How can you travel freely with credit cards? | Military Money Manual Podcast Episode 6

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Military Money Manual Podcast Episode 6 Transcript

[00:00:00] Spencer: Okay. In this episode, we're going to try something a little bit different. And we're gonna talk about military travel h*cking, which is one of Jamie and mine. Mine? Me? No, I have to start that over. Mine? 

[00:00:13] Jamie: I want to say, ‘mine and Jamie's', but I don't think that's right either. 

[00:00:16] Spencer: Mine and Jamie’s'? Jamie and knees!

[00:00:18] Jamie: We're here to talk money, not grammar. Let's keep going. 

[00:00:21] Spencer: All right. So, we're gonna talk about military travel . So, Jamie, in your words, what's the deal?

[00:00:28] Jamie: So, military free travel , I would summarize as taking advantage of unique military benefits to earn free or very cheaply discounted benefits like hotel rooms, cheap flights, upgrades, and things that are at a huge advantage for military members because we get some other cards free, basically.

[00:00:51] Spencer: Yeah, I would say that's a pretty good definition. I think I would break it up into travel credit cards. Which is pretty well known online. I would say if you're aware of credit cards and stuff, in my own words, it would be using points and miles to get free vacations, free flights, free hotel rooms, free resorts, and a lot of other benefits too. Sometimes free food, free Uber, and essentially, you're using the benefits of credit cards and maximizing them as best you can. The biggest card companies out there, like Chase, American Express, Citi, and U.S. Bank and I think that's it- you can get all of their premium cards for free and not pay any annual fee. 

That's true for both active-duty military, Guard and Reserve on title 10– I got a data point recently that says title 32 doesn't count because it's not federal- so I think it's title 10 Gard and Reserve and then military spouses as well. So, a dependent military spouse civilian, and they don't have to be active themselves, but they have to be in this database, and we'll talk about how to get there. 

[00:02:02] Jamie: Yeah. So, we both have a handful of credit cards and can pile up the points for travel, hotels, things like that. Why do the banks give free annual or waive the annual fee for military? What's the deal with that? 

[00:02:16] Spencer: So, it's not very well advertised. I mean, on my site, I've been talking about this for 10 years. On “militarymoneymanual.com” I actually have a course, “Ultimate Military Credit Cards Course“. In that course, I talk about all the stuff that we're gonna talk about in this FAQ, but the reason that they waive the annual fees is thanks to two laws. One of them, the “SCRA”, Service Member Civil Relief Act, and the other one is the “MLA”, Military Lending Act.

The SCRA was first passed in 2003. It comes from a long history of the Civil War, World War I, World War II. When called to active duty, the Congress doesn't want military service members to have to worry so much about old debts or old loans they used to have.

So, what they did is they cap the interest rate at 6% for any debt acquired before entering active-duty service and the MLA closed the gap. What companies were able to do was charge higher than 6% to active-duty troops, right through payday loans, credit cards or through auto loans that were a much higher interest rate. The laws were passed to protect service members from exorbitant interest rates. But what happened was Chase and American Express, it must be their lawyers reviewed these laws and said, depending on how you read the laws, annual fees can be included in calculating the Military Annual Percentage Rate or “MAPR”, that's capped at 36% for military service members and their dependents under the MLA. 

And if you open up the card before you enter active duty, they apply the SCRA benefits so, your interest rates cap below 6%. If annual fees are included in that, and you have a $500 annual fee, if you only charge a thousand dollars to the card in a year, then a $500 annual fee is like a 50% Military Annual Percentage Rate. So, the banks to credit card company said, “We don't want to deal with this, so we'll just waive all the annual fees for military service members.” 

[00:04:20] Jamie: Yeah, and don't feel too bad for Chase and American Express specifically. They're the two bigger ones. They're still making billions and billions of dollars off people. And one of the things we want to avoid doing is paying them in interest. So, one of the questions you get sometimes is what about credit card debt? How do I incorporate this, but avoid credit card debt? 

[00:04:39] Spencer: When I was first getting into the financial independence and learning about how to manage my military paycheck, one of the first people I read was Dave Ramsey. He's a huge anti credit card guy and one of his things was always, “Do you think millionaires are using credit cards? No. They pay cash for everything.” Well now that my income has increased, I realize that yeah, a lot of millionaires use credit cards. They don't use cash for anything. But his big thing was no credit cards, not once, not ever. 

I was of the opinion that you could have one and then as long as you pay it off, you should be fine. What I didn't realize when I was opening up my first credit card was if you do a charge on the first day of your billing cycle, right? Well, 30 days later, your bill will close and then the bill won't be due until 28 days after that. So, that's how people get in trouble. They spend money 58 days ago, and then they don't have to pay it off until 58 days. Or they buy something, and they pay it off 58 days later.

One of the systems I set up early on was anytime I bought something on a credit card, I would move it from my savings account to my spending account. That way I always had enough there to cover it. If you just treat them like a debit card where you pay them off immediately in full, and you never carry a balance, then you won't be charged any credit card debt.

[00:05:53] Jamie: So, we really want to emphasize don't carry a balance. You can even pay off your card early before the statement closes or as soon as you get your statement. You don't have to wait until the due date. Spencer mentioned auto pay and that is very beneficial as well, but don't let travel credit cards lure you into paying a bunch of money in interest on a credit card, because you'll get behind really quick.

The next FAQ that falls under this is, how can I be sure that my fees will be waived? Does it apply to everyone? You mentioned military members and spouses. How do I know if it's gonna work for us? 

[00:06:23] Spencer: Before you open up any cards, I encourage everyone to check their status and their spouse's status in the MLA database. So, if you just Google MLA database, the URL is “mla.dmdc.osd.mill”. But if you Google “MLA database”, there's the MLA citation format that we had to use in college, skip over the links for that, and if you look for MLA DOD database, it should pop right up. What you're gonna be able to do on there is create an account and then run your social security number against the database. If you're on active duty, it should say that you are eligible for MLA benefits, and then run your spouse's information as well. As long as they're properly loaded in deers with a social security number, then they should pop positive as well and it should say eligible for MLA benefits. Once you see that, then your you're cleared. You can go apply for these cards and the credit card companies will run your social security number against the database.

As long as it's a positive match on the day that you apply- that's really key. If you're on active-duty orders only for 30 days, make sure you apply while you're in the database on active-duty orders. That's especially relevant for Gard and Reserve. Once it's a positive match, your fees are waived, and they'll stay waved as long as you're on active duty. 

[00:07:37] Jamie: So, you mentioned on the day that you apply, does that mean a new commission out of the Military Academy, Air Force Academy, Naval Academy? They can't do it day one of graduation, they have to wait, double check and make sure they are on active-duty orders in the MLA database? 

[00:07:52] Spencer: Yeah, that's right. I know the way that American Express used to interpret the rules, all the academy cadets were eligible for SCRA benefits and could get the cards' fee waived. I think they've since changed that. The easiest way to figure out if you're gonna get your fees waved or not, is just check the MLA database. I've heard of a lot of ROTC, a lot of academy kids who graduate and they apply for a card their first day after graduating because they're commissioned, they're ready to go. Well, not so fast. You're entered to active-duty date might be delayed a little bit. The paperwork has some time to take up, the database has to be updated. You can check the database as much as you want, but I would wait 30 days after you commission or enlist and you've started receiving military paychecks. Wait, 30 days after you get your first military paycheck, ping the database, see if you're in there and if you are in there, then you're ready to go. You can apply for the cards and get the fees waved. If you're not in there, just wait a little bit longer, another 30 days or so, check the database again, and then you should be ready to go.

[00:08:52] Jamie: So, you mentioned a little earlier that they recently changed their interpretation SCRA versus MLA. It doesn't really matter. It's transparent to us in some ways of whether they waive our fees under one rule or the other. But we have seen questions where people say, ‘oh no, I got denied under SCRA. They say you're not eligible for SCRA because I'm already in the military and I'm trying to open this card'.

Well, then all you have to do is apply under MLA and then it should work. Don't let that mix you up either because they're old rules were more SCRA based, new rules are more MLA based. 

[00:09:21] Spencer: Yeah. And again, if you Google “American Express SCRA denial“, I've got a whole page on there. It explains the new system versus the old system and what you need to do. Essentially it should be completely transparent to you as long as you're already in the MLA database, you don't have to apply for anything. The way that you can check to see if MLA was applied to your account, is on your American Express statement of benefits, I believe it's called. It is one of those documents that you get in the mail, or you get over email and you're like, this is just legal information. At the bottom it should say you have been identified as a covered borrower under the military lending act. If you have that statement on your documents, then they know you're in the military, they've applied MLA. 

When American Express waived their annual fee, a lot of us got emails saying, ‘Hey, the fee's going up', and they even sent us paperwork saying the fee's going up. But, at the bottom of it, they'll say, “Hey, you're covered.” So, don't worry about it. Same thing with Chase. Chase will actually physically mail a letter that says, “Hey, you've been identified as a covered borrower under MLA, your fees are waived.”, and then a couple days later, your card shows up. 

[00:10:21] Jamie: Yeah. The last time we actually opened up our last two Chase cards for my wife we got that letter from chase saying that MLA was applied for her before we even got the card. 

[00:10:31] Spencer: Yeah. That's a really nice benefit that Chase does so that you don't have to worry about it. As soon as you get the card, you know the fees are already waived. 

[00:10:37] Jamie: So, we talked about some banks. They don't all interpret the rules the same. So, we talked already about American Express, Citibank, and U.S. Bank are the big ones. One quick note with Citibank is there's an email template Spencer has on the website. You email Citi with some information in the statement to get MLA applied for Citi. Chase has been automatic. My personal experience with American Express, I've never had an issue with it, but it's a very easy way to request MLA benefits. Citibank takes the most work in my experience and it was literally sending one email and that was it. So, it's pretty easy and straightforward. Another question some people ask is about your credit score. So, we have a bunch of cards open. Sometimes we open them in rapid succession or back-to-back. Is it gonna make me look like I'm broke by having a bunch of credit cards open? 

[00:11:23] Spencer: Yeah. So, the biggest thing that the credit score's looking at is on time payments, length of accounts, how old are the age of accounts, the debt-to-income ratio, and the debt utilization rate. So, if you have 29 credit cards open like I have, and I have over $170,000 of access to credit through all those cards but I pay my bill in full every month. Sometimes a statement closes, and I'll have a thousand dollars on it or whatever, I'm using less than 1% of my total credit. So, my credit score is great. I think mine's over 820. My wife's is 830 and we both have dozens of cards open. On time payments is another big thing and then the age of the account. Whatever card you open first, you're going to want to keep that open essentially forever. It's really important, I think, to open up a no annual fee card so you're never tempted to close it, even when you get out of the military.

If you've opened up like a Chase Freedom, a Navy Federal, or USAA credit card that doesn't have an annual fee, even if you don't use it, just put in a sock drawer, put one transaction a year on it just to keep it going. But if you just kind of set that aside and then that ages your account, it anchors your account as well. So, I have a card that opened up in college that I've never closed. So, that's 15 years of credit history that I have. As long as I don't close that account, even if I open up more accounts today, the average age of my accounts is still going to be seven or six years because I have that account that's 15 years old. 

[00:12:48] Jamie: Yeah, that's really good. All right. Time for one more? 

[00:12:51] Spencer: Yeah, let's do one more! 

[00:12:52] Jamie: Okay. Do miles and points have expiration dates? 

[00:12:57] Spencer: Some of them do. A lot of them, if you close the card and you still have points on it, then you're going to lose the points. But for, let's say American Express, as long as you have one American Express card, either a platinum a gold or a green, then you can close all the other ones and you can move all the points. You'll still keep your account open. Same thing with Chase. They have their ultimate rewards points. As long as you have one Chase card that takes ultimate reward points, you can move all the points of that card and not lose your points because the cards are annual fee waived. Usually there's not a lot of reason to close accounts, but you can usually keep your points and miles going. So, the big travel pause during COVID, a lot of the companies just kept extending when their points expired and usually you have years and years until you have to worry about them expiring. Do Southwest points expire? I can't actually remember. 

[00:13:51] Jamie: I feel like their ads say they don't, but I think it's as long as you're accruing or using, they don't expire for a lot of companies, but I'm not a hundred percent sure.

[00:14:00] Spencer: Yeah. I'm pretty sure American Airlines had points that expired, and I had 10,000 miles. All I had to do was do one transaction on my American Express card. It added a couple more points and then that shows account activity. And now the points are extended for 24 months.

So, there's really easy ways to keep them going. And then the other thing that factors into this too is you shouldn't really be saving points. Points are there to be spent. It's not like cash. It's not like money where you can buy something and invest it. Now, maybe you need to save up some points. Right now, I have a goal to save a million American Express points. And what am I gonna do with those? No idea.

[00:14:34] Jamie: Take a picture of the page.

[00:14:36] Spencer: Yeah, exactly. Take a picture of the page when I hit a million. But let's say we're in more normal times. I can get a roundtrip ticket on All Nippon Airways, one of the best airlines in Japan. Around the world for, I think it's like 300,000 Amex points. So, me and my wife, for 600,000 American Express points, could go on and around the world trip and then use the other 400,000 left over for some hotels. So, there's a lot of things that you can do at the points and they're there to be spent.

The nice thing about if you do spend the points on travel and you're not spending your own hard-earned cash, is now you can take that cash and you can invest it. Depending on how much you earn from traveling, you might be able to get to the point where you're fully funding a Roth IRA, $6,000 of travel. I mean, you and I have definitely over the last year earned over $6,000 of travel. From our cards.

[00:15:26] Jamie: Yeah, for sure. Maybe we should do that next time with how much we've earned. 

[00:15:29] Spencer: Yeah. But that's a full Roth IRA in 2021, that's a full Roth IRA contribution right there for yourself or your spouse. 

[00:15:38] Jamie: All right. So that was a lot of the FAQs. I know we have more we'll try to cover next time. If people have questions, you mentioned the course, the UMC3 course. Do you mind mentioning one more time where they can find that?

[00:15:49] Spencer: Yep. That's “militarymoneymanual.com”. Just go to the homepage and there should be a link there, it'll pop up. You just put in your email address, and I'll send you the course for a hundred percent free. Then “militarymoneymanual.com/umc3” if you want to directly access it. If you have any questions, I'm available essentially 24/7. I might not respond that quickly but send me an email “podcast@militarymoneymanual.com”. I have a pretty good track record responding to every single email I receive. So, shoot me an email, ask me your questions and we'll see if we can address it in the next episode.