The Washington Post profiles a couple with over 20 different credit cards. The Chengs keep four in their wallet and a sticky note to tell them which card to use for which purchases. This year, they made $1,093 from spending $47,800. The Chengs are part of a growing breed of people who try to play the rewards programs offered by credit card companies for fun and profit. But the game has gotten harder. Credit card companies give more like 1% back instead of the 5% of yesteryear, points can be voided if payments are late, and there’s those will-o-the wisp airline miles…
Do you play the credit card rewards game? What’s your strategy? Have you ever made a spreadsheet and done a quantitative analysis of whether you’re really coming out ahead? Do you ever find the prospect of “winning” “rewards” rationalizes purchases you wouldn’t otherwise make?
Winning at Cards [Washington Post] (Thanks to David!)
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@Myron: You’re not really “putting” the money in the high yield account, you’re just deferring spending from it and earning interest on that deferral.
Simple example: You’ve got $4,800 in the bank. You want to buy a nice $4,800 HDTV setup.
Your credit card cycle closes on the 8th of each month. On November 9, you decide to buy the HDTV.
Scenario A: Pay cash, and your bank balance (and interest earning power) immediately drops to zero on November 9.
Scenario B: Pay credit, and you’re billed for the TV on December 8. And let’s say you have until December 23 to pay for it. December 23 comes, you pay the bill, and you now have 0 in the bank.
By paying for it with credit, you’ve had $4,800 in the bank earning interest from November 9-December 23. So the credit card user has earned 1.5 months interest on the $4,800 @ 5% annual rate = $30, while the cash user has earned zilch.
Whether you participate in a rebate program or not, each one of us who uses a credit card benefits from this deferral of payment. (Assuming you pay your bill in full and don’t face interest charges or fees.)
@Myron: If they’re spending $4800/mo, I’d *hope* they’re not living paycheck to paycheck…but upon further review of the article and this couple’s strategy… they’re probably cutting it a bit closer that they should be.
One other tip for racking up cash back: Construction/remodeling projects — charge those too! $8500 spent on a whole new HVAC system w/heat pump brought me back about $230 cash ($123 from the CC, about $106 for the extra interest on my investments by floating the payment for a month) No, it’s not huge, but it’s $230 saved. So, a good night out for two.
@bohemian: wow that is kinda sad.
@melmoitzen: Ok. I’m with you now. I pay my balance every month so I’m getting free use of the money for, maybe, a month. (I buy on Nov 9. My billing cycle ends Nov 10. And the bill is due Nov 24. So the average float time is probably a month, plus 2 weeks to pay, all divided by two)
From a practical standpoint, to actually get the high yield you would have to deposit your paycheck into the high yield account and make the credit card payment from the high yield account. Or, you have a linked high yield account and do a lot of transfers in and out.
This leads me to two questions:
1) How do these high yield accounts pay interest? On a daily basis? Once a month? If once a month do they use the ending balance or the average balance? I’ve had an account at ING for years but I’ve never looked at how interest is calculated and I can’t find this information on their website.
2) Is there a high yield checking account you would use to earn on the float? I see ING has a checking account at 3.2% for balances under 50K.
I put my paycheck in a checking account that pays no interest and I pay bills from that same account. How, practically speaking, do I earn interest on the float?
@ianmac47: Is that going there automatically or what?
I have a gas card but because I’m an avid user of Where’s George, I pay cash for almost everything and really only use the credit card for online purchases. So I hope to switch to a Fidelity card at some point to bump the reward up to 1.5%.
@Myron: 1) How do these high yield accounts pay interest? P robably the same as 99% of the interest-bearing accounts out there–accrued on the average daily balance during the month, and paid monthly.
2) Is there a high yield checking account you would use to earn on the float? I see ING has a checking account at 3.2% for balances under 50K.
Here are a few. 5% is no longer doable for checking, you might be able to find it for savings at the top end.
I put my paycheck in a checking account that pays no interest and I pay bills from that same account. How, practically speaking, do I earn interest on the float? I think it goes without saying that you won’t, if you continue keeping your billpaying money in a non-interest bearing account. Get a checking account that pays a decent interest rate, and/or a savings account that pays a good rate and transfer money back and forth as needed.
Sorry, here’s a link for some high-yielding checking accounts: [www.bankrate.com],495&product=31&sort=11&online_flag=1
Let’s try that again: [tinyurl.com]
@FLConsumer: You’re not necessarily spending beyond your means if you’re charging $4,800/month. Maybe they travel or purchase for business frequently and a lot of that is reimbursements. Or you go out with a bunch of couples for dinner and when the evening is over and there’s a $400 tab, three of them leave $300, you collect the $300 and charge the $400. Or you pick something up for a friend at the store, charge it on your card, and they pay you back in cash. None of those situations represents an actual “expense.” I’d say 25% of my credit card spending (and hence 25% of my rebate) is made up of stuff like that.
Or maybe they’re just a couple of dinks with money coming out of their tucheses. You never know.
I own a small business in NYC with a small office in LA. Last year I spent close to $750,000 on credit cards. In the past 12 months, I have accumulated through credit cards:
1. 75,000 American Airline Miles
2. 110,000 Northwest Miles
3. $2000 cash-back rebate from American Express Blue Card.
4. About 10-20 free nights at a Hilton (depends upon the type of Hilton I book)
5. $500 in Amazon gift certificates.
6. Over $3000 worth of gift certificates to use at restaurants in New York City and LA.
7. Over $1000 of Orbitz points which can be used against Orbitz flights.
8. $500 in Starbucks cards.
That’s it. I pay about $300 a year in card fees which I think is worth it. Some cards (flight miles) max out how many miles you can earn a year so once I get those maxed out I retired them until the next year.
I also get 1-2 times a year a 0% balance transfer offer. I then will pre-pay a bunch of inventory from a vendor who gives me a healthy 10-15% discount and then I put it on a rewards card and then immediately transfer it to the 0% balance transfer. I pay no interest and end up saving $5K to $8K for pre-paying for inventory.
IF only someone would come up with a credit card that pays for health insurance.
Meh, I just go with my citibank dividends card. It had a great 5% return when I first got it, but has since gone down to 1%. I dont make a lot on it because I really dont spend a whole lot on my credit card purchases. Typically less than $450 a month.
Back when it was 5% I started using the card for any REGULAR purchase I usually made & I just got in the habit… I still do it. I dont specifically make purchases JUST to get the rewards. I usually just forget about it & check the amount once every 4 or 5 months to see if it has reached the required amount to get a dividend check sent to me.
I ahve found its easier to use a credit card instead of cash or checks, plus there is a record of every purchase…. helps cut back on spending if you want/need to when you see all the purchases you made in a month. I am VERY carefull about my spending.
I almost wish I made a lot more income & had a more expensive lifestyle or a business so I could charge on these rewards cards so that I could REALLY cash in.
I play the card game too! I still use my debit card and am very leery of credit cards but I like getting rewards because it’s like getting back at the cards in a small way. I have the Cosco Amex but because I don’t use it so much, my rewards are usually around $75/year. I also had the Citi with gas rewards and I usually get $100 out of them a year as well. Recently though they changed the terms (bastards) so I opened up a Barnes and Noble card in the hope I will earn lots of gift cards.
What helps is that I pay my car insurance using a credit card for no extra fee. I also buy all my gas with credit cards (used to use cash for gas). Also airline/travel/hotel on credit instead of debit cards. However, for the most part I purchase my food/clothes/extras on my debit card because I feel my debit card makes me more conscious of not overspending.
I forgot to add I also use a Target card (mine is a store only card). I use it for my prescriptions to earn 10% coupons (which are also good on the prescriptions themselves). I pay it off every month. But I like this particular card because I get lots of coupons from Target in the mail and the coupons–recently they changed it to a coupon credit card (it looks like a gift card, you scan it, but it’s really a coupon card with numerous store discounts) can be used whether you have a Target card or not. I have two 10% off (all day) coupons and I plan to use them for my Christmas shopping. If there was a SuperTarget near me I could get 10% off my holiday grocery shopping too (that would be great) but alas, there isn’t one near me. Still I estimate in a year. with my family’s meds and supplies being bought at Target, I’ve saved about $500 a year. The irony is I can only use the card at Target so in a sense that helps to ensure I don’t overspend on the card itself.
If any of you actually think you’re getting something for nothing, then you’re only fooling yourself.
Look at the interest rates you are paying on those balances. There are your “rewards” right there.
These programs are just a way credit issuers entice people into going into debt and (hopefully) letting that balance carry over. They know that about 80% of America carries a balance on their cards, so the odds are considerably in their favor.
You can’t outwit these guys at their own game. At some point, if you continue to use them, you’ll run into a month where you have to put off paying off the card and the next thing you know, you’ll have $5000-10000 in debt. The best solution? Throw the damn things in the shredder, pay them off and close the accounts. CC debt is ruining the economy of this country.
I use my citibank platinum dividend select – 5% lifetime on gas, grocery stores, and pharmarcies. This is stuff I’m buying anyways, may as well get some money back for it. It is limited to $300/year (which works out $6000/yr of charges, which I don’t get to on just those, though). Unfortunately, the one they offer now isn’t lifetime, just 6 months, but it looks like it includes utilities now (but most of my utilities don’t take credit anyways)