Credit Card Churning
You’ve probably heard the phrase “money doesn’t grow on trees” or, “there’s no such thing as a free lunch.” Well, ladies and gents, I’m here to tell you that everything you learned is FALSE and there is a such thing as free money. It’s in the form of credit card bonuses and it is complete sorcery.
I was never part of the magic until I met my emoji boyfriend who got me in DEEP with “credit card churning,” and I’m loving every second of it. We actually have a little jig we do in our house called the “free money dance.” Not lying. Churning basically means that you get a new credit card to access the sign-on bonus, and then after a certain amount of time, you get another one, and start all over again. Some people think that this affects your credit score, which it does, but usually not enough for it to matter if you do it right. In general, a hard inquiry, which is what a credit card company does every time you apply for a new card, affects about 10% of your credit score. But if you do it infrequently enough, then your credit should be fine.
Yesterday, I just signed up for my 7th credit card in 3.5 years’ time. Aka the amount of time I have been with my boyfriend. It all started when we began to talk to each other about finances. These finance bros get off on this stuff. JK. But really, he was very interested to hear about my student loans, etc. We got to talking and he found out that I had a credit score in the middle 700’s, but had a credit card running balance of about $4,000. He was FLABBERGASTED. Literally, I think I had to pick his jaw off the ground. Maybe not literally, but he was gaping at me. He told me he didn’t understand how a person with my credit score could be paying interest on a balance, when I could just open a new card and do a balance transfer to buy myself time. Now, guys, if you’re confused, I was, too.
Quick explanation: Another reason people like to open credit cards is because they offer “balance transfer offers.” This means you can open a card, transfer your outstanding debt to a new card, and they offer to not charge you interest on it for a certain amount of time. I looked at this, realized I was getting free money, and I was HOOKED. I was able to pay off my credit card debt by saving all of the money I would have been spending on interest, and I did the same thing with my private student loans! I transferred my $6.5K from Wells Fargo to a credit card, and I have been making minimum payments for 18 months, without paying any interest! I have enough money now to pay them off by May, when the interest will kick in (this particular card had a 21-month interest-free grace period).
Again, balance transfers are not even the tip of the iceberg of this money, as the “real money” lies in the sign on bonuses. It seems crazy to me that this free money exists out there in the universe and people don’t access it left and right, but the truth is, most people don’t know how! There are millions of Reddit threads on the topic, but it can get very technical, very quickly. I am lucky to have an in-house financial advisor who is patient with me and explains the intricacies. I will try my best to give an equally-as-elementary explanation here.
I am not new to this credit card business. In fact, growing up, our family used to carry around little laminated cards in our wallets that my dad would make, to remind us which cards to use every quarter based on the percentages back we would get on different categories of purchases. Example: January through March, you should use the Discover card for gas, and the Visa for groceries; they’re 5% back. My parents still do this! This is #LevelExpert, and I do not recommend it for novices. Also, although 3% v. 6% does add up, most people “churn” for the bigger money bonuses. The Showcase Showdown, if you will, is the sign-on bonus.
Here’s the simple summary: credit card companies want to hook you on their cards, so they offer a bonus if you sign up and spend a certain amount of money, generally within the first 3 months. These bonuses differ from card to card – sometimes it’s miles, sometimes it’s points, and sometimes it’s cold hard cash in the form of a statement credit. The catch here, of course, is that you need to “spend money to save money.” The trick is not to open a card with a sign on bonus if you will need to make purchases you wouldn’t normally make in order to get the bonus. However, sometimes it’s still worth it if you come out on top!
Here’s an example: when I signed up for the Amex Platinum card, they offered a $1K bonus but you needed to spend $5K in 3 months. That is MUCH more than my budget, if you don’t include rent. So, I paid my rent on the card for a month to make the minimum. Rent in NYC is high. Now, this complicates things because my landlord charges 3% on credit card payments. But overall, it was still worth it to get the bonus.
I see some of you guys rolling your eyes, saying that this whole process isn’t worth it. But I ask you, if someone said you’d get $1,000 for it, wouldn’t it be worth it? That’s the trick. You need to get a bonus that’s big enough to be worth the work.
So far, I have gotten:
- Citi Double Cash for 18 months interest free
- Citi Diamond Preferred for 21 months interest free
- Chase Sapphire Preferred for 40,000 bonus points
- American Express Platinum for 100,000 bonus points
- American Express Charles Schwab Platinum for 60,000 bonus points
- American Express Blue Preferred for $200 back
- Barclay’s Arrival Plus World Elite for $700 in travel back
I want to let you guys know, I am not the only one out there doing this. A lot of people do, especially if they know they have big purchases coming up where they will be dropping a lot of mulah anyway. Another example: a friend of mine got the Amex Platinum because he bought his fiancée’s engagement ring with it. So savvy.
I have traveled many times now by using bonuses. My trip to Spain last year cost me $120 out of pocket. My trip to Costa Rica was completely free. Durham, North Carolina? Free. I also transfered $110,000 Amex points to a Charles Schwab investment account at 1.25 cents/point, which means I got $1,375 FOR FREE! I have been very fortunate to have someone explain this to me and I hope I have been helpful as well.
Still confused? Try checking out The Points Guy; he is one of the most famous churners on the internet nowadays, and you can filter cards by the category you want rewards for (airline, cash back, etc.). He does receive money from clicks, and he does have partnerships with certain cards, but he is pretty clear when he receives kickbacks from companies, and he is also very reliable with his information. He even has a beginner’s guide!
A few warnings & tips:
- If you have bad credit, you may not get approved for certain cards. Most credit cards rely on your credit score when they decide whether to approve you. You can check your credit score for free on Credit Karma to see where you stand.
- Opening cards does affect your credit score, as I said earlier, so don’t do it too often. The general rule of thumb is to not open more than 2/year, or one every 6 months.
- Closing accounts too often can also affect your score. When you close a card, your overall credit limit decreases. This increases the percentage of credit you are using (or “utilization”), and lowers your credit score. Try to keep the account open. You don’t need to use the card, just keep it in a safe place. At home.
- Beware of annual fees! Some of these cards charge hefty annual fees. Sometimes it’s worth it for the bonus but be aware. You can always downgrade the card after you get the bonus, before you have to pay the annual fee the next year. Downgrading means keeping the account open but changing it to a less prestigious card without an annual fee. This way you aren’t closing an account, but you aren’t paying fees. I did this with my Chase card, switching from Sapphire Preferred ($95 annual fee) to Freedom ($0 annual fee).
- Don’t carry a balance on cards. It can be very tempting to buy things. Especially when it takes 45 seconds to be approved on a new card, and they grant you a $12K credit limit straight out the gate. IT’S A TRAP! Make sure you can pay off your statement balance when it’s due, otherwise you owe interest and then THEY WIN.
- A related point: If you’re opening a card to do a balance transfer, make sure you set up auto-payments for the minimum payments. You don’t pay interest, but you still have to make minimum payments, and you don’t want to miss those. Just set it on auto-pay and forget about it. Otherwise they charge interest and again THEY WIN. DON’T LET THEM WIN!
I hope this was helpful. I am not a financial planner. I am not good at this stuff. But I am understanding it more and more every day, and if I get free money and free trips, then I feel obligated to share the wealth. By wealth, I mean knowledge. Y’all b*tches aren’t getting’ any of my trips!
Do you guys have any other tips or tricks? Card recommendations? I’ll need a new one in 6 months!
Student Loans Part Three
You read a few weeks ago that I have almost 100K in student loans. How in the world am I going to pay them off, and will I ever? Listen, I am not a financial planner (go to myfedloan.org and see if you can figure any of that complicated website out), but I have learned a lot through years of experience, and daily conversations with my emoji-bf/in-house finance bro.
Read on, and you will see how I have enrolled in a combination of income-based repayment plans and public service loan forgiveness plans throughout the years. Also, see how I’m making good use of all of those spam credit card offers I get in the mail every day.
This is the last installment in the series, but I will probably write an additional post addressing questions and stories I’ve heard throughout the series. I promise not to use any names! If you have any other questions or anecdotes, please leave them as comments, and/or write me directly. I love hearing your stories and questions!
Part 3 – Paying Back My Student Loans
Soundtrack: Sallie Mae Back by Dee-1 (alternate: She Works Hard for the Money by Donna Summer)
“I got 2 jobs really got on my grind, No time to whine I can’t ride my pine, In the game right now my time to shine, Started paying them loans back one at a time, got them down down down down down down down till I payed them all off. Peace sign.”
Here’s my story:
When I began working in 2013, I had to start paying off my seven different loans. Six direct subsidized and unsubsidized loans from FedLoan Servicing (one from each semester of law school), and a private loan from when I was studying for the Bar, because I was not technically a student (you graduate months before you take the Bar, making you ineligible for “student” loans from FedLoans).
Let’s start with my federal loans, weighing in at approximately 94 grand:
When I finished law school, I was automatically enrolled in a regular 10-year, monthly payment plan, and I was paying $1,200/month. Even at the law firm, that was a serious drain. I could barely pay my rent.
When I realized I was going to quit my job, and possibly never work in law again, I switched to a pay-as-you-earn, income-driven repayment plan, where my monthly payment was reduced to an amount intended to be affordable based on my salary. There are four different kinds of these. Honestly, I was overwhelmed and couldn’t choose, so I called FedLoans and asked their advice. Not a bad idea.
Income-driven plans are where you pay a percentage of your income to student loans, and some of them are designed so you never pay more than 10% of your income, before taxes. A bargain! After 20 years of on-time payments (240 payments), the balance is forgiven by the government. This is helpful since depending on the amount of your loans, sometimes your income-based payments barely cover the interest alone, so the principal continues to grow (DEPRESSING). I told you a few weeks ago about how in 4 years of payments I have not touched the principal. WOMPWOMP.
I knew I needed to build up some savings in case I was going to get less money at my next job, and then I realized I definitely needed to save because I was dangerously close to quitting with no job prospects at all because I was so miserable. By switching to the income-driven payment plan, I was able to cut my payments in half. When I switched plans, I started paying $600/month to the government, and $200 to my private loans. Still seems like a lot? It was. But it was an improvement.
But wait, there’s more. I actually did get a job, and better, it was with a non-profit organization. When I began working for a non-profit, I knew I should apply to the public service loan forgiveness (PSLF) plan I had sort of heard about, but I didn’t. This program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer. That is HALF of the payments than I would make otherwise. Thankfully, when I finally did apply, 8 months into my new job, they applied my previous 8 months of on-time payments as qualifying toward my 120 months of qualifying payments. If you work for a qualifying employer and you are currently on an income-based repayment plan, DO THIS NOW.
PSLF has very specific rules and you need to reapply each year to certify that your employer still qualifies. There are some sticky rules; I know a teacher in a public school who teaches special ed, but still does not qualify because her school receives a certain amount of federal funding and the school needs to be low-income. Seems unfair, she doesn’t receive the funding herself, the school does!!
Anyway, the PSLF plan applies to me (at least for now) because I work for a 501(C)(3) organization. However, there is a huge problem that has made front page New York Times news lately, about people detrimentally relying (look at my legal jargon) on this program, but then when they go to cash in on it, they were told it didn’t apply. The program began in 2007, so the 10-year forgiveness is just now up for those who began the program at its inception.
I have been on an income-driven, PSLF plan for 3 years now. At the current time, I pay $450 to the government and $200 still to my private loans per month. You, too, can pay less money in loans by making a much lower salary! Meanwhile, my principal continues to go up, and I’m basically screwed forever unless by some miracle, the PSLF program continues to exist. Then, I will be home free in 7 years, living the dream before I turn 37!
For now, I will just pray that Democrats get their sh*t together and don’t let the PSLF program get trashed by our Commander in Chief.
Now let’s look at my private loans, weighing in at about 6.5 grand:
This is where things get interesting, at least for finance people. For some of you, you’re already fast asleep.
I have more options available to me with my private loans, solely because there are less of them. I started with $12,000, and I have paid off more than 40% (pats self on back). My private loans have always been on the same payment plan; a standard 8-year repayment. On this plan, they would be paid off in January 2021.
This is embarrassing to admit, but my bf asked me my interest rate on my private loans (we talk about money a LOT), and I said I didn’t know. He couldn’t believe I didn’t know, but I said, “what does it matter? I pay what I can, they charge me as much as they f*cking want, and that’s the way the cookie crumbles.” Clearly, I have some major emotional baggage tied to these payments and I don’t love to talk about them (check out the first post in this series on the emotions attached to having loans).
Anyway, I honestly did not even know where to find my interest rate, but I started by logging into the website for my private loans. I hadn’t signed into the site in over a year. It’s on auto-pay, so why should I? More emotional baggage there; it’s easier to ignore and pretend it’s not there. In fact, it turns out I am not alone at all with this attitude, as more and more borrowers choose to remain ignorant of the details of their loans. According to a Citizens Bank survey and Forbes article:
- 45% of survey respondents didn’t know what percentage of their salary went to paying off their loans.
- 37% were unaware of the interest rate on their loans
- A very oblivious 15% were even unaware of how much they owe.
But knowing your interest rate is especially important, because then you can look to see what you are paying toward your principal, and you can also see if there are better alternatives available. When I finally found my interest rate for my private loan, it turned out to be 8.49%. That’s pretty high. I pay $191/month in private loans, and at the time I looked, $41 of that went toward interest. That was 21% of my payment that did not even bring down my principal. That is $600 a year for INTEREST. WTF? Luckily for me, I have very good credit. Ok, it isn’t luck, it’s more like, “thanks to my dad opening credit cards for me since I was 6 months old, I have very good credit.” I have mentioned this before. Thanks again daddy!!
Thanks to this great credit score of mine, I get credit card offers in the mail daily. I am not exaggerating, I get one in the mail every single day. In the past, I threw them directly in the trash. Emoji-bf told me to start saving them. One month went by, and I had 30+ offers. We went through them and found a card offering a 21-month, interest-free, 3% balance transfer, with $0 annual fee, the Citi Diamond Preferred. That means I could transfer money to the card up to the credit limit, pay a one-time, 3% fee, and then not pay interest for almost 2 years. Emoji-face suggested that I transfer my student loans to the credit card. I did not know this was a thing. In fact, I asked him if he was f*cking with me. But no, it is a thing, and a really good thing, at that. You can transfer money from anywhere, including student loans! More math coming up, beware.
At the same time as I transferred my balance to a credit card, I opened an American Express high-yield savings account with 1.15% returns. Basically, since I was paying $41/month in interest, if I didn’t have to pay that for 21 months, I would save $840. That is $840 I could put in my savings account and ultimately pay toward the principal instead of throwing it down the drain. Not to mention the difference between my minimum credit card payments versus the minimum payment I was making on my loans. If I make minimum payments of $100/month to the credit card (it will actually go down over time), and take the $91 difference ($41 went to interest, $50 to principal) from my loan payment and instead put it in my savings account, by the end of the 21 months, I would have almost $2000. Plus, it’s earning something in the savings account.
The thing to remember here is, if you haven’t paid off your loan by the end of the no-interest period, you may be screwed by the interest rates that kick in. If you do this, make sure you have enough to pay it off by the end of that period. In my case, I have $6,713 in private loans, so I will need to make sure I save the difference, $2,689 (6,700- (191 x 21)) by the end of 21 months. If I can do that, my private loans will be paid off by May of 2019, instead of January of 2021, just by taking advantage of a credit card offer I was going to throw in the trash.
That seems like a LOTTT of money to save, but if you divide it up over 21 months, it’s only $126/month. Less than 3 extra spin classes to teach per month. Or one spin class and one less drunk brunch. That is doable. However, it is NOT doable if I go on vacation to exotic places.
The best part of transferring my private loans to the credit card? All of the notifications that my loan had been paid off. I got an email from mint.com, I got an email from Wells Fargo, I got a letter in the mail from them, AND I got a check because I somehow OVERPAID them ($6.27… every bit counts!). Imagine the feeling when I actually pay them off instead of just transfering them to a credit card! I bet it will feel even better. 20 months to go.
Conclusion to this series, or VERY long story short: I sort of screwed myself by going to law school if I planned to be a world-traveler at a young age. But I am working on digging myself out. Working very hard, I might add. I’ve got my hustle, I’ve got my side hustles, I’m churning multiple credit cards, and I am learning to LOVE the taste of eggs ($1.99/dozen!). In the meantime, I will watch all of your beach vacations on Instagram from my incredibly overpriced, New York apartment.