How to Legally Rip Off the Credit Card Companies
Did you know that credit card issuers engage in legal usury? While most states have laws limiting interest rates (including fees) to 18% per year, credit card companies often charge an interest rate that exceeds 25% and earn over 30% when taking late payment, over limit and other “junk’ fees into account. As credit card companies truly believe in win-lose behavior, I have long felt it is almost a duty to extract as much money as possible from these credit card companies.
Let’s talk about some strategies to make money from credit card companies.
Strategy One: Sign-up Inducements
As bank capital requirements have tightened, credit card issuers are increasingly looking for ways to increase their bottom line (at your expense). That has led them to be extremely aggressive with their inducements (come-ons in the form of cash or cash equivalent “points”) to new customers. Their business model says they can make-up the cost of the inducements by switching your business from another company and by charging you interest and fees. What I suggest is using these inducements to your advantage and (screwing the credit card issuers). As I write this, it is pretty easy to get the equivalent of $500 (in cash, points or the equivalent) simply by signing up for a credit card and making $3,000 or less in purchases. The strategy is simple, sign up for one (or more) cards, make the minimum purchases (NEVER carry a balance; always pay your monthly balance off on time), redeem the reward and putting the card in a drawer. You win big and as an added benefit, the issuer loses (big).
Let me give you tangible examples (these offers may change, but these or similar offers are commonly available) in declining order of value:
- Chase Sapphire Preferred: 50,000 points (worth $500 in gift cards and over $600 in travel); you need to spend $3,000 within three months
- Citibank ThankYou Premier: 50,000 points (worth $500 in gift cards and over $600 in travel; includes “free” companion air ticket); you need to spend $2,500
- Marriott Rewards Premier (Chase): 50,000 points (worth about $500, free night and “Silver” status); get points after first purchase.
Sometimes the card issuers will provide targeted offers (not available to the general public). You need to be smart about taking advantage of the offer (and identifying and following through on the reward conditions). For example, this summer American Express offered me a $750 Home Depot gift card for getting a new Amex card (no annual fee in first year) and spending $2,000. It took me about 30 seconds to send that offer in! Even if you don’t want the gift card, there are secondary markets in gift cards (Cardpool.com and Plasticjungle.com) that can turn a gift card into cold cash (though you may get 80-85 cents on the dollar)!
Please be aware that your credit rating will decrease slightly with each application and you need good credit to qualify for these offers. However, the opportunity to “make” as much as $1,500 for “free” is extremely exciting to me! All of these cards waive annual fees for the first year. At the end of a year, you can either drop the card (another small ding to your credit) or request to be transferred to a non-fee version (not available with the Marriott card, some American Express and most airline cards). Often the issuer will either waive the fee or provide an inducement equal to the cost of the fee- your choice at that point.
Strategy Two: Maximizing Rebates
I have always liked the phrase from the old Dire Straits song, “Money for Nothing”. For that reason, I charge every possible expense to get a rebate from the credit card company (except when I am charged a “convenience fee” to use my card). I’m sure many of you do the same. However, all rebates are not created equal. For example, airline points are generally horrible (unless you are one of the three percent who uses their rebates for last-minute business class international travel). One percent back is a bush league rebate. I prefer cash or cash equivalents (points that can be turned into cash or gift cards at common retailers like Wal-Mart) that provide a minimum rebate of 2% (Fidelity American Express, no annual fee). However, to maximize your “money for nothing” you have to use a couple of cards. Chase’s Ink card gives you 3% back on gas, restaurants and home improvement store purchases. The American Express Business Platinum card gives you 5% back on your cell phone bill, FedEx and at selected merchants. The CostCo Amex (you need to be a CostCo member) gives you up to 4% (for the business version) back on gas purchases. It does require a little juggling, but if you think before you swipe, you can get more than a little “money for nothing”.
Strategy Three: Gaming the Promotions
The credit card companies often try (and succeed) to manipulate your behavior be providing special deals like 5% off on a select type of purchase. These are almost always not worth it- they tend to be limited to a certain spend per period and are really too complicated to keep track of. However, sometimes you are presented with a lay-up that is too good to ignore. For example, Discover (which I have had for years but don’t use except for promotional periods) offered me $1 back for the next 20 charges I make. OK, not a huge amount of money, but easy to track. Basically, every time I make a small purchase, I use my Discover card. My effective rebate is about 20%. Similarly, the Gap Visa I took out (but never use) offered a $20 “reward card” for making any purchase. My point here is to take advantage of the offers, but don’t be so silly as to go crazy for an extra $3 per month.
As I previously mentioned, every new credit card opened (or closed) has a small impact on your credit. Generally speaking, I will consider dinging my credit for $100 in value. However, in today’s environment I am holding out for $300. You should have your own internal over/under as you evaluate offers. This also holds true for stores that offer 10% off your purchase if you open a credit card. Sure I want the 10% off, but I don’t want to ding my credit for a measly $15 bucks.
Remember, credit card issuers are out to screw you by every legal (and sometimes legally dubious) means possible. Use their offers against them; take advantage of their promotions, but only on YOUR terms!