Playing with credit cards for fun, rewards, and profit
I love credit card companies. They are so stupid. They think when they lend me money that I will one day pay them interest. But I have developed a very firm position on which direction interest payments go in my life: to me, not from me.
Here are some games you can play with your credit card companies to keep the interest payments moving in the right direction. These games are especially good for people who get their income in periodic lump sums or are living off savings (like many students). You probably need excellent credit to play these games, otherwise you won't get all the good offers.
Supplies needed: Offers for one or more rewards cards, and offers for one or more 0% balance transfer cards. A good reliable personal accounting system (I use Quicken) and reminders system (I use Outlook). [Update 1/6/05: Google is now serving up many ads for such offers to the right of this post.]
1. Sign up for a rewards card that pays you the rewards you want -- cash back, airline miles, merchandise credit, etc. Mine is an Avon card that gives me 1% back in Avon certificates. In the past I've also had an airline miles card that earned me a free ticket to Costa Rica.
2. Sign up for a 0% balance transfer card. As soon as you get it, make the maximum balance transfer to your rewards card, even if your rewards card doesn't have a balance -- basically, you're using one card to pre-pay the other card. (A good rule of thumb for your financial life: Whenever someone offers to lend you money at 0% interest, YOU SAY YES.)
[Update 1/6/05: Oh yeah, you can sometimes find rewards cards that also offer 0% interest on purchases for a decent period of time, allowing you to skip the whole balance transfer step of the game, at least for the first round.]
3. Buy a certificate of deposit for the amount on your balance transfer card for a length of time just short of the 0% interest period. You have that prepaid rewards card now to use for most of your living expenses, so you only need to keep enough liquid for rent, minimum monthly payments on the balance transfer card, and any other payments that won't take credit cards.
4. Sit back and rub your hands together with glee as you earn interest on the credit card company's money for six months, a year, whatever the time period for the 0% interest is.
5. When your CD comes due just before the 0% interest rate expires, use it to pay off the balance transfer card. Set up a reliable reminder so you don't forget to do this. See, the credit card companies give you that 0% interest rate because they think you're either going to forget or not be able to afford to pay off the balance once the interest rate expires, and then they'll get you. But you have tricked them!
6. Watch out for annual fees -- they cut into your profit and can even make it not worth it. Often with annual fee cards it is waived for the first year. Set up a reminder and every year call and bitch about the annual fee and threaten to pay off your balance and close your card if they don't waive it (and have a CD maturing then so you can back that threat up with action if necessary). That almost always works. You probably won't be keeping your balance transfer cards long enough for annual fees to be necessary, but you might need to do this for your rewards card.
7. Make sure you make all your monthly payments on time, or the credit card company can abruptly change the rules of the game on you. One word: Autopay!
8. Horde any credit card offers you receive in the mail so you have a nice selection when you're ready to do it again. Don't worry about the expiration dates on the offers, those are just a marketing prompt to get you to respond right away, when you call they will almost always still let you sign up under the terms of the "expired" offer.
An example: Let's say you spend $500/month on living expenses that can be run through a credit card, and you get a balance transfer offer for 0% interest for just over one year. You also have a rewards card that pays you 1% cash back. Use the balance transfer card to pay $6000 to your rewards card. Buy a CD for $6000 that matures in one year. My bank (Washington Mutual) is currently offering 2.6% APY on one year CDs. So you get $60 in cash back rewards plus $156 in interest -- $216 for perhaps an hour of your time setting the whole thing up. That's enough for a couple of textbooks!
Now the above game assumes a positive net worth and lump sums of money to be buying CDs with. If you don't have that, if you already have debt and/or no savings, you can still at least avoid paying interest. Horde 0% balance transfer offers, use them, and keep very good track of when the 0% interest rate period is up so you can transfer again. Back when I had credit card debt I went for years without paying more than 1% or 2% interest, and often paid 0% interest.
If you consider how much you spend on living expenses that could be run through a credit card, you can make a few hundred dollars a year and earn quite a few rewards doing this. It's also tons of fun to know you're beating the credit card companies at their own game. (OK, then again, my idea of fun also involves checking all my account balances and updating my Quicken every day, so your fun mileage may vary.)
Here are some games you can play with your credit card companies to keep the interest payments moving in the right direction. These games are especially good for people who get their income in periodic lump sums or are living off savings (like many students). You probably need excellent credit to play these games, otherwise you won't get all the good offers.
Supplies needed: Offers for one or more rewards cards, and offers for one or more 0% balance transfer cards. A good reliable personal accounting system (I use Quicken) and reminders system (I use Outlook). [Update 1/6/05: Google is now serving up many ads for such offers to the right of this post.]
1. Sign up for a rewards card that pays you the rewards you want -- cash back, airline miles, merchandise credit, etc. Mine is an Avon card that gives me 1% back in Avon certificates. In the past I've also had an airline miles card that earned me a free ticket to Costa Rica.
2. Sign up for a 0% balance transfer card. As soon as you get it, make the maximum balance transfer to your rewards card, even if your rewards card doesn't have a balance -- basically, you're using one card to pre-pay the other card. (A good rule of thumb for your financial life: Whenever someone offers to lend you money at 0% interest, YOU SAY YES.)
[Update 1/6/05: Oh yeah, you can sometimes find rewards cards that also offer 0% interest on purchases for a decent period of time, allowing you to skip the whole balance transfer step of the game, at least for the first round.]
3. Buy a certificate of deposit for the amount on your balance transfer card for a length of time just short of the 0% interest period. You have that prepaid rewards card now to use for most of your living expenses, so you only need to keep enough liquid for rent, minimum monthly payments on the balance transfer card, and any other payments that won't take credit cards.
4. Sit back and rub your hands together with glee as you earn interest on the credit card company's money for six months, a year, whatever the time period for the 0% interest is.
5. When your CD comes due just before the 0% interest rate expires, use it to pay off the balance transfer card. Set up a reliable reminder so you don't forget to do this. See, the credit card companies give you that 0% interest rate because they think you're either going to forget or not be able to afford to pay off the balance once the interest rate expires, and then they'll get you. But you have tricked them!
6. Watch out for annual fees -- they cut into your profit and can even make it not worth it. Often with annual fee cards it is waived for the first year. Set up a reminder and every year call and bitch about the annual fee and threaten to pay off your balance and close your card if they don't waive it (and have a CD maturing then so you can back that threat up with action if necessary). That almost always works. You probably won't be keeping your balance transfer cards long enough for annual fees to be necessary, but you might need to do this for your rewards card.
7. Make sure you make all your monthly payments on time, or the credit card company can abruptly change the rules of the game on you. One word: Autopay!
8. Horde any credit card offers you receive in the mail so you have a nice selection when you're ready to do it again. Don't worry about the expiration dates on the offers, those are just a marketing prompt to get you to respond right away, when you call they will almost always still let you sign up under the terms of the "expired" offer.
An example: Let's say you spend $500/month on living expenses that can be run through a credit card, and you get a balance transfer offer for 0% interest for just over one year. You also have a rewards card that pays you 1% cash back. Use the balance transfer card to pay $6000 to your rewards card. Buy a CD for $6000 that matures in one year. My bank (Washington Mutual) is currently offering 2.6% APY on one year CDs. So you get $60 in cash back rewards plus $156 in interest -- $216 for perhaps an hour of your time setting the whole thing up. That's enough for a couple of textbooks!
Now the above game assumes a positive net worth and lump sums of money to be buying CDs with. If you don't have that, if you already have debt and/or no savings, you can still at least avoid paying interest. Horde 0% balance transfer offers, use them, and keep very good track of when the 0% interest rate period is up so you can transfer again. Back when I had credit card debt I went for years without paying more than 1% or 2% interest, and often paid 0% interest.
If you consider how much you spend on living expenses that could be run through a credit card, you can make a few hundred dollars a year and earn quite a few rewards doing this. It's also tons of fun to know you're beating the credit card companies at their own game. (OK, then again, my idea of fun also involves checking all my account balances and updating my Quicken every day, so your fun mileage may vary.)
posted by New Life @ 1:44 AM
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