This blog has been almost entirely devoted to investing into the equity markets. As investing is merely one of my passions, I figured I should write up a post about one of my others: Credit Card Points. These points have allowed me to travel the world, while saving tons of money. I have not paid for a single flight in about 5 years, taking roughly 4 round trip flights a year.
Before I get started, let me lay a few ground rules. Credit cards can be incredibly dangerous. Compound interest works against you just as easily it can work for you. In fact, probably more so. The banks charge interest well into the 20% range. I know of very few investors capable of compounding at that rate. If you let the debt start flowing, it will never stop.
3 Cardinal Rules
- Do not use credit cards if you cannot afford to pay off the the monthly balance each and every month.
- Pay your bills on time!
- Do not start spending extra money just to get additional points.
If you can follow these rules, you can use credit cards to your advantage. The banks that partner with the cards offer some incredible perks. These perks are offered because they know a certain percentage of people will fall into their trap; miss a payment and they can start charging crazy amounts of interest and fees.
This allows people like me to take advantage. By making sure I follow the rules, I can get all of the perks without any of the negative repercussions. Over the last 5 years I have accumulated well over a million points. Conservatively valued, a credit card point is equivalent to a penny. In reality, you can do a fair bit better than that, but based on that exchange rate I have earned over $10,000.00.
The most important perk is the sign up bonus. There are a number of cards which will give you something in the range of a 60K+ sign up bonus if you spend at least $3,000.00 within the first 3 months. Each card differs slightly, but this is the gist of it. For those with expensive tastes, $3,000 is rather easy to hit. For others, there are ways of getting up to the spending limit without taking on unnecessary luxuries. For instance, you can often prepay things like cell phone, cable and utility bills. They will keep a credit on your account. You have only altered the timing of the spending, not the amount.
As I try and limit my personal spending, I have been forced to be creative to get these bonuses. I am fortunate enough to run a business that allows me to open up additional cards and reach spending limits. Business expenses tend to add up rather quickly, so if you are able to put these expenses on a card it has a two pronged positive impact. Most importantly, you get the all important points we have been talking about. A second more nuanced benefit is being able to delay payment. Say you make a purchase in mid January. This will get put on the end of month January bill that will likely not need payment until the end of February. You’ve essentially just been given a 45 day interest free loan from the credit card lender. Awfully, kind of them. This can really improve a company’s cash flow situation, just make sure the bills are being paid. Use this to your advantage, don’t be tricked into paying interest.
I’ll give a shining example from the last couple of months, this has been my crowning achievement so I am rather proud of myself. At a property my family owns, we had a large expected repair to something called a sewage ejector pump . Don’t want to bore you all to death with all the details, but long story short we owed about $16,000.00. We have the money in our account, we are in no danger of defaulting on a payment, so why not put the money on a card? I called up the company and they informed me they would in fact accept payment with a CC. You can’t get what you don’t ask for.
Knowing that we had such a large expense coming up, I decided to open a new card. I went with the Chase Ink Business Preferred. The beauty of this card is the 80,000 point bonus. The caveat is you have to spend $5,000 in the first 3 months. $5,000 is a fair amount of money to spend that quickly, but perfect for just this kind of situation. I called in and put the expense on my card, earning me a quick 96,000 points. 80,000 for the sign up bonus and the usual 16,000 points earned for every dollar spent. The fun doesn’t end there however, I had another ace up my sleeve. Because I already owned the Chase Ink Business Preferred in the name of another one of our LLC’s, I was able to refer myself one company to the other. This gave me an additional 20,000 points for doing virtually nothing.
That’s right, I just got 116,000 points on a single transaction. A transaction we had to pay for no matter what. I also got to delay our payment by about a month and a half, improving our cash flow situation. I’m not sure the stars will aver align that perfectly again, but you never know. I am now sitting on a tad over 250,000 points. Part of the game is figuring out how to extract the most value out of them. Manipulating the system and how best to transfer points to travel partners is a discussion for another day, but know that these points will be put to good use. If you have any travel recommendations, send them my way.
As usual thanks for reading! This was a bit of a change up from my regular programming, but hope you got something out of it. I’m happy to try and answer any questions. Feel free to follow me on Twitter @Thegarpinvestor.