (100 / 0.014) regardless of the flight, distance or class of travel. Southwest airlines is a good example of this type of program (although even they sometimes charge more for award seats based on popularity, advance booking, etc.).

Revenue-based programs are good because there are generally no blackout dates, no restrictions on seats and the points have a defined value so you generally know what to expect based on the paid fare. They are bad because the price of the fare in points is directly related to the price of the fare in dollars. So, it’s tough (read: impossible) to squeeze excess value out of them. In other words, you’re not going to fly first-class on points in a revenue-based program since the cost of the ticket in points would be prohibitive (the same way paying cash for first-class travel is prohibitive for most of us).

Distance-based programs

The second type of award program is infrequently found but can be very useful: distance-based awards. British Airways is the major player in this area. Distance-based award charts have specific flight distance ranges and an associated point cost for each. So, for example, it costs only 4,500 British Airways Avios (points) to travel up to 500 miles one-way. 12,500 British Airways Avios points will take you from 1,001 to 2500 miles one way. In this way, you can get very good value at the “fringes” of the distance cutoffs. Say, from Los Angeles to Hawaii or from Boston to Dublin. Each cost only 12,500 Avios one-way because they are just under 2,500 miles between cities. Other award programs charge as many as 20,000 to 40,000 miles for the same flight.

Award chart programs

Programs based on award charts are the older, more “typical” type of program…at least for now. These types of programs generally use an award chart that has its own zones and rules. Travel from one zone to another generally costs a certain number of points or miles, no matter where in those zones you are traveling from or to. So, for example, a business-class award from Zone 1 (North America) to Zone 2 (Western Europe) might cost 60,000 miles one-way, regardless of where in these zones you are flying from/to.

In addition, award chart based programs tend to have rules that dictate how awards can be booked in their system – what fare classes, fare types, zone restrictions, etc. Obviously, this can get very complicated very quickly since virtually every airline that uses this type of system (and most do) have their own rules and restrictions.

In this way, it’s easy to see how certain points could be more valuable than others. While one program may charge more miles to get from the same point A to point B as another program, they might also differ in their rules regarding things like stopovers (the ability to leave the airport and spend some length of time in a connecting city), open-jaws (the ability to stopover in one city and continue an itinerary from another city), etc.

Jane! Stop this crazy thing!

I know this gets confusing, but it’s all very important and actually pretty easy to understand when you think of it in terms of currency. The key to remember is that fixed points are wedded to the program in which they’re earned. Flexible points can be transferred to any partner of the program, hotel, airline or otherwise. Regardless of which type you earn, points and miles are like currency within the program where they are earned, and any rules, restrictions, changes or devaluations that happen within a particular program only affect the points balance you have inside that program. Think of it this way: Fixed points are like the US dollar or British pound — only good in one country (program). Flexible points are more like the Euro where you can transfer the currency to a number of different countries (programs).

Up next…

The rubber finally meets the road starting in Part 3 where I will start getting into the nitty-gritty of the points needed for the actual travel and lodging we used for our 2015 epic summer vacation.  Stay tuned!…

Series Links:

• 2015 Epic Summer Vacation – Part 1: Introduction
• 2015 Epic Summer Vacation – Part 2: Travel Hacking Primer (You Are Here)
• 2015 Epic Summer Vacation – Part 3: Backbone Air Travel
• 2015 Epic Summer Vacation – Part 4: Paris
• 2015 Epic Summer Vacation – Part 5: Switzerland
• 2015 Epic Summer Vacation – Part 6: Amsterdam
• 2015 Epic Summer Vacation – Part 7: London
• 2015 Epic Summer Vacation – Part 8: Japan
• 2015 Epic Summer Vacation – Part 9: Hong Kong
• 2015 Epic Summer Vacation – Part 10: NYC