Credit-card churning. Is it for you?
These days, many credit cards come with a sign-up bonus for just applying for and getting approved and then using the card by charging some minimum dollar amount within a certain period. For example, charge $500 within the first three months and get a $150 bonus. Some cards will apply the bonus as a statement credit, some will send you a check. Others give you the bonus in rewards points or airline miles, instead of money. (Note that this sign-up bonus is separate from earning some percentage, say 1% or 2%, of your total charges in miles or rewards points.)
Credit-card churning is defined, basically, as doing everything you can to get as many credit card sign-up bonuses as possible. This means signing up for lots of credit cards, spending just enough (but no more than necessary) to get the bonus, then putting the cards aside and eventually cancelling them. Of course, you have to pay off everything you charge, but that shouldn’t be a problem if you only charge things that you would normally buy anyway.
The problem of course is meeting the minimum spending (i.e., charging — which actually means borrowing) requirement in order to qualify for the bonus. Buying $500 worth of stuff you don’t need in order to get $150 doesn’t make you better off — just the opposite, you should avoid that like the plague! But if you can charge the required amount by just spending what you normally would on things you have to pay for anyway, … then it’s a lot more like getting $150 (almost) for free. (Of course, there’s the cost of your time and trouble and maybe some fees for using a credit card for certain purchases.)
This is where credit-card churners get creative. Instead of going on a spending spree, the successful churners use their new credit card to buy their ordinary purchases such as groceries and gasoline. Another way to accumulate the charges necessary to get the bonus is using the card to pay for things like phone, internet, cable, electricity, natural gas, and water and sewer services. You might be able to pay for your car insurance with your new card. Perhaps you can pay some small monthly bills, such as video or audio streaming services, in advance by paying for a year of service instead of paying monthly. Local taxes (such as property taxes, vehicle registrations, etc.) might be credit-card chargeable. Some credit-card churners even pay their rent or mortgage with the new credit card, though doing this requires some additional effort (see below). All of these can be done online; the bonus wouldn’t be worth it if the bill paying couldn’t be done just sitting in front of your computer.
It may or may not be possible to pay your utility bills with a credit card — whether these service providers take credit cards varies from place to place. If you’re going to be a credit-card churner, you need to do some research. Also, unlike using a credit card at a grocery store or gas station, you might be charged an additional fee to pay for things like electric, natural gas, and water service with a credit card. Likewise for your property taxes and vehicle registration.
The easiest way to get up to the spending minimum is to put your rent or mortgage payment on the card. In the past, landlords generally didn’t accept credit-card payments (after all, they have to pay a fee to the credit-card issuer and it’s not as if you’re going to buy more from them if you can put it on a credit card the way that restaurants and shops hope you will splurge when you’re not spending cash). However, many landlords now accept credit cards for the convenience of their renters, but they pass the fee along to the renter. Mortgage lenders pretty much never accept credit cards, at least as far as I have ever heard. But now — the internet to the rescue! — there is a company called Plastiq that will allow you pay your mortgage (or just about anything else, … your university tuition, your utility bills, etc.) and charge it to your credit card. You sign-up on their website, give them the name and address of whoever you want to pay, they send a check to whoever you so designate and they charge your credit card … and tack on a fee of up to 2.5% to cover their costs and make a profit for themselves. 2.5% of $500 is $12.50. (Btw, here’s a link you can use to sign up for Plastiq. If you click thru and sign-up you might be able to pay a bill via Plastiq for a reduced fee and I’ll get similar reward too. If you sign up for Plastiq, I thank you.) You need to decide: Is the credit-card churning bonus worth it if you have to do the work of setting up these credit-card payments and you have to pay $5, $10, or $15 in fees? So ask yourself: Is it worth paying that to get your bonus?
Of course, it helps your bottom line if you avoid interest charges in addition to avoiding paying fees just to use the card. In fact, if you rack up too many fees and interest charges, you might entirely offset the bonus. Many new credit cards include an interest-free period during which 0% APR (annual percentage rate) is applied to your purchases; this interest-free period might last 6, 9, or 12 months, maybe longer. Some credit cards come with an annual fee on the card itself. In some offers, this fee is waived for the first year, but might be around $100 every year after that. Check the details before you sign up. You must read the fine print. Carefully.
My experience: Over the past several months I’ve signed up for 4 credit cards that came with a sign-up bonus. Three gave me a $150 bonus (or points worth $150) for charging $500, the fourth was a $200 bonus after charging $1,000.
- With the first card, I used Plastiq to make an additional payment to my Bank of America mortgage. Everything went perfectly. BoA got the check for $500 from Plastiq and I got a $150 check from the card issuer. I usually throw an additional $500 or so above the required payment towards my mortgage balance each month, so this is just normal spending. However, as an added benefit, I can pay off that $500 over the next 10 months at 0% interest. I put my check into my emergency savings account. Kind of financial poetry, that I will be able to use that money to take care of some future emergency instead of putting it on a credit card. Adding money to my emergency savings for just making an additional payment to my mortgage as I usually do … that’s good!
- For the second card, I more than met the spending requirement by paying for a medical procedure. This wasn’t exactly normal and typical spending, but it was something that was definitely necessary. Some weeks later I got a statement credit which reduced the balance by $150. I paid off the remaining balance during the zero-interest period.
- I used the third card to pay my electric, water + sewer, natural gas, phone and internet, and car insurance bills (but I couldn’t use it to pay my cable bill, because I don’t have cable!). The fees required to pay by credit card were lower than Plastiq’s usual 2.5% fee. In order to get to the bonus level, I paid the electric bill for the current month and about the same amount in advance; this didn’t cost any more in fees, because the fee was a flat amount regardless of how much I paid with the credit card. As soon as these totaled $1,000, I got a statement credit, which I used to buy groceries. In essence, a free cart full of groceries just for spending money as I normally do.
- I used the fourth card for groceries, clothes, and some Christmas presents. For that one, I transferred the reward points I accumulated to my Amazon account, which allowed me to purchase $150 worth of food and household supplies, some tools, and a clock radio. $150 for me for just spending money as I do normally.
Overall, I’m quite happy I’ve done this. I’ve “earned” $600 for “work” that took about an hour or so and was mostly just doing what I would have done anyway. To my way of thinking, it was very much worth it and I look forward to doing it more, just as I like opening checking accounts to get bonuses.
However, there are some downsides and considerations …
Temptation. The only to win at the credit-card-churning game is to get a credit card, use it just enough to get the bonus by charging things you normally buy, then stop using it and eventually cancel it. The sum of the credit limits on the 4 credit cards I got recently totaled about a quarter of my total annual income. I could have used those cards to go on a cruise, fly off to a tropical-island resort, and gotten new furniture, TVs, and stereos for every room in the house. That’s exactly what the banks want you to do. Of course, I didn’t because that would mean compound interest would be working against me, making me a slave to credit card companies. But if your financial discipline is not sufficiently stalwart, you shouldn’t have any credit cards, let alone credit cards you don’t need. If you can’t trust yourself to resist the temptation to use the card extravagantly and buy things you can’t pay for the same month you charge them (unless you’re sticking it to the credit card issuer by making full use of a 0%-interest period), then you shouldn’t attempt credit-card churning.
Organization and Execution. Getting the bonus only makes sense if you can avoid the fees, which requires research to know what could go wrong. You have to read the fine print. It’s a good idea to record the pertinent facts (like when the zero-interest period ends, when the annual fee comes due, etc., for each each card you have) in a notebook or spreadsheet. You not only need to know the details and have them at hand for reference, you also need to remember to act so as to minimize your costs: this means you have to pay off the entire card balance as soon as it’s due or before the 0% interest period ends, definitely before any late fee accrues. It means you have to remember to cancel the card before you’re charged an annual fee. If you can’t manage this, forget about credit-card churning. (Related: Banks are more than happy to issue a credit card to you, allow you to make charges, and then say you’re not getting the sign-up bonus because you already had the same card and canceled it some time earlier. Keeping good records and reading the fine print or making a phone call to ask a question can spare you from this disappointment.)
Basically, you and the credit-card issuer are making a bet. You’re betting you will be able to resist temptation and play (and pay) by the rules. They’re betting you can’t. If you fail, you might get the $150, but end up owing the bank many times that amount in interest and fees — which is exactly what the bank wants.
Your Credit Score. Opening a lot of credit-card accounts and making charges will almost certainly cause your credit score to decrease, maybe by 30 or 40 points or who knows how much? This is something you should not be doing if you are going to be applying for a loan to buy a house or a car any time in the next several months. You might also want to abstain from credit-card churning if you’re applying for a job as some employers look at credit scores.
What Counts Towards the Getting the Bonus. Banks are wise to credit card churning and certain charges may not count towards getting the bonus. Cash advances and balance transfers don’t count. Buying gift cards doesn’t count (although I wonder if the bank would know if an eBay purchase was a gift card?). Some cards won’t allow you to use Plastiq to for a mortgage payment. I’ve considered the idea of meeting the bonus-level spending requirement by buying something on eBay that’s valuable and easy-to-resell (maybe a collectible gold coin?), but I haven’t done this yet. The transaction and shipping costs, along with the risk that the resell price might be a little lower than the price I paid, might be worth it — if the bonus was large enough.
Problems . Things can go wrong in unexpected ways. I logged onto the the website for my water and sewer service and paid the currently-due bill on one of my new credit cards. A week later, they deducted the amount due from my checking account, as they normally do. I had to call them to get a refund. You would think their system wouldn’t take a payment when none is owed, but, oh well. I guess I should have discontinued the automatic bank drafts payments before I paid with a credit card. I’m afraid something similar could happen if I pay my property taxes with a credit card while they’re still being paid from an escrow fund by the bank that holds my mortgage: I would pay with a credit card and then the bank would pay too, and then I’d have a dickens of a time getting the extra payment back.
Credit card churning: for some it might be easy money … for others it might be playing with fire. Proceed with caution. If you want churn, make sure you first learn, then make sure it’s the bank that gets get burned!