Credit Card Fun – A Couple of Recent Developments

Happy weekend to you! A while back, I wrote a post about exactly how I use credit cards to make an extra $2k a year of tax free income. If you haven’t read it already, I recommend doing so now because parts of this post are going to build on it. I have a couple of minor changes to tell you about that are going to make things just a little bit better. This is a great example of a procedure I engage in periodically – redoing my research to make sure I am still getting the best deals available in every area of life.

The Bank of America Cash card recently prompted me to do this when it introduced a small upgrade. Now, instead of paying 3% on gas purchases, it will pay 3% on your choice of a handful of categories – gas, dining, travel, and some others. You can even change your selection as often as once a month. So if you have a vacation coming up, for example, simply switch your selection and boom – you’re now getting 3% on travel! The card will still pay 2% on Costco purchases. Please note that I’m sticking with the format of my last post in only listing the optimal bullet points. For example, I didn’t mention the 1% this card offers on the “all other” purchases category since the Citi Double Cash card already pays 2% there. In my case, of the new options, I was leaning towards rotating between dining and travel depending on how much travel I had planned for any given month. However, the situation suddenly became more complicated – in a good way.

Since as part of this I wouldn’t be earning 3% on gas purchases anymore, I decided to do a quick check to find out if there are any current offers that beat my default 2% for gas. The first stop on this search was www.doctorofcredit.com. This is an excellent financial hacker type blog that does a far better and more thorough job of covering credit cards, in particular, than I’ve seen anyone else do. And today the good doctor had some good news for me; there is a newcomer on the scene that will put a little extra money in my pocket!

The Wells Fargo Propel card, which apparently came out last year, has two claims to fame. First off, it appears to offer the largest sign up bonus (30k points/$300) of any credit card available that doesn’t charge an annual fee. Second, it pays 3% on a nice range of categories – travel, gas, dining, and streaming services. This is an excellent no fee card and it’s going to have a place in my wallet as soon as the snail mail can get it to me.

But here is the rub. The Bank of America Cash card, which prompted me to redo my research in the first place, is suddenly looking irrelevant. For those following along at home, the Wells Fargo Propel card covers each of the most valuable Bank of America Cash categories – except that instead of paying 3% on one of them at a time, it does so on all of them. So is the Bank of America Cash card facing the cruel fate of offering an upgrade and being rewarded with a “do not pass go, do not collect $200” style trip through my shredder?

Not so fast. Bank of America offers a 10% bonus if you redeem your rewards into one of their checking or savings accounts. So for every $100 I earn on the Bank of America Cash card, I get $110 if I put it into the savings account I already use to maximize the rewards of my Bank of America Better Balance Rewards card. There is also the Bank of America Preferred Rewards program that could give you bigger bonuses than that. But I am strictly a low effort level hacker so I will have to refer you to www.doctorofcredit.com if you want to learn more about that angle. In any case, that 10% bonus, plus the 2% paid on Costco purchases (the Wells Fargo Propel card is an Amex and Costco only accepts Visa right now), means the Bank of America Cash card will narrowly avoid the shredder although now it will only be used for whatever category I’ve chosen to pay 3% in any given month.

Keen observers of big business will probably note that the proximate timing of these two events is almost certainly no coincidence. This is how things work. So when one company does something of note, you should automatically be watching its competition because more likely than not, there will be a response and it may just benefit you.

So there you have it. One opportunity begets another. In this case the gain will be $300 this year plus a modest amount in the low hundreds in subsequent years. But given that applying for the Wells Fargo Propel card took me no more than five minutes and switching my Bank of America Cash category selection here and there will take me no more than that over the course of an entire year, this is still a more than worthwhile maneuver.  

Why You Should NEVER Use a Debit Card

In my bank account basics post, I said you should never use debit cards and I promised to write a follow up post with my reasons. I’m a man of my word so here I am delivering on that promise. I’m following up quickly because this is very important. There is absolutely no reason to have a debit card at all much less use one. I ask banks not to order one when I get a new checking account and if they insist on doing so anyway, I shred it the minute it shows up without ever activating it. This is because as I will explain, debit cards aren’t just useless; they are not safe. I know, they also serve as ATM cards. So plan ahead. Keep whatever cash you might spend in a month in your wallet and replenish it when it runs low. Actually, do people still use cash? I’ve had the same sixty dollars or so in my wallet for as long as I can remember. Anyway…

As a little change of pace, I’m going to try a list format today. So without further ado, here are my reasons you should never use debit cards.

1. They are dangerous.

With a debit card, any criminal that gets ahold of your card, or more likely your card information, has direct access to your bank account. The minute that happens with your debit card, a clock starts. If you report the situation immediately and no fraudulent charges have been made yet, you aren’t liable for anything. Of course in many cases your first indication of fraud will be a fraudulent charge so you aren’t likely to be this lucky. If there are any fraudulent charges made and you notify the bank within two business days, you are only liable for the first $50 – still not a disaster, but more than I want to be paying for some asshole’s actions. If you miss the two business day mark but you do notify the bank within sixty total days, you’re on the hook for the first $500. Keep in mind that this is by far the most likely scenario. And finally, if you fail to notify the bank for a full sixty days, you are liable for ALL fraudulent charges. Ouch.

Now compare that to what happens with a credit card. You are liable for up to $50 but the vast majority of banks waive that because being able to advertise “zero fraud liability” is a bargain at that price. That’s literally it. You sleep easy knowing that when (yes, that’s WHEN, not IF) your card information is stolen/hacked/etc, your problem is limited to the inconvenience of a short conversation with the bank’s fraud department and waiting a few days for a replacement card to show up.

2. Direct access to your bank account affects more than just fraud.

I stay in a lot of hotels and when I check in, I usually see a sign informing me that if I use a debit card, a hold will be placed for more than the total expected cost of my stay to cover incidentals. I have no idea how much more because I don’t use debit cards. But it is enough that they almost always have a sign and I’m guessing that’s because they get a lot of complaints otherwise. This hold likely won’t be released until you’ve paid the final bill upon checking out and that’s at the earliest. I wouldn’t be surprised if it takes a day or two after that. And keep in mind that with a debit card, this means you literally don’t have access to this money even if it is in your bank account. If you’re not maintaining a high enough balance to account for this, you could literally wind up overdrafting because of it and no, neither the bank nor the hotel is going to pick up your overdraft fees. I often see similar signs at gas stations and I’m sure there are plenty of other businesses that do this too.

3. Debit cards aren’t very “rewarding.”

I’ve already written a post detailing how I get paid back an average of about 3% on anything I am able to pay for using credit cards. That’s not counting the churning, which gets me free flights or cash in $500-700 chunks. You always want to be looking for extra sources of income and simply using credit cards for purchases gives you a nice one that requires almost no effort and is tax free to boot. I believe debit cards do offer very limited rewards but nothing close to the bonanza credit cards do. This is because the transaction fees charged to merchants by the banks are legally limited and thus, there is less kickback money available. So by using debit cards, you are literally costing yourself money.

4. Debit cards do not help you build credit.

You need a credit score for lots of things now and rightfully so. If you don’t pay your bills on time, that is directly applicable for a creditor or a landlord but it’s also helpful information for insurance companies, employers, and many other entities that may be considering doing some sort of business with you. Why? If you don’t handle your finances responsibly, there is a strong likelihood that you make similar choices in other areas of your life. Or put another way, credit reflects character. Yes, people run into unfortunate circumstances sometimes. But those things happen to all of us. If you’re handling your finances well, you have built a nice buffer of resources and you can weather the storm as long as it isn’t something totally catastrophic. There are certainly cases where people get hit with something very few could withstand but those are outliers and far more often, this is simply an irresponsible person making excuses. Long story short, credit scoring isn’t going anywhere because the concept is sound even if the execution occasionally isn’t. Debit cards don’t build credit in any way, shape, or form; credit cards do. P.S. I think I’m going to have to write a post on the ins and outs of credit scoring. Stay tuned.

5. Debit cards don’t give you an interest free loan.

Don’t misinterpret this; in no way am I advocating carrying a balance on a credit card. Ever. But when you use a credit card to pay for a purchase, you are not billed until the statement date. At that point, you have at least twenty days before your payment is due. This means that depending on when in a month you make a purchase, you get an interest free loan of anywhere from 20-50 days. To anyone who understands the time value of money principle (there’s another post to write), that is a sweet deal! Mind you the bank is betting you will fail to pay the full statement balance by the due date and then…well, you know what happens then. Pull your pants down, bend over, and by the way, they’re fresh out of lube today. But if you’re following the credit card rules I included in my credit card post, this will never happen to you. And consequences of irresponsibility should not concern those of us who are responsible.

6. Debit cards don’t give you rental car insurance, extended warranties, price protection, and all sorts of other extra benefits.

This may seem like a minor point until you buy something for $399 and it’s marked down to $299 two weeks later. If you used a debit card to make that purchase, tough luck. But if you used one of the many credit cards that offers price protection, you’re a phone call, a simple form, and some processing time from getting your hundred bucks back. If you rent a car, most credit cards include insurance so you can laugh when the agent generously offers to charge you some exorbitant amount “for your peace of mind.” Make sure to verify that your card offers this first though. Credit cards offer all kinds of little goodies like this that debit cards do not.

In closing, I know there are people who use debit cards because they’re afraid of overspending on credit cards. But the answer to an alcohol problem is to fix your thinking and habits, not to stop drinking anything and instead start taking in fluid only through an IV. In another manner of speaking, don’t try to get rid of your disease by bleeding yourself like they did in the revolutionary war era. Hurting yourself more is not going to help. Credit cards are the adult method of paying for things. Basically, think of them like condoms; they require just a tiny little bit of thinking and planning ahead but they also protect you from being directly exposed to some really bad things. The only flaw in that analogy is that condoms turn down the volume a little whereas credit cards actually enhance the experience of paying for things. Enough fun for today. Please, shred your debit cards and start managing your finances like an adult. I promise it is much more rewarding than making excuses for not doing so.

Credit Card Fun

Well that was harsh. I lost both my adopted team and my long-time favorite in back to back playoff games. On the upside, they both had better seasons than I expected and at least in the case of the Seahawks, they are a young team again so they should be back even better next year. And they played a pretty good, entertaining game. Not so much the Texans. They came out flat and stayed that way. Also, I don’t hate the Cowboys. I just didn’t want to beat the Seahawks. Anyway, on to today’s post.

Today I will literally put money in some people’s pockets but I have to start off with a very important disclaimer. This information is strictly for people who use credit cards responsibly. Responsible credit card use is charging only what you have the cash to pay for and paying the full statement balance on time every month. If you ever fail to follow this, even once, then you absolutely should not be using credit cards because they will cost you far more than they will benefit you. I cannot stress this enough. With credit cards, you are playing a very dangerous game so if you can’t or won’t handle them responsibly, then don’t handle them at all. That said, if you choose to ignore my warning and those of so many other finance people, thank you. Without people like you fattening up the banks, those same banks wouldn’t be doing what I’m about to describe for people like me.

One more small disclaimer I should make is that most, if not all of the credit cards I’m about to mention require a credit score of 750+. If you don’t have a score above that, you will have to work on improving it before you can make much money with your credit cards. I will write a post about how to do that another day.

Credit card churning is very popular these days. Too popular in fact. If you don’t know what it is, it’s when people game the sign up bonus system. Step one, sign up for a card with a high bonus offer and a high annual fee, which is often waived for the first year. Step two, charge the minimum amount required to get the bonus in the first three months. Step three, get the bonus and close the account prior to having to pay an annual fee. Step four, enjoy your bonus – usually $500+ or 2+ round trip flights. And no, this is not taxable income; the IRS considers it a purchase rebate. Note that this is not the case when you play a similar game with bank accounts as those bonuses are paid out in the form of interest income. But the bank account version of this hasn’t been worthwhile for a while now, save for the occasional credit union giveaway that is only available to people who are eligible for membership.

Anyway, the banks are losing their appetite for the credit card churning game as more and more of us hop on the gravy train. American Express has made churning virtually impossible for those who aren’t willing to get absurdly creative and even Chase, the longtime favorite of every churner, has started to make things more difficult. I could write an entire book on just the ins and outs of credit card churning at this moment but by the time I finished it, half of it would probably be obsolete. The rules change rapidly in this game. So I don’t play it to the extent I did in the past. During the golden age, $3-5k was a fairly attainable annual goal. Today, that would take more dedication to accomplish than I feel it is worth.

These days I keep things simple and usually only churn two cards a year. That keeps me from running afoul of Chase’s infamous 5/24 rule (open more than 5 cards in 24 months and you will automatically be declined) and still allows me $1000+ in annual churning income. If you do want to get into churning more, I suggest exploring the business side. The restrictions are lighter and the profit potential is higher. But that is another post for another day.

In 2018 I churned Capital One Venture ($500) and started churning Amegy Amazing Cash ($550 when combined with a checking account and money market account for 90 days). I will be cancelling the Capital One card soon but I won’t need to do that with the Amegy card because it doesn’t have an annual fee. However, it’s a “sock drawer card,” meaning it isn’t for regular use. This is because it only pays 1%. I will also note that this was one of those oddball local bank deals – Texans only in this case.

My next one will be the Barclaycard Arrival Plus World Elite. It lives up to that fancy name with a generous $700 bonus – although the $5000 minimum spend requirement means it will take some planning even for an expense report beneficiary like me. If you have trouble meeting the minimums, I recommend timing your account openings to coincide with major expenses like annual insurance renewals, vacations, furniture purchases, etc. If you still can’t meet the minimums, enlist the help of a friend you trust who doesn’t care about credit card rewards. I’ve been working the non-Chase cards lately because you can only churn each one every other year. Of those, Chase Sapphire ($625) and Southwest Rapid Rewards (2-3 round trip flights) are my usual choices. I see they have a United Airlines one too now for folks who don’t care even a tiny bit about customer service when they fly. But watch your details with any churning because all the banks have been making cutbacks and increasing hoops that need to be jumped through.

The Southwest card in particular has a sign up bonus that fluctuates a lot throughout the year so make sure it is at least 50k points when you do it. One more important point on the Southwest card is that you can get the companion pass pretty easily if you use both a business and personal card. This allows you to book a second person on any flight for free for up to nearly two years if you do it right. I don’t have a consistent companion and don’t plan to ever again but for those who do, this can be quite the golden goose, especially when you consider that you can alternate with your spouse and have a companion pass between you basically all the time. There are other churning cards as well but I’ve mentioned all the ones I regularly use now that American Express cards aren’t worth the hassle anymore. At two a year I don’t have to scrape the bottom of the barrel the way I used to.

Other than churning cards, I use non annual fee cards and I rarely change those up. Right now, my wallet has the following weapons in it: American Express Blue Cash, Citi Double Cash, Bank of America Cash, Chase Freedom, Target Redcard, and Bank of America Better Balance. American Express Blue Cash pays me 3% on groceries. Citi Double Cash pays me 2% on any purchases I can’t get a higher rate on. Bank of America Cash pays me 3% on gas and 2% at Costco (I need this to get my minimum 2% because Costco only accepts Visa right now and Citi Double Cash is a Mastercard). Chase Freedom pays me 5% on categories that change quarterly. Right now those are gas and tolls meaning until the end of March, I’m buying gas with this card and my tolls are being charged to it instead of the Citi card I regularly use. The Target card pays me 5% instantly on Target purchases on the rare occasion I still go there. And last but not least, the Bank of America Better Balance card pays me a flat $120 a year for making one small charge a month. I won’t bother going into the details of that one because it isn’t available anymore; you can probably guess why.

This may sound like a lot to keep track of but it doesn’t have to be. I have a little chart that shows me which card to use for each type of purchase. I rarely have to look at it now unless something changes which is rare outside of churning. When I’m churning, I just divert as much of my 2% spending as necessary until I’ve met the minimum. And the payoff for doing this? I average around 3% back on anything I can pay for with a credit card. Combine that with what I get from churning two cards and it comes to around $2k a year in non-taxable gifts from the banking industry. Not bad for a hobby that takes up maybe an hour or two of my time per year.