Author Topic: Long term value of credit card float  (Read 15123 times)

Gone Fishing

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Long term value of credit card float
« on: August 04, 2015, 03:09:51 PM »
Did a simple future value funtion in Excel to calculate the time value of the float from using a credit card for most of your purchases.  Average float of $1500, 7% return, 30 years comes in just over $11k.  Not to mention any rebates or points. Add in a conservative 1% rebate (on $18k/yr) and the number climbs to $28k.  Of course churning can push these numbers through the roof, but I just wanted to see what a basic rebate card was "worth" over a 30 year period.  Feel free to adjust at will.

I guess you are paying more for everything to cover CC processing fees paid by the seller, so you might as well get back what you can. 

BarkyardBQ

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Re: Long term value of credit card float
« Reply #1 on: August 04, 2015, 03:34:44 PM »
I'm confused as to why you're using $1500?

1500 is not sitting invested for 30 years fixed. It's not even invested.

1500 is the amount you wait to pay off at the end of the month, usually waiting for the last paycheck of the month(or the first of the next) to pay off the balance. At most you could be getting a few cents of interest in your checking account, maybe 1% interest for 30 days if you payroll deposit to a savings account and then pay off the CC from savings.

The only FV I see is the 1-5% cash back you can get toward paying the card balance and investing that amount each month. Which would be 1500*.01= $15/m for 30 years at 7% = 18,299

If you are living off last months income, the longest it can be earning interest is 31 days. Assuming you use that to pay off the card at the end of the month it is then wiped out. If you didn't spend all the money, then some change is left over, if you used cash back against the balance then a little more change is left over. Most here would send that to Vanguard. Then you get paid and start the 30 day cycle again. I don't see how you can calculate a fixed rate of return from uninvested cash.

But maybe I'm just confused cause I don't YNAB. :shrug
« Last Edit: August 04, 2015, 03:46:20 PM by zdravé »

WYOGO

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Re: Long term value of credit card float
« Reply #2 on: August 04, 2015, 03:44:44 PM »
Some cards can be used to generate far more value than 1-5% cash back. Reward cards maximized are a no brainer. A lucrative hobby indeed.

Telecaster

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Re: Long term value of credit card float
« Reply #3 on: August 04, 2015, 03:47:33 PM »
I'm confused as to why you're using $1500?

1500 is not sitting invested for 30 years fixed.

1500 is the amount you wait to pay off at the end of the month, usually waiting for the last paycheck of the month(or the first of the next) to pay off the balance. At most you could be getting a few cents of interest in your checking account, maybe 1% interest for 30 days if you payroll deposit to a savings account and then pay off the CC from savings.

The only FV I see is the 1-5% cash back you can get toward paying the card balance and investing that amount each month. Which would be 1500*.01= $15/m for 30 years at 7% = 18,299

If I understand the assumption, you push all your bills off 30 days in the future (presumably $1500 worth of bills), and then invest that money.   Then next month you pay last months bills, and so on for 30 years.   So you have that initial $1500 invested for 30 years and that's $11,000 or whatever.

Fidelity has 1.5% cash back card that goes into a Fidelity account.   It would be interesting to create a Fidelity account where you only invest the cash back money from the card, and then see what it really turned out to be over time.   

The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.   


BarkyardBQ

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Re: Long term value of credit card float
« Reply #4 on: August 04, 2015, 03:57:48 PM »
I'm confused as to why you're using $1500?

1500 is not sitting invested for 30 years fixed.

1500 is the amount you wait to pay off at the end of the month, usually waiting for the last paycheck of the month(or the first of the next) to pay off the balance. At most you could be getting a few cents of interest in your checking account, maybe 1% interest for 30 days if you payroll deposit to a savings account and then pay off the CC from savings.

The only FV I see is the 1-5% cash back you can get toward paying the card balance and investing that amount each month. Which would be 1500*.01= $15/m for 30 years at 7% = 18,299

If I understand the assumption, you push all your bills off 30 days in the future (presumably $1500 worth of bills), and then invest that money.   Then next month you pay last months bills, and so on for 30 years.   So you have that initial $1500 invested for 30 years and that's $11,000 or whatever.

Fidelity has 1.5% cash back card that goes into a Fidelity account.   It would be interesting to create a Fidelity account where you only invest the cash back money from the card, and then see what it really turned out to be over time.   

The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.

So you do this one time?

I'm still confused. I understand than you can:
Live on Last months income (expenses covered by cash sitting in an account)
Live on This months income (cash sits in account until the end of the month when it pays off the cards/expenses)
Live on Next months income (cash comes in at the beginning of next month and expenses/card is paid off)

So the only advantage I'm seeing is that you get to invest last months income, once... and for each month in the future you are living on this months income?

Telecaster

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Re: Long term value of credit card float
« Reply #5 on: August 04, 2015, 06:58:41 PM »

So you do this one time?

I'm still confused. I understand than you can:
Live on Last months income (expenses covered by cash sitting in an account)
Live on This months income (cash sits in account until the end of the month when it pays off the cards/expenses)
Live on Next months income (cash comes in at the beginning of next month and expenses/card is paid off)

So the only advantage I'm seeing is that you get to invest last months income, once... and for each month in the future you are living on this months income?

No and yes.  Again, this isn't my strategy, but since I'm here  :)

Instead of paying the bills right away, you invest the money for month's expenses.  You get to do that one time. 
You push this month's expenses into next month by borrowing interest free on your credit cards. 
Next month, you pay the credit card bill (which is last month's expenses)
And you put that month's expenses on the credit card which pushes it onto the following month.

So you basically get the use of $1500 or whatever interest free out to infinity if you want.   

I don't see how you could take advantage of this in the real world, but it makes sense in theory. 



Bob W

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Re: Long term value of credit card float
« Reply #6 on: August 04, 2015, 10:26:06 PM »
Yep,  $1,500 one time over 60 years will come to 1.5 million.  Your grandkids will love the 12,000 per year they receive.  (Inflation adjusted, 4%).     Same reason to never keep a checking account balance or an emergency fund.  Pennies become mountains of cash over time.

The_path_less_taken

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Re: Long term value of credit card float
« Reply #7 on: August 05, 2015, 07:59:07 AM »
Float like that, paid off monthly, also should put you at Tier1+ credit for when you want to churn cards. And also helpful for mortgages, etc.

Gin1984

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Re: Long term value of credit card float
« Reply #8 on: August 05, 2015, 08:04:45 AM »
I'm confused as to why you're using $1500?

1500 is not sitting invested for 30 years fixed.

1500 is the amount you wait to pay off at the end of the month, usually waiting for the last paycheck of the month(or the first of the next) to pay off the balance. At most you could be getting a few cents of interest in your checking account, maybe 1% interest for 30 days if you payroll deposit to a savings account and then pay off the CC from savings.

The only FV I see is the 1-5% cash back you can get toward paying the card balance and investing that amount each month. Which would be 1500*.01= $15/m for 30 years at 7% = 18,299

If I understand the assumption, you push all your bills off 30 days in the future (presumably $1500 worth of bills), and then invest that money.   Then next month you pay last months bills, and so on for 30 years.   So you have that initial $1500 invested for 30 years and that's $11,000 or whatever.

Fidelity has 1.5% cash back card that goes into a Fidelity account.   It would be interesting to create a Fidelity account where you only invest the cash back money from the card, and then see what it really turned out to be over time.   

The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.
They also have an Amex that gives 2%.  I don't only use that cards but I do get about $200-300/ year extra from them.  It does add up.

mlejw6

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Re: Long term value of credit card float
« Reply #9 on: August 05, 2015, 09:58:34 AM »

If I understand the assumption, you push all your bills off 30 days in the future (presumably $1500 worth of bills), and then invest that money.   Then next month you pay last months bills, and so on for 30 years.   So you have that initial $1500 invested for 30 years and that's $11,000 or whatever.

Fidelity has 1.5% cash back card that goes into a Fidelity account.   It would be interesting to create a Fidelity account where you only invest the cash back money from the card, and then see what it really turned out to be over time.   

The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.
They also have an Amex that gives 2%.  I don't only use that cards but I do get about $200-300/ year extra from them.  It does add up.

The advantage of the Fidelity card (I have one) is that it is set up so that all rewards are invested in your Fidelity account automatically. You don't even have to remember to invest your rewards yourself.

HipGnosis

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Re: Long term value of credit card float
« Reply #10 on: August 05, 2015, 10:33:50 AM »
The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.
Why the *&^%  NOT?!?!?

Telecaster

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Re: Long term value of credit card float
« Reply #11 on: August 05, 2015, 03:17:42 PM »
The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.
Why the *&^%  NOT?!?!?

Two reasons.  One is that we just put the bonus money in a regular brokerage account where we invest other money in a variety of funds and regular stocks.   It would be difficult to break out how the CC bonus money performed separate from the other money.     

The other reason is that it doesn't matter.  When the smoke clears, we'll have $XXX dollars because we invested our credit card bonuses.  We'll have that same amount of money regardless if we tracked it the whole time or not.   


johnny847

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Re: Long term value of credit card float
« Reply #12 on: August 05, 2015, 03:29:28 PM »
The wife and I try to run all of our bills on credit cards, but we haven't keep track of how our bonuses have been adding up.   Better than a stick in the eye, I'm sure.
Why the *&^%  NOT?!?!?

What's with the hostility?

themagicman

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Re: Long term value of credit card float
« Reply #13 on: August 05, 2015, 07:58:58 PM »
I have always paid my credit card right when a transaction posts (Several times a month). After reading the long term benefits, I am going to use the float now!

Terrestrial

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Re: Long term value of credit card float
« Reply #14 on: August 05, 2015, 10:08:57 PM »
The float is nice and i'd never considered the long term value, so interesting perspective...but in my book the rewards are the gift that keeps on giving (for those that pay in full every month).  I charge everything i possibly can onto a CC...all of my reimbursable work expenses/travel on my personal card instead of my corporate (a form of churn since it costs me 0 out of pocket), I even charge things for friends like booking the entire thing for a group vacation onto my card and then just letting people reimburse me (as an added bonus people actually think you are doing them a favor for some reason by doing this?...honestly i'm surprised people don't fight each other to be the one that gets to book it, or insist on using their own card for their expenses...every group vacation booked yields enough points for another round trip plane ticket).

I haven't had to pay cash for a plane ticket for personal travel in years and currently have the equivalent of 8 or 9 RT tickets in the 'points bank'.  I have found it to be extremely pleasant to be able to primarily consider enjoyment as the driving factor when a trip is proposed without having to worry about cost....thanks people who pay CC interest for making CC companies profitable so they can offer incentives to subsidize my travel lifestyle!

Telecaster

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Re: Long term value of credit card float
« Reply #15 on: August 05, 2015, 10:21:47 PM »
I have always paid my credit card right when a transaction posts (Several times a month). After reading the long term benefits, I am going to use the float now!

And you should try to capture those benefits, but like I said, I'm not sure how well works in the real world, the reason why is that your expenses aren't the same every month.  Let's say you need a car repair or some other big ticket item that exceeds your monthly cash flow.  If you are in zero cash situation then you wind up having to pay credit card interest for a month or so.   Or you could cover by selling investments, but that incurs transaction costs.   So I'm not really sure if you can capture float like that in a practical way.   I certainly agree that it is a good idea to keep your cash on hand as low as possible though.   






johnny847

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Re: Long term value of credit card float
« Reply #16 on: August 05, 2015, 10:42:07 PM »
I have always paid my credit card right when a transaction posts (Several times a month). After reading the long term benefits, I am going to use the float now!

And you should try to capture those benefits, but like I said, I'm not sure how well works in the real world, the reason why is that your expenses aren't the same every month.  Let's say you need a car repair or some other big ticket item that exceeds your monthly cash flow.  If you are in zero cash situation then you wind up having to pay credit card interest for a month or so.   Or you could cover by selling investments, but that incurs transaction costs.   So I'm not really sure if you can capture float like that in a practical way.   I certainly agree that it is a good idea to keep your cash on hand as low as possible though.

I load $1000 a month to my Amex Serve online with my Fidelity Amex for 2% cash back and no cash advance fee. This happens every single month. I plan on doing this so long as this is allowed for no cash advance fee.
If this went on until I died, then this is a practical way to capture the free value of this float.
Obviously it is unrealistic to expect that this will be allowed until I die. However, I have been loading the Serve online with credit cards without cash advance fees for about 10 months. This may not go on forever, but the fact that I have been able to do this for 10 months has a tangible financial benefit.
Suppose this ended at the 12 month mark.. Then this is equivalent to getting a 0% loan of $1000 for 1 year (plus $20/month, but ignore that for the purposes of this discussion). My checking account earns 3.09% (CCU, you have to jump through a couple hoops to get this rate). That means I made an extra $30.09 from this float. Or more if you invoke fungibility of money and say that some of my savings proportionally ended up in my investment accounts instead.

Telecaster

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Re: Long term value of credit card float
« Reply #17 on: August 06, 2015, 08:16:05 AM »

I load $1000 a month to my Amex Serve online with my Fidelity Amex for 2% cash back and no cash advance fee. This happens every single month. I plan on doing this so long as this is allowed for no cash advance fee.

Can you explain a bit more how this works?  I thought you couldn't load Amex Serve with a credit card? 

johnny847

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Re: Long term value of credit card float
« Reply #18 on: August 06, 2015, 09:27:21 AM »

I load $1000 a month to my Amex Serve online with my Fidelity Amex for 2% cash back and no cash advance fee. This happens every single month. I plan on doing this so long as this is allowed for no cash advance fee.

Can you explain a bit more how this works?  I thought you couldn't load Amex Serve with a credit card?

You can load Amex Serve online with Amex cards. Amex cards administered by Amex (that is, cards where you go to americanexpress.com to manage them) do not earn points for Amex Serve loads. However, third party Amex cards, in general, will earn points. The Fidelity Amex is a third party Amex card administered by FIA Card services. When you use the Fidelity Amex, it doesn't get coded as a cash advance.
Also, if you managed to sign up for the Amex Serve through Softcard when it was available, there is no restriction on which credit card you use to load it online.

HipGnosis

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Re: Long term value of credit card float
« Reply #19 on: August 06, 2015, 09:49:13 AM »
Why the *&^%  NOT?!?!?
What's with the hostility?
It's shock, not hostility.

johnny847

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Re: Long term value of credit card float
« Reply #20 on: August 06, 2015, 09:57:16 AM »
Why the *&^%  NOT?!?!?
What's with the hostility?
It's shock, not hostility.

Ok.
But I still don't see why it's so shocking. Tracking what you spend money on is quite helpful. Tracking your overall net worth is too. Tracking your cash back from cc's gets implicitly tracked in net worth, but it won't change your spend habits, so is there really anything useful you get out of tracking cc cash back?

Debts_of_Despair

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Re: Long term value of credit card float
« Reply #21 on: August 06, 2015, 10:21:46 AM »
I have a  category in iBank for cc cashback.  Helps me verify my cashback strategy is working as planned.

Bob W

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Re: Long term value of credit card float
« Reply #22 on: August 06, 2015, 10:56:42 AM »
Well then there is always the theorem that people using plastic spend way more than those who use real cash.   People have disagreed with me before on this site regarding that and that may in fact be true for hardcore mustache people.   I think it is McDonalds that books a 30% bigger sale on debits than cash sales.   I know for me personally that the card slides so much easier than if I have to take cash out of a budget envelope.

So yeah,  the float thing may be a good theory,  but for most folks they are fooling themselves and merely spending more money in the long run.   It wouldn't take much extra spending.  Something like $150 a year and you've blown the savings.

Hmmm,  Maybe time for me to go back to all cash???  Yep,  I think it is. 

johnny847

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Re: Long term value of credit card float
« Reply #23 on: August 06, 2015, 11:53:58 AM »
Well then there is always the theorem that people using plastic spend way more than those who use real cash.   People have disagreed with me before on this site regarding that and that may in fact be true for hardcore mustache people.   I think it is McDonalds that books a 30% bigger sale on debits than cash sales.   I know for me personally that the card slides so much easier than if I have to take cash out of a budget envelope.

So yeah,  the float thing may be a good theory,  but for most folks they are fooling themselves and merely spending more money in the long run.   It wouldn't take much extra spending.  Something like $150 a year and you've blown the savings.

Hmmm,  Maybe time for me to go back to all cash???  Yep,  I think it is.

All the studies I've seen are comparing one set of people who use credit cards vs one set of people who don't use credit cards. This doesn't account for any underlying differences in spending habits. You can't compare these two groups like that.

Also, if you do the float like I do (see post above), and use it to pay off bills that you can't normally pay with a credit card (such as a mortgage), then it makes ZERO difference in how you spend your money.

zephyr911

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Re: Long term value of credit card float
« Reply #24 on: August 06, 2015, 12:03:39 PM »
Float is built into my system. It also helped me make the transition from clueless financial loser to moderately competent, without having to back off on investments as much as I would have.

For me, the $1500 was more like $3k to begin with, though I've been drawing down my expenses (how do we factor that in?)

I still generally keep less than a grand in my checking, invest all I can while using credit for bills. I've never felt like I spend more as a result.

Telecaster

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Re: Long term value of credit card float
« Reply #25 on: August 06, 2015, 01:07:50 PM »
But I still don't see why it's so shocking. Tracking what you spend money on is quite helpful. Tracking your overall net worth is too. Tracking your cash back from cc's gets implicitly tracked in net worth, but it won't change your spend habits, so is there really anything useful you get out of tracking cc cash back?

Another item worth mentioning is that the IRS views credit card rebates like cash back or frequent flier miles as non-taxable.   So from an accounting standpoint, there is no difference between buying something and getting a 1% discount at the register, or buying something and getting 1% cash back from the credit card.     

Bajadoc

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Re: Long term value of credit card float
« Reply #26 on: August 06, 2015, 02:53:08 PM »
Credit card companies make a fortune from people trying game their system. That is why they have the system.

Gone Fishing

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Re: Long term value of credit card float
« Reply #27 on: August 06, 2015, 03:07:19 PM »
Credit card companies make a fortune from people trying game their system. That is why they have the system.


Credit card companies make a fortune off of people who are ignorant, lazy, inattentive, desperate, and/or addicted to spending, as well as the fees they charge retailers to process credit cards.  I'm pretty sure they lose money on those that know how to sucessfully game the system. 

Bajadoc

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Re: Long term value of credit card float
« Reply #28 on: August 06, 2015, 03:18:56 PM »
Credit card companies make a fortune from people trying game their system. That is why they have the system.


Credit card companies make a fortune off of people who are ignorant, lazy, inattentive, desperate, and/or addicted to spending, as well as the fees they charge retailers to process credit cards.  I'm pretty sure they lose money on those that know how to sucessfully game the system.

What is the name of the yacht you bought with the money you made gaming the credit card system?

kpd905

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Re: Long term value of credit card float
« Reply #29 on: August 06, 2015, 06:14:39 PM »
A single person putting all their spending toward sign up bonuses can get at least $3,000 a year from credit cards.  That is being very conservative.  So if you spend a few hundred dollars extra to do it, you are still way ahead.

Bajadoc

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Re: Long term value of credit card float
« Reply #30 on: August 06, 2015, 06:19:39 PM »
A single person putting all their spending toward sign up bonuses can get at least $3,000 a year from credit cards.  That is being very conservative.  So if you spend a few hundred dollars extra to do it, you are still way ahead.

"spend a few hundred dollars extra"  Yah, you are smarter than the credit card companies.

kpd905

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Re: Long term value of credit card float
« Reply #31 on: August 06, 2015, 06:27:50 PM »

"spend a few hundred dollars extra"  Yah, you are smarter than the credit card companies.

Wow, solid argument there.  Guess you win this thread, we should all give up.

My wife and I got $5584 in 2013, $6153 in 2014 and $3388 so far this year from credit card rewards.
« Last Edit: August 06, 2015, 06:31:49 PM by kpd905 »

Bajadoc

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Re: Long term value of credit card float
« Reply #32 on: August 06, 2015, 06:33:51 PM »
A single person putting all their spending toward sign up bonuses can get at least $3,000 a year from credit cards.  That is being very conservative.  So if you spend a few hundred dollars extra to do it, you are still way ahead.

"spend a few hundred dollars extra"  Yah, you are smarter than the credit card companies.

The credit card issuer makes interchange when consumers use their card.  Interchange is usually between 0.05% and 3% on consumer cards.  So even if we posit that they are making 3% on, say, $3000 in purchases, that is only $90.  I can think of a bunch of cards that give rewards that are richer than $90 for $3,000 in spending.  So yes - there are absolutely customers  that lose money for credit card companies.  While these companies may be using the optimal pricing strategy for all consumers, they are definitely losing money on some customers.  And that doesn't even take into account the huge customers acquisition costs that these card companies have.  I'm thinking most Mustachians lose money for credit card companies :)

Do you really believe credit card companies do things that lose them money?

kpd905

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Re: Long term value of credit card float
« Reply #33 on: August 06, 2015, 06:42:56 PM »
Do you really believe credit card companies do things that lose them money?

Yes, dude.  If they charge 3% on transactions, and give you $440 after spending $3,000 (Barclays Arrival), then they lose $350 if you spend $3,000, take that bonus and cancel the card.

They make money because they have thousands of people paying 20%+ interest for every one person gaming them for the rewards.

Bajadoc

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Re: Long term value of credit card float
« Reply #34 on: August 06, 2015, 07:13:47 PM »
Do you really believe credit card companies do things that lose them money?

Yes, dude.  If they charge 3% on transactions, and give you $440 after spending $3,000 (Barclays Arrival), then they lose $350 if you spend $3,000, take that bonus and cancel the card.

They make money because they have thousands of people paying 20%+ interest for every one person gaming them for the rewards.

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay. Credit card companies have really smart people whose job is to figure out how to separate you from your money. Sounds like they know what they are doing. Avoid credit cards and save and invest smartly. Looking for "free" money is a waste of time and energy. Having said that, I have investments in credit card companies so sign up and spend away!

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Re: Long term value of credit card float
« Reply #35 on: August 06, 2015, 07:26:44 PM »

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay.

Of course the average person does this, I already acknowledged this when I said there are thousands of people paying 20%+ interest for every person gaming the rewards system.  If you cannot be better than average, or do not have the willpower to avoid buying stuff you cannot afford, then this game isn't for you.

I've gotten over $15,000 from them and paid $0.00 in interest so far.  My credit score has increased from 720 to roughly 800 in those three years.

You'd benefit from doing a little reading on the subject instead of blindly assuming the credit card companies are all-knowing gods who can do no wrong.

Here are some resources, most likely for others reading this thread: http://www.flyertalk.com/forum/credit-card-programs/1177334-special-credit-card-offers-master-thread-subscription.html

http://www.frugaltravelguy.com/

http://boardingarea.com/
« Last Edit: August 06, 2015, 07:30:22 PM by kpd905 »

Bajadoc

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Re: Long term value of credit card float
« Reply #36 on: August 06, 2015, 07:35:05 PM »

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay.

Of course the average person does this, I already acknowledged this when I said there are thousands of people paying 20%+ interest for every person gaming the rewards system.  If you cannot be better than average, or do not have the willpower to avoid buying stuff you cannot afford, then this game isn't for you.

I've gotten over $15,000 from them and paid $0.00 in interest so far.  My credit score has increased from 720 to roughly 800 in those three years.

You'd benefit from doing a little reading on the subject instead of blindly assuming the credit card companies are all-knowing gods who can do no wrong.

Here are some resources, most likely for others reading this thread: http://www.flyertalk.com/forum/credit-card-programs/1177334-special-credit-card-offers-master-thread-subscription.html

http://www.frugaltravelguy.com/

http://boardingarea.com/

You are obviously a credit card financial genius. I bow down to your wisdom. (I don't believe the $15,000 bit for a second).

kpd905

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Re: Long term value of credit card float
« Reply #37 on: August 06, 2015, 07:42:44 PM »

You are obviously a credit card financial genius. I bow down to your wisdom. (I don't believe the $15,000 bit for a second).

Ha that's funny, I'm sure there are people on this forum making that look like a joke.  Especially since it is $15,000 over 3 years for two people.

Calling MilesDividendMD and others.  Anyone that has me beat by a mile, chime in.

This whole site and forum is about questioning the things that most people think of as normal.  By researching things like credit card hacking and utilizing tax-advantaged accounts, we can reach financial independence years earlier than we otherwise would.  Being open to ideas instead of blindly denying their possibility is important to continue to optimize your pathway to FI.

For instance, when I saw RootofGood's article title "$150,000 income, $150 income tax" I will admit that I thought it was impossible.  But then I took the time to read it and learn, and am really grateful for him and many of the other bloggers for showing what is really possible.  Scoffing at ideas will get you nowhere.
« Last Edit: August 06, 2015, 07:59:20 PM by kpd905 »

Bajadoc

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Re: Long term value of credit card float
« Reply #38 on: August 06, 2015, 08:13:03 PM »
Do you really believe credit card companies do things that lose them money?

Yes, dude.  If they charge 3% on transactions, and give you $440 after spending $3,000 (Barclays Arrival), then they lose $350 if you spend $3,000, take that bonus and cancel the card.

They make money because they have thousands of people paying 20%+ interest for every one person gaming them for the rewards.

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay. Credit card companies have really smart people whose job is to figure out how to separate you from your money. Sounds like they know what they are doing. Avoid credit cards and save and invest smartly. Looking for "free" money is a waste of time and energy. Having said that, I have investments in credit card companies so sign up and spend away!

Have you considered that the optimal pricing strategy for credit card companies isn't the one that prevents it from losing money on some customers, but rather the strategy that maximizes revenue overall? 

Look, I understand your skepticism.  I used to be skeptical, too.  Sounded too good to be true.  Still does sometimes.  But what I found from doing it myself, is that if you are smart and disciplined, it's very easy to collect "free money" in the form of rebates, travel miles, and rewards.  This isn't a hypothetical, this is an actual.  In fact, it paid for my traveling this year.  You do have to use a little bit of savvy in order to make sure your credit score doesn't suffer, but it's doable... we've got some really smart people on this forum.  Why are you surprised that some of them have figured out how to execute this? 

It's not rocket science.  Here's a simple blueprint on how to do it: http://www.johnnymoneyseed.com/credit/how-to-fly-for-free-on-southwest/

My credit score is 790 right now.  I track it carefully.

"optimal pricing strategy" Sounds like fancy talk to justify too much involvement with credit cards.

Eric

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Re: Long term value of credit card float
« Reply #39 on: August 06, 2015, 08:47:56 PM »

You are obviously a credit card financial genius. I bow down to your wisdom. (I don't believe the $15,000 bit for a second).

Ha that's funny, I'm sure there are people on this forum making that look like a joke.  Especially since it is $15,000 over 3 years for two people.

I don't have you beat, but it's an extremely believable figure.

I'm not sure I understand Bajadoc's objections.  Is it really believable that CC companies NEVER lose money on ANY promotion?  That's the unbelievable thing.

It's not like this is some secret.  The general public is terrible with all things financial.  Mustachians are experts at all things financial.  Being skeptical that a Mustachian can benefit from CCs is such a weird stance to take.  But hey, what do I care?  My first class flights to/from Europe in May will still be free whether or not Bajadoc believes me.

kendallf

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Re: Long term value of credit card float
« Reply #40 on: August 06, 2015, 08:53:32 PM »

"optimal pricing strategy" Sounds like fancy talk to justify too much involvement with credit cards.

Bajadoc, you're welcome to your preference for no credit card use, but you're just wrong if you dismiss the financial rewards possible with reasonably disciplined and organized use.

I don't track my total rewards precisely, because I use most of them for travel related compensation (free flights, free hotel stays).  Conservatively, we have made over $10k in the past two years while paying $0 in credit card interest and about $170 in annual fees.  Concurrently, my credit score has increased consistently and is now in the 780 range. 

What can you do with this stuff?  My wife flew to Malaysia to join me earlier this year for free (I was on a work trip).  We got to meet some cool fellow Mustachians (hi M41 and family!), drove to Kuala Lumpur and hung out 30 stories above the city in the rooftop pool of the Aloft Hotel, saw the finish of the Tour of Langkawi along with the Prime Minister, and generally had a great time.  Total cost: $0 (my costs covered by work, my wife's by travel rewards).  Her flights alone would've been more than $2k if we had paid for the tickets.


Eric

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Re: Long term value of credit card float
« Reply #41 on: August 06, 2015, 09:11:19 PM »

Bajadoc

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Re: Long term value of credit card float
« Reply #42 on: August 06, 2015, 09:19:47 PM »
Kendallf and Eric, you seem like sharp guys. If you can get something for nothing more power to you.  My view of life does not allow me believe in something for nothing. I do learn a lot from you guys and appreciate it.

brooklynguy

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Re: Long term value of credit card float
« Reply #43 on: August 06, 2015, 09:26:31 PM »
Bajadoc, businesses make calculated decisions to sacrifice profits in one area in the hope of maximizing overall profits all the time.  Think of the "loss leader" pricing model, where a store will deeply discount an item to lure people into the store with the goal of selling more profitable items once they're there.  But if a bunch of disciplined mustachians show up and just buy the five cent toothpaste, do you think the business makes any money off of them?

laufen

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Re: Long term value of credit card float
« Reply #44 on: August 07, 2015, 02:51:17 AM »
I have several rewards credit cards from the US, but I live in Europe. The spending on those credit cards is either for travel reimbursed by my employer or for AmEx/Visa/Mastercard gift cards that, through a US friend's help, the value of which goes back into my accounts fee free (details too much to post here) and I use it to pay off a student loan and invest the rest. Thanks to the rewards component, I'm able to get back quite a bit in cash and travel...looking at over $400 cash this year and 6 international round-trip plane tickets, partly in business class. I would have had to buy those tickets outright (in economy, of course) if not for the cards (did end up paying around $200 per ticket in fees, which would also have been part of the retail price).

I also have Euro credit cards, but they are really charge cards and also get paid off each month. I am meticulous with both the USD and EUR budgets thanks to YNAB. I haven't carried a balance on a credit card since...2003?

If I'm talking to someone about travel/finances, I've learned to just not mention it. They think I'm crazy. But then again, they also think I'm crazy for brewing my own coffee at my desk. Not crazy, just picky about where my money goes.

Bottom line: if you don't like credit cards, don't use them. If you are going to use them, don't use them for loans and don't buy anything you wouldn't have bought with cash anyway.





zephyr911

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Re: Long term value of credit card float
« Reply #45 on: August 07, 2015, 07:26:12 AM »
Have you considered that the optimal pricing strategy for credit card companies isn't the one that prevents it from losing money on some customers, but rather the strategy that maximizes revenue overall? 
Bajadoc, I don't see where you addressed this. ^^

A business as large as a credit card company is most profitable when it makes strategic decisions that maximize profits in the aggregate. Individual outcomes are practically irrelevant in the context of millions of accounts. That is why there are credit cards whose terms and conditions permit large losses on individual consumers, yet produce large profits from the average consumer. Refining these policies to the point where isolated individuals (like those in this thread) lose the ability to game the system would actually cost the company more (in analysis, development, and implementation of more complex policies) than the approach they use. IOW, if everyone did what these people do, the companies would fail, but since most people don't and never will, the companies earn their profits, the hackers win big, and everyone goes on living.

You seem to be stuck on the assumption that the credit card hackers are doomed to fall into the same traps (late fees, overlimit fees, penalty APRs) that turn many unwise consumers into debt-laden cash cows for the credit card companies, but you can't explain why.

Telecaster

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Re: Long term value of credit card float
« Reply #46 on: August 07, 2015, 08:19:59 AM »
Do you really believe credit card companies do things that lose them money?

Yes, dude.  If they charge 3% on transactions, and give you $440 after spending $3,000 (Barclays Arrival), then they lose $350 if you spend $3,000, take that bonus and cancel the card.

They make money because they have thousands of people paying 20%+ interest for every one person gaming them for the rewards.

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay. Credit card companies have really smart people whose job is to figure out how to separate you from your money. Sounds like they know what they are doing. Avoid credit cards and save and invest smartly. Looking for "free" money is a waste of time and energy. Having said that, I have investments in credit card companies so sign up and spend away!

And pretty soon you will be listening to rock and roll as well!

Debts_of_Despair

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Re: Long term value of credit card float
« Reply #47 on: August 07, 2015, 04:26:31 PM »
Do you really believe credit card companies do things that lose them money?

Yes, dude.  If they charge 3% on transactions, and give you $440 after spending $3,000 (Barclays Arrival), then they lose $350 if you spend $3,000, take that bonus and cancel the card.

They make money because they have thousands of people paying 20%+ interest for every one person gaming them for the rewards.

All of this "rewards" and "rebate" crap is designed to make you sign up for credit cards and spend money. Your credit score will suffer and you will eventually roll over the debt and pay. Credit card companies have really smart people whose job is to figure out how to separate you from your money. Sounds like they know what they are doing. Avoid credit cards and save and invest smartly. Looking for "free" money is a waste of time and energy. Having said that, I have investments in credit card companies so sign up and spend away!

I need to buy stuff.  I can either use cash or use a credit card and get anywhere from a 2% to 6% rebate.  I've never paid a cent of interest or a late fee but the rebate checks keep rolling in.  I have ridiculously high credit limits that I've probably never used even 10% of.  This raises by credit score.  I have my iBank setup to automatically download all transactions.  Every cent I spend is tracked and categorized.  There really is no reason to use cash.