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Credit Card Reward Points - Chitchat


TomBAvoider
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I thought it time to try the "chitchat" aspect of a subforum, because even here so far every topic seems health related. So how about something completely unrelated? Here's my attempt.

 

I read an article some time ago where the writer cited a study about the disparity between the perception of customer loyalty to banks from banks and from customer perspectives. Basically, banks thought customers were very loyal to their banks, but the reality was that customers by and large were not loyal at all. In fact banks were one of the commercial entities which engendered the least loyalty from their customers. The author of the article took a stab at trying to explain why there's such poor loyalty, and concluded that banks are simply not perceived as working in the interest of their customers, instead treating customers as marks to be exploited through fees etc.

 

I thought of that article today because I noticed that I almost always immediatly trash any commercial related emails from my bank and credit cards. Usually they're pushing some kind of tickets, or vacations or merchant tie ins or what not. The reason is because I've noticed long ago that every single one of such emails pitches deals which are to my distinct disadvantage. It's as if you are dealing non-stop with someone who only has one purpose in mind - to empty your pockets. Not something that engenders loyalty or trust. But it is what it is.

 

Just as an exercise, today I took a closer look at one such offer, just to confirm or negate my perception. My bank and the associated credit card keeps pushing this particular tie in relentlessly every few days. Today I finally took a look. The offer is to use the points I've accumulated on my credit card to pay for purchases on Amazon. My usual MO is to wait until I have a few hundred or a thousand dollars accumulated, and cash that in, and pay my credit card bill for the month or whatnot. But here, they propose that I pay for Amazon purchases with the points instead of cashing them in. What's my incentive to do it? Apparently "convenience" - although I don't see what's so convenient, as I have to sign up for the program which is a hassle. 

 

Here's how it breaks down - my points are 1 for 1 in dollar terms, so I get no break whatsoever on my Amazon purchase. If I have $400 in points on my card, I get to buy $400 worth of merchandise on Amazon. Why would I do that? In fact it is to my DISADVANTAGE to do that, because as I read the fine print, if you use your points in buying from Amazon, you don't get any cash back on the purchase as you would if you simply used your credit card. So to sum up, I can see how that is good for the credit card company: they get to have me spend my accumulated points without having to give me points in return, they get whatever benefits they have on whatever deal they struck with Amazon, and I get screwed. Yep, another self-serving email from these guys, designed to empty my pockets and fill theirs.

 

Another approach is from a different CC. Here the CC has a deal with a bunch of retailers, restaurants, hotels etc., and you get a 10% discount at the retailer if you use your points. The catch is - you are restricted in that you are not allowed to combine that with any other offers. But the problem is, that I can very easily in pretty much every instance, get the goods or services with a discount I find myself for far better than the 10%. So again, here I'm screwed - I end up paying more for that 10% discount at the end of the day, than if I find a discount of my own. Meanwhile my points are gone. I can see how that's good for the CC company and the merchant, as they each get extra business, but I'm the loser. So, I never go for that, and just cash out my rewards points.

 

And so on. Pretty much every such merchandising deal from the CC's is a loser. I will continue to routinely ignore such offers in the future as I have been doing to date, because I know one thing - it's designed to my distinct disadvantage. What's your experience?

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I used to work over the credit card companies hard, it was sort of like a fun side hobby of mine ;)   

 

About a decade ago the big thing for credit card offers was 0% interest for X amount of time (usually one year, although one was for life).  I put together a somewhat elaborate plan to take advantage of this, I had already previously been working over the credit card companies, so I had dozens of cards (to optimize credit score, you generally never want to close any card without an annual fee, so I left them open and unused).  I requested credit line increases on all cards, and just kept doing this every few months.  Then I separately applied for every card with a 0% for >=12 months offer, from every major bank, and did this all at once.  Once I had those in hand, I did credit line consolidations on all of the unused cards (with no balances) that I had been jacking up credit lines on for many months, moving those lines to the new cards with 0% offers.  Then, all on the same day (so the credit card companies wouldn't know what was happening until it was too late) I took out the maximum I could (full credit lines) of cash (this was mostly direct deposited into my investment account).  In total, I was able to borrow $300,000 in this way, it was really entertaining to tell people I had $300,000 in credit card debt just to see their reactions.  The credit card companies were NOT happy about what I did, and started canceling all of my cards including my everyday use card which was not involved in this scheme (I had to call them and get it un-canceled, which was an extremely entertaining call, I also had to send them documentation of my net worth to keep that card open). 

 

Anyway, it just so happened that this was right around the time of a bond market panic, and I was miraculously able to get nearly 10% yielding INSURED bonds (in the secondary market) as people/funds were forced or panicked into selling these issues.  So there was extremely low risk on these from my perspective, and I ended up making about $30,000 specifically from the credit card companies as a result of this little experiment (the bonds matured without incident, I got paid, then paid back the credit card companies).

 

I haven't done anything like that since, but I still try to take advantage of the credit card companies often.  If you google it, you will find some nice websites that summarize sign up bonus deals - these can be anything from cash back rewards, to hotel or airline kickbacks.  I actually used one of those deals to fly to Costa Rica this Summer for about half the best retail rate when all was said and done.  Also did the same to take my family to Utah for a substantial discount.  My "everyday" credit card gets me 2% cashback on everything, so obviously I try to put every expense/bill onto that card.  I have another card that gives 5% cashback on gas purchases, I use that only for gas purchases.  I'm probably one of the most frugal people you will ever meet, I've got "the frugal gene", classic "Millionaire Next Door".  To me, living that way is fun.  One of my favorite blogs is "Mr. Money Mustache" because we think so much alike.  Being a consumer sucka is very unappealing to me.  

 

-Gordo

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Ha, ha, Gordo, love that bond story. I am by no means as hardcore as you are, not even close. I'm just someone who doesn't allow himself to be taken by CC companies, banks and the like. When I see how people handle this stuff, it makes me very sad - just last week I talked to a guy who proudly told me how he managed to get a CC transfer of his CC debt on a card "for just a small fee" but as he put it, 0% APR for 12 months! He was astonished when I told him that when the fee is 4% of the transfer amount, his yearly APR is not 0% but 4% - he did this, from a card that had the debt on a fixed 3% APR for life. It made me sick, but hey, it's not my money. I just don't understand why there isn't a home economics class at high school where they teach kids the basics of running household finances. Nobody should be allowed to graduate without passing through such a course - you have a driver license when you operate a car, you should pass a competence test if you open a bank account or CC. You are not allowed to operate heavy machinery without passing a test, why are you allowed to operate financial instruments without passing any tests? 

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Yea, it is sad that so many people are financially illiterate.  Back when I did the 0% scheme, there were NO FEES on any of the offers.  You are right, they don't do this anymore, or at least I haven't seen an offer like that in years, they all have fees now that exceed the rate of inflation or "risk free" returns.  So it isn't possible today to do what I did then, although there's still room to work the sign up offers.

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