How Do Credit Cards Work? (Updated 2023)

Posted: 10/9/2023 | October 9th, 2023

Getting — and using — credit cards is an essential component of any travel hacking strategy, yet there’s still a lot of fear surrounding them. And that’s understandable. Most of us have been taught at one point or another that credit cards are bad. They are often synonymous with debt, which can be debilitating.

But there’s much more to credit cards than just debt. When understood and used responsibly, their rewards and benefits can unlock the world for you.

That’s why, today, I wanted to dispel some of that fear surrounding travel credit cards by explaining exactly how credit cards work. By understanding the system, you’ll be that much closer to making it work for you!

How Do Credit Cards Actually Work?

Credit cards allow you to borrow money from banks, which you then pay back later. They basically facilitate a short-term loan. When you open a credit card, you’ll get a credit limit, which is the limit up to which you can spend. Each month, you can then spend as much as your limit allows.

If you pay that money back at the end of the month, there is no penalty. Your “loan” is paid off and next month you can spend up to that limit again.

If you don’t pay off your card at the end of the month, you’ll be charged interest on the remaining amount. A lot of interest (likely around 20%).

The key to travel hacking with credit cards is to never spend more money than you actually have, even if your credit limit is higher than that. You want to basically use your credit card like a debit card, spending only what you can actually afford, and then paying the balance in full each month. By doing so, you’ll avoid those hefty interest charges.

When used this way, travel credit cards can be an incredible tool for earning free flights, travel perks, and hotel stays — and all without spending extra money. Simply buy your groceries, gas, dinners outs — whatever you usually spend money on — with your travel credit card and pay off the balance each month. Do that, and you can enjoy all the positives (free travel) without the negatives (high interest rates). You’ll also improve your credit rating, which can help you down the road should you ever need to make a large purchase.

By using the system this way, you can get tons of free flights, hotel rooms, vacations, and even cash back. Best of all? It’s never been easier to earn points. You can even earn points on your rent now!

How to Get Started…