The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: deborah on February 27, 2015, 12:36:21 PM
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The question says it all (thanks goblinchief for the quote I have used). I have been concerned as to whether this is really part of the MMM philosophy of treading lightly on the planet. Obviously he wrote a post on it, but should we really be doing it, when we are rich beyond our needs through our frugality?
I haven't made up my mind, and would like some discussion.
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Credit card churning could be part of what makes you rich, especially as it could save/net you hundred/thousands every year.
As for ethical, that's something each person needs to decide for himself.
As far as I'm concerned, the banks and the credit cards companies don't ask themselves if it's "ethical" to lend money with the interests they charge,
or whether the fees they charge are "ethical". Since they only care about the bottom line when doing business with me, why should I care about anything else?
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How does credit card churning violate the philosophy of treading lightly on the planet?
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I really think the credit card companies still win for the most part. Even though we are not giving them any money, they charge a fee (like 2% or something) on everything you spend everywhere. They are still getting money from you, just in the form of increased prices at Walmart or wherever. Theoretically, if everyone used cash stores would charge about 2% or so less for everything.
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I don't necessarily see credit card churning and 'treading lightly on the planet' as related. I'd imagine that most people here that churn through cards for rewards aren't buying more unnecessary things to meet spending thresholds; they're simply being strategic as to how they spend the money they are already spending and how they move their money around. I don't see how that is doing the planet any type of harm or running afoul of minimalism.
In terms of the ethics of it, is buying things on sale ethical? Or accepting any sort of deal or offer that a company or store uses to entice people to buy into their product? Part of the reason a store puts things on sale is so that you're encouraged to buy other things in their store that aren't on sale. If I only buy the one thing on sale, am I therefore acting 'unethically' for not purchasing anything else? Credit card companies give out rewards so you'll use their product. If you're not violating the terms of use i don't see the issue.
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In terms of the ethics of it, is buying things on sale ethical? Or accepting any sort of deal or offer that a company or store uses to entice people to buy into their product? Part of the reason a store puts things on sale is so that you're encouraged to buy other things in their store that aren't on sale. If I only buy the one thing on sale, am I therefore acting 'unethically' for not purchasing anything else? Credit card companies give out rewards so you'll use their product. If you're not violating the terms of use i don't see the issue.
I think this is well put.
Also, it's not like credit card companies are dumb. They obviously know that people churn credit cards. They've obviously taken this into account and wouldn't keep doing it if it weren't profitable. I don't see how it's "financial vampirism" - while credit card churners themselves are with very high probability a net loss for the credit card company, they're still profiting on the whole.
And if you want to say that credit card churners are draining the system and "stealing profit" from a cc company despite the fact that there are plenty of others who are providing the company with profit.... what about insurance companies? Are those who make tons of legitimate claims for insurance every year financial vampires? Does that make it unethical despite the fact that they are just making claims in line with the terms and conditions of the insurance? I mean clearly, if somebody is making far more insurance claims than average (and it's statistically guaranteed that these people will exist) then an insurance company is losing money from this one person right?
I don't agree with the "and this is a chance for us to get some gain for all the pain the banks give." clause in the poll, because I have never experienced pain because of a bank. Hell, I chase bank account signup bonuses and profit greatly from banks. I assume the same people that label credit card churners as financial vampires would label that financial vampirism too.
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I have yet to see an altruistic credit card issuer. I would see it as a contractual issue, not an ethical one.
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A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
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How does credit card churning violate the philosophy of treading lightly on the planet?
Banks are sending me a million letters a week with the offers. It seems like if I took them, I'd at least stop getting offers for that card.
I don't really credit card churn (though we've done it a few times for airline miles, but we kept the card for a year or two)- but I'd love to get them to stop sending me the offers, and while we had the card, they did stop sending them. So signing up is environmentally friendly.
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The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Fiat currency is also money created out of thin air.
Back up a couple years, and the airlines were in financial trouble. They needed an infusion of cash. So credit card companies swooped in and bought tons and tons of frequent flyer miles for cheap. CC companies walked away with a ton of miles for signup bonuses and the typical 1 mile per dollar earnings, and airlines walked away with some money. CC companies would not have done this if they didn't already know people will churn credit cards to gobble up the miles.
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How does credit card churning violate the philosophy of treading lightly on the planet?
Banks are sending me a million letters a week with the offers. It seems like if I took them, I'd at least stop getting offers for that card.
I don't really credit card churn (though we've done it a few times for airline miles, but we kept the card for a year or two)- but I'd love to get them to stop sending me the offers, and while we had the card, they did stop sending them. So signing up is environmentally friendly.
There's a much simpler solution to stop getting these offers in the mail. Just opt out of them.
https://www.optoutprescreen.com/?rf=t (https://www.optoutprescreen.com/?rf=t)
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A company offers an inducement in order to encourage potential customers to use their product or service. The company plans to make money from the new financial arrangement with its new customer.
Both the customer and the service provider abide by the terms of their agreement. In some cases, for whatever reason, the customer enjoys a net monetary gain from the arrangement and in some cases, again for whatever reason, the company does.
Both parties entered into the agreement without coercion and with full knowledge of the terms and conditions, therefore, there is no ethical breach on either part in my opinion.
In the same way, I do not consider credit card companies unethical when they provide credit to consumers who can and do use this credit to degrade their lives.
Ethics isn't about payback, it's about acting in good faith in all dealings.
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I really think the credit card companies still win for the most part. Even though we are not giving them any money, they charge a fee (like 2% or something) on everything you spend everywhere. They are still getting money from you, just in the form of increased prices at Walmart or wherever. Theoretically, if everyone used cash stores would charge about 2% or so less for everything.
Cash has its own costs and is much higher than modern merchant services transaction fees due to security and slippage costs.
This myth that cash should be so much cheaper is only because stores are forced to accept cash, so the cash fees are a sunk cost anyway. As soon as they aren't, transaction costs go down even further. I believe some economies are moving to paperless, reflecting this reality (and saving the government from having to deal with physical currency)
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
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I used to work for an advertising agency that counted Chase as a client. They LOVED putting ads on flyertalk and some of the other churning-based sites because it brought them in tons of new card sign ups. As hard to believe as it is, ROI is definitely in their favor.
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However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
I can sort of see that. But at the same time, the swipe fee is still assessed regardless of whether it's "real spending" or "manufactured spending." In terms of profits for the CC company, it shouldn't make a difference.
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
I suppose it's the manufactured spending that bothers me most. But I poked around around a lot of offers. The vast majority would need a spending level far in excess of what's sane and not extractive, environmentally damaging,etc to meet those other than in rare cases of arranging the churn right before some large planned purchasing.
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
I suppose it's the manufactured spending that bothers me most. But I poked around around a lot of offers. The vast majority would need a spending level far in excess of what's sane and not extractive, environmentally damaging,etc to meet those other than in rare cases of arranging the churn right before some large planned purchasing.
Perhaps this isn't an ethical issue per se, but one problem manufactured spending presents is it's can be hard to distinguish from fraud/money laundering.
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A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
Someone claiming the Earned Income Credit is taking money out of the system. They are creating money out of thin air. They provided no good, service, etc. But, the money has to come from somewhere.
How does that read? Nothing unethical about playing by the rules. The money comes from the slightly inflated cost of goods sold to cover these "incentives". I admit that it has no value, but marketing has evolved to where banks either play or lose out.
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A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
Someone claiming the Earned Income Credit is taking money out of the system. They are creating money out of thin air. They provided no good, service, etc. But, the money has to come from somewhere.
You could even try to argue that they qualified for the earned income credit because they didn't provide enough goods and/or services (ie, didn't earn enough).
Of course, there are some flaws to that counterpoint - are they getting paid a fair wage? Maybe. Maybe not. *shrug*
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I refuse to wear the blinders that say everything I do is just fine as long as I play by the rules - rules set out by entities gaming the system and degrading the greater good. On the other hand, I want some of the goodies too. So ... it's NOT just fine, it's NOT empirically ethical and upstanding, but I'm probably going to do some of it anyway, because I'm just not that much of a saint.
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to be clear, I was trying to make the point that the argument that something is bad b/c it was "creating money out of thin air, providing no goods and services" would lead one to think many widely accepted programs are unethical.
i.e. if it is valid for CC churning, then it is a valid argument against many things currently being done.
Welfare - you are a vampire sucking......
In fact, I think the conclusions are great, but I doubt that is what Thegoblinchief intended.
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There's a much simpler solution to stop getting these offers in the mail. Just opt out of them.
https://www.optoutprescreen.com/?rf=t (https://www.optoutprescreen.com/?rf=t)
This is correct. I haven't received a spam credit card offer in years.
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Maybe it's because i lack ethics, but i really have no idea what the ethical dilemma is when i take advantage of cash-back or miles credit cards. How is it unethical of me to use a promotional program to my own benefit? If i manufacture spending in order to meet the requirements of the card, those dollars are flowing through the cc company and they are gaining from it. They set up marketplaces where consumers can gain extra miles for purchases, and i always take advantage of that when i can. I am really failing to see an issue here. That they allow us to take advantage of their profit margins in this way is kind of... ethical of them, don't you think?
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
I suppose it's the manufactured spending that bothers me most. But I poked around around a lot of offers. The vast majority would need a spending level far in excess of what's sane and not extractive, environmentally damaging,etc to meet those other than in rare cases of arranging the churn right before some large planned purchasing.
Perhaps this isn't an ethical issue per se, but one problem manufactured spending presents is it's can be hard to distinguish from fraud/money laundering.
I'm just getting into credit card churning. As a business owner, it is a fantastic and easy thing to do, and very easy to meet the minimums. Between the CC offers, using ebates, and rewards programs, it makes things incredibly cheaper.
I'm not sure how I could swing it as a consumer because my spending is so low. When I can, I get both a consumer and a business card. If I need to spend more on my consumer card, I simply make a business purchase and then do an expense report for myself and have the business pay me.
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There's a much simpler solution to stop getting these offers in the mail. Just opt out of them.
https://www.optoutprescreen.com/?rf=t (https://www.optoutprescreen.com/?rf=t)
This is correct. I haven't received a spam credit card offer in years.
Also, I move frequently and I use CatalogChoice.com to stop mail from previous tenants (have to do it for each business though).
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I refuse to wear the blinders that say everything I do is just fine as long as I play by the rules - rules set out by entities gaming the system and degrading the greater good. On the other hand, I want some of the goodies too. So ... it's NOT just fine, it's NOT empirically ethical and upstanding, but I'm probably going to do some of it anyway, because I'm just not that much of a saint.
This! I would love to have all my losses covered from when I was playing FOREX in 2008 (read: taking stupid risks). When the banks did similar things, they got a big handout from Uncle Sam...
Regarding the "money from thin air" argument, it's really just coming out of the bank's profits (don't worry, they're still making PLENTY!). I'm sure that they're more than making up for us with the people who are dumb enough to carry a balance at 16% interest!
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
I suppose it's the manufactured spending that bothers me most. But I poked around around a lot of offers. The vast majority would need a spending level far in excess of what's sane and not extractive, environmentally damaging,etc to meet those other than in rare cases of arranging the churn right before some large planned purchasing.
The DW and I have signed up for some cards with the intent of churning them to pay for a trip to Europe this year. We are aggressively paying down my student loans. The minimum spend requirement is being met by my using the 'bonus' card to load money onto my Target Prepaid Redcard. The Target Redcard offers me free online bill pay. I then use the Target card to make large principal payments on my student loans. I then pay off the 'bonus' card balance in full each month with money that is being directed away from other uses into debt repayment. I am meeting the minimum spending requirements, gaining some very significant bonus points, and it isn't costing me a thing (except a small amount of extra time).
I have ZERO power to alter any of these institutions operating policies, procedures, or legal agreements. These things are all offered to anyone who has decent credit and wishes to take advantage. I am not violating the terms of my agreement with any of these vendors.
So, is what I am doing unethical? My answer is a resounding No.
Getting a bonus, discount, credit, or any other enticement for using/buying a product or service is NOT financial vampirism, and it is not unethical unless you are lying, cheating or stealing to obtain that bonus/reward.
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A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
Interesting viewpoint.
By this "extractive economy" argument, inheriting money is also unethical. Would you forego an inheritance since you are doing no good in exchange for your inheritance?
I have thought a lot about the ethics of churning (and it's obvious what my conclusion is).
Here are some musings:
http://www.milesdividendmd.com/philosophy-of-miles/
http://www.milesdividendmd.com/conversation-with-a-miles-skeptic/
Cliffs notes: churning is just arbitrage, no more no less. Perhaps it increases the efficiency of our credit system by extracting costs for bank enticements, but mostly it's just smart on an individual level like avoiding unnecessary investment costs or taxes.
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As I said, I haven't made up my mind. At this stage 95% are saying no - there are no ethical issues, so I am going to say why I am not sure it is ethical.
One of the reasons I feel it might be unethical is the reason the 2008 crash occurred. How can the banks afford to do this? Are they rebranding money, just like they did in the crash? Are we responsible for helping it if another crash occurs?
Another is that it encourages people to overuse credit. In my early adulthood, credit was not readily available - even mortgages were difficult to get. Does use of churning show that we are happy with the ever increasing availability of credit - and complicit in the problems it can cause?
Does credit card churning encourage us to be higher spenders than we would otherwise be? I have found it difficult to work out how (on my frugal budget) I could spend the amounts required.
I like using credit cards - they enable me to spend money a month before I pay, and they make it very easy to see where money has gone - and thus to reconcile a budget.
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One of the reasons I feel it might be unethical is the reason the 2008 crash occurred. How can the banks afford to do this? Are they rebranding money, just like they did in the crash? Are we responsible for helping it if another crash occurs?
I haven't ever heard of banks bundling their CC balances and re-selling it to other investors. CC debt is fundamentally different than mortgage debt because there's no collateral involved. So even if the banks were doing this, it would never get rated as "A" by the credit rating agencies. Instead it would get rated in the "junk" category and everyone would know what they were getting into. This should be a non-issue and really doesn't have much to do with the GFC.
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I really think the credit card companies still win for the most part. Even though we are not giving them any money, they charge a fee (like 2% or something) on everything you spend everywhere. They are still getting money from you, just in the form of increased prices at Walmart or wherever. Theoretically, if everyone used cash stores would charge about 2% or so less for everything.
I think they don't, with card churning. I calculated the card company's revenue on minimum use of a signing bonus card at 3%, and they come out very far in the red.
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If you fulfil your part of the CC contract and get a reward there is nothing wrong happening.
The CC companies are always free to change their contracts to prevent any churning behaviour they don't like.
-- Vik
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I don't feel it's unethical. But I often think our companion pass, made possible through sign up bonuses, is too good to be true!
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As I said, I haven't made up my mind. At this stage 95% are saying no - there are no ethical issues, so I am going to say why I am not sure it is ethical.
One of the reasons I feel it might be unethical is the reason the 2008 crash occurred. How can the banks afford to do this? Are they rebranding money, just like they did in the crash? Are we responsible for helping it if another crash occurs?
Another is that it encourages people to overuse credit. In my early adulthood, credit was not readily available - even mortgages were difficult to get. Does use of churning show that we are happy with the ever increasing availability of credit - and complicit in the problems it can cause?
Does credit card churning encourage us to be higher spenders than we would otherwise be? I have found it difficult to work out how (on my frugal budget) I could spend the amounts required.
I like using credit cards - they enable me to spend money a month before I pay, and they make it very easy to see where money has gone - and thus to reconcile a budget.
The reasons for the 2008 crash were many, the deregulation of complex debt instruments, the uncoupling of credit risk from lending institutions, a lax federal reserve attitude towards risknin the housing system, and poor risk management on the part of the banks. None of these are present in the current system of credit card rewards. If the banks stop making money offering rewards, they can change their terms at will, and often confiscate points.
Whether banks use rewards to entice people to spend is a different issue from the ethics of churning. If anything churners decrease the attractiveness of rewards programs from the banks perspective.
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They offer, you accept. They don't (that I'm aware of) put any restrictions on manufactured spending such as buying gift cards to spend later. It's a mutually consensual agreement so there is nothing unethical about it if I am getting the facts right.
If part of the banks terms for whatever the offer or bonus is states does it doesn't apply to X, and you do X to get them to pay the offer or bonus then that is fraud and would be unethical. I don't churn and I don't manufacture spending so I don't know the specifics of their terms regarding this, I'm happy to get 2% back and am looking to optimize for 3%-5% on some types of purchases as there seem to be better offers for some things.
If all parties involved agree and consent to an arrangement, there is no crime, nothing unethical. Are payday loans at exhorbitant interest rates unethical? Of course not, there is no victim, no fraud, just an arrangement both parties consent to.
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They offer, you accept. They don't (that I'm aware of) put any restrictions on manufactured spending such as buying gift cards to spend later. It's a mutually consensual agreement so there is nothing unethical about it if I am getting the facts right.
As I understand it, just buying gift cards for later spending wouldn't count as manufactured spending. Manufactured spending is using a CC to "purchase" a balance in an online account (like Amex Serve) and then using that same balance to pay off the CC balance. In essence, you didn't buy anything, not even a gift card. You just moved the balance from the CC to an intermediary and then used the same funds to repay the CC balance.
Someone correct me if I'm wrong.
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They offer, you accept. They don't (that I'm aware of) put any restrictions on manufactured spending such as buying gift cards to spend later. It's a mutually consensual agreement so there is nothing unethical about it if I am getting the facts right.
As I understand it, just buying gift cards for later spending wouldn't count as manufactured spending. Manufactured spending is using a CC to "purchase" a balance in an online account (like Amex Serve) and then using that same balance to pay off the CC balance. In essence, you didn't buy anything, not even a gift card. You just moved the balance from the CC to an intermediary and then used the same funds to repay the CC balance.
Someone correct me if I'm wrong.
I concur. The only thing you're buying in this scenario is the gift card fee (just so we're all on the same page, we're talking about Visa or Mastercard gift cards, not gift cards to a specific merchant) which is typically $5-6 for a $500 card.
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They offer, you accept. They don't (that I'm aware of) put any restrictions on manufactured spending such as buying gift cards to spend later. It's a mutually consensual agreement so there is nothing unethical about it if I am getting the facts right.
As I understand it, just buying gift cards for later spending wouldn't count as manufactured spending. Manufactured spending is using a CC to "purchase" a balance in an online account (like Amex Serve) and then using that same balance to pay off the CC balance. In essence, you didn't buy anything, not even a gift card. You just moved the balance from the CC to an intermediary and then used the same funds to repay the CC balance.
Someone correct me if I'm wrong.
Yes, I agree. You use a credit card to purchase a cash equivalent for free or a fraction of the total transaction value. I just loaded $200 to Serve for free about a minute ago. I don't really worry about ethics, I'll just keep taking the tax free rewards as long as I can.
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Two points come to mind:
1) If we assume the monetary system is a closed system, i.e. no new money printed/destroyed, then money can only be transferred. The legal transfer of money only has two requirements--the transfer must follow existing laws and the transfer must occur among two or more willing parties. There is no such notion as "extractive economy." Transfers of money for no exchange of goods or services happen every day--birthday/anniversary/Christmas gifts (I didn't trade the money for the goods. I just got the gift.); inheritances (I didn't work for the assets. I just had a rich uncle.); social services/EIC/gov't cell phones (I didn't earn my rent/food/medical/cash/phone subsidy. I just don't earn enough to disqualify myself.).
From my work with fraud investigation groups in financial industries, I know that much effort and resources are spent addressing illegalities (fraud, money laundering, identity theft) and compliance (RICO investigations, SARs, SEC/tax compliance). Churning is just part of the cost of doing business. Management is usually more interested in whether a campaign is legal and profitable. If it's legal and the profits meet expectations, the minor details of "how" pales in comparison to "how much."
Finally, I look at this as arbitrage situation across monetary mediums. For hundreds of years, businesses have spent much effort to make money in currency exchange. Believe me, if a bank's computer can find 30 seconds of currency arbitrage in global markets or exchanges, it will exploit that opportunity if possible to turn a profit. This is simply a bank taking advantage of a market inefficiency. This is not unethical whether banks or people do it in my opinion.
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One of the reasons I feel it might be unethical is the reason the 2008 crash occurred. How can the banks afford to do this? Are they rebranding money, just like they did in the crash? Are we responsible for helping it if another crash occurs?
I haven't ever heard of banks bundling their CC balances and re-selling it to other investors. CC debt is fundamentally different than mortgage debt because there's no collateral involved. So even if the banks were doing this, it would never get rated as "A" by the credit rating agencies. Instead it would get rated in the "junk" category and everyone would know what they were getting into. This should be a non-issue and really doesn't have much to do with the GFC.
London, 11 November 2014 -- Moody's Investors Service has assigned the following definitive rating to the credit card asset-backed notes ("Series 2014-2") issued by Gracechurch Card Programme Funding PLC (the "Issuer"):
- Aaa (sf) to the GBP 1600 million Series 2014-2 Class A Floating Rate Asset-Backed Notes due November 2019
Moody's does not rate the GBP 286.793 million Series 2014-2 Class D Notes.
Moody's did not previously assign a provisional rating to the Notes.
DESCRIPTION OF TRANSACTION AND ISSUER
Series 2014-2 is the 17th issuance from the Gracechurch Card Programme Funding PLC under its medium-term note programme backed by credit card receivables from Barclays Bank PLC's Gracechurch Receivables Trust. The assets backing the notes are receivables arising under designated MasterCard, Visa and American Express revolving credit card accounts originated or acquired in the UK by Barclaycard, a business unit of Barclays Bank PLC (A2 /Prime-1).
Read more at https://www.moodys.com/research/Moodys-Investors-Service-assigns-definitive-rating-to-the-credit-card--PR_310484?WT.mc_id=AM~TWFya19CYWNrZmlsbF9mb3JfWWFob29fRlRQU19TQl9SYXRpbmcgTmV3c19B%0AbGxfRW5nX0JhY2tmaWxs~20141111_PR_310484
Boglehead's wiki on Asset-backed securities - http://www.bogleheads.org/wiki/Asset-backed_securities
Personally I don't find playing the credit card game to be at all unethical. My only problem is I'm running out of new cards to sign up for.
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The money you get as your signup bonus is not created out of thin air. Nor does it come out of poor people's pockets. It comes out of the CC company's marketing budget. It's part of what they willingly spend to increase their business. They know a certain percentage of people will just sign up, get the bonus, and quit; they still gain enough new customers to make the offers worthwhile.
If a supermarket offers pork chops below cost as a loss leader to get you in the door, is it unethical to buy them? Is it unethical if you go to the store and buy *only* the pork chops and nothing else, with the result that the store loses money on you? I think a lot of people here would call that smart shopping. If detergent is on sale and you happen to have coupons for it and you end up getting it for 75% off, is that unethical?
Is it impossible to spend the required minimum spending without being wasteful and excessive? It sure isn't. I have regular, significant medical expenses that are not covered by insurance. Other people have loan payments, mortgages, or large families with big grocery bills. It's not hard at all for such folks to meet minimum spending while living quite modestly.
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I answered yes its ethical, but don't agree with the "inflicting pain on the banks" part.
But its more complex than that. I agree with GC that its part of the whole extractive economy and the special offer inducement to sign up is unethical, since it is promoting overconsumption.
However as a mustachian signing up for a balance transfer, I have no intention of increasing my consumption one iota and would therefore argue I'm not over consuming and not acting unethically. I guess its an idealogical viewpoint as to whether any participation, even if not harmful, in an unethical system can be ethical. Personally I have more concerns about churning to collect air miles if this leads to grossly increased travel by air…flying should be kept to a minimum for environmental reasons. (*ducks*, probably an unpopular view on this board where there are so many avid travellers)
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I answered yes its ethical, but don't agree with the "inflicting pain on the banks" part.
Same here. The credit card companies have been extremely generous to me for the last two years ($10k or so), and I've never paid interest. I have no bad feelings towards them.
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I don't see it as unethical, and that piece has been captured above in many posts above.
One of the hesitations I have, aside from the time doing things I don't enjoy to make it work, it seems a bit unseemly to me...kind of like the person who comes to happy hour and loads multiple overflowing plates of nachos or whatever snack is on offer. Could just be my own hangup with social perceptions and I should get over it, but doing that kind of thing doesn't make me feel that great.
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Oh yes it is ultra ethical. The ultimate expression of the inherent good in a free capitalistic economy.
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Oh yes it is ultra ethical. The ultimate expression of the inherent good in a free capitalistic economy.
:-)
When your society hands you a basket of rotten apples, see if you can make applejack?
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Oh yes it is ultra ethical. The ultimate expression of the inherent good in a free capitalistic economy.
:-)
When your society hands you a basket of rotten apples, see if you can make applejack?
I think society has handed most of us some pretty freshly picked and gorgious apples, thank you very much.
The Miles game is but another layer of rich caramel slathered upon them.
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My test for morality in business investing...
"Am I profiting off of some else's misery?"
E.g. am I investing in a company that profits by making people sick(er), destroys their financial capacity (payday loans), extorts money from desperate or uneducated? Will this investment destroy small businesses?
Churning is a pretty clear 'no' to that question in my mind. They are actually trying to profit off of your mistakes and subesquent misery, if anything. I just caution that this is only a tactic for people that never trip up.
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I don't see it as unethical, and that piece has been captured above in many posts above.
One of the hesitations I have, aside from the time doing things I don't enjoy to make it work, it seems a bit unseemly to me...kind of like the person who comes to happy hour and loads multiple overflowing plates of nachos or whatever snack is on offer. Could just be my own hangup with social perceptions and I should get over it, but doing that kind of thing doesn't make me feel that great.
I don't get the social perception or hangup about that happy hour thing? You don't necessarily know if the discounted <whatever> is losing them money, breaking even, or making money but less than normal price. Nor do you know the motivation, perhaps the intention is to sell at a loss to attract customers, hope they like the <whatever> and experience and become regulars, or recoup the loss on nachos with sales of beverages, or to lose money on nachos during happy hour to increase sales at times other than happy hour. You don't know, but that is the beauty of a free market. Any sensible business owner thinks through these things. Like someone else said, loss leaders at grocery stores. Gets you in the door...
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You are right. I don't know those things.
And it is difficult to pin down just what is at issue. For me personally, I try not to adopt the mindset of looking to take maximal advantage of everything put out (for whatever reason)...especially when I don't really need to.
You can certainly churn cards without falling into that category, so it isn't black and white. And again, I'm not saying it is wrong to do.
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You are right. I don't know those things.
And it is difficult to pin down just what is at issue. For me personally, I try not to adopt the mindset of looking to take maximal advantage of everything put out (for whatever reason)...especially when I don't really need to.
You can certainly churn cards without falling into that category, so it isn't black and white. And again, I'm not saying it is wrong to do.
When it comes to personal ethics, one of the most important questions is whether or not it "feels right" to you.
Logic fails us in this regard, but I would posit that engaging in behavior that feels wrong makes us unhappy, and is thus counterproductive.
So listening to that inner voice can be important, even if we can not pin down the exact reason why the inner voice is objecting.
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When it comes to personal ethics, one of the most important questions is whether or not it "feels right" to you.
Logic fails us in this regard, but I would posit that engaging in behavior that feels wrong makes us unhappy, and is thus counterproductive.
So listening to that inner voice can be important, even if we can not pin down the exact reason why the inner voice is objecting.
I'll agree that doing things that make one unhappy seem counterproductive and should probably be avoided, or at least reevaluate why something feels wrong. Everyone is different and may value different things.
I take issue with your first statement of the most important thing to personal ethics being if something "feels right". Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation. Ethics must be measured in universals. The non aggression principle is a good measure as it is a universal. The initiation of force, violence, fraud, is wrong and nobody wants to be the victim of that. If ethical actions are measured against this then it becomes a lot more clear what is ethical or not. If there is mutual consent, there can be no violation the the non aggression principle.
Someone can still dislike credit card churning for whatever belief it conflicts with (not wanting to receive something for free), or happy hour sales, and choose not to participate if they dislike getting something for nothing. They simply choose not to participate in those things. The problem comes when that individual initiates the use of force to impose his beliefs on others by using violence or the threat of violence to discourage others from offering or accepting credit card bonuses or happy hour sales. At that point there is the initiation of force and a clear unethical action.
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When it comes to personal ethics, one of the most important questions is whether or not it "feels right" to you.
Logic fails us in this regard, but I would posit that engaging in behavior that feels wrong makes us unhappy, and is thus counterproductive.
So listening to that inner voice can be important, even if we can not pin down the exact reason why the inner voice is objecting.
I'll agree that doing things that make one unhappy seem counterproductive and should probably be avoided, or at least reevaluate why something feels wrong. Everyone is different and may value different things.
I take issue with your first statement of the most important thing to personal ethics being if something "feels right". Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation. Ethics must be measured in universals. The non aggression principle is a good measure as it is a universal. The initiation of force, violence, fraud, is wrong and nobody wants to be the victim of that. If ethical actions are measured against this then it becomes a lot more clear what is ethical or not. If there is mutual consent, there can be no violation the the non aggression principle.
Someone can still dislike credit card churning for whatever belief it conflicts with (not wanting to receive something for free), or happy hour sales, and choose not to participate if they dislike getting something for nothing. They simply choose not to participate in those things. The problem comes when that individual initiates the use of force to impose his beliefs on others by using violence or the threat of violence to discourage others from offering or accepting credit card bonuses or happy hour sales. At that point there is the initiation of force and a clear unethical action.
My use of the adjective "personal" in front of ethics was intentional.
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These companies are all competing against each other to get your business. The sign on bonus is there to get you to test their product. I have my banking and credit cards with capital one 360, but I am actually using a Citi card right now. Their cash back is 0.5% higher. Competition = Citi won. That is how capitalism works.
Now yes sometimes when you churn a card you have no intention of using that card forever, but the reward was still there to get you to give that company a chance. You did, and if they aren't up to par you go your merry way(if Citi upsets me in any way... back to my capital one card).
How is this any different from using a coupon? XYZ company has a coupon but you normally get ABC companies' product. To save a few dollars you use the coupon with no intention of switching to XYZ forever. There is a chance XYZ will surprise you and keep your business, and that is what they were banking on when they printed the coupon.
Its the same concept with the credit card rewards; it is like a coupon to test their product. The benefits are bigger, but that is because the reward if they earn your business is also much bigger.
Also keep in mind the CC companies make money off you just buying things. They don't even need for you to pay interest.
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When it comes down to it, we have an obligation to look out for our own interests. We aren't hurting anybody, because -- despite what some may think -- corporations are not people.
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Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation.
For those of you playing the "GetItRight Drinking Game(tm)" at home, remember that equating taxation to violence is only a sip. Had "gun" or "gunpoint" been used, that's a whole drink. ;^)
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Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation.
For those of you playing the "GetItRight Drinking Game(tm)" at home, remember that equating taxation to violence is only a sip. Had "gun" or "gunpoint" been used, that's a whole drink. ;^)
Wait I thought it was taxation = slavery. Or was that somebody else?
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Maybe it's not churning but we recently took advantage of a perk offered on our credit card: Purchase Security. We had a $400 item that we ordered online but when we got it we had to turn around and send it back to the vendor. While the box was waiting at our doorstep for DHL to pick it up someone stole it. DHL confirmed that they came by to get it and it was not there. We had to file some paperwork and a police report of the stolen item with but within a few days the claim was approved and we will be getting reimbursed for the purchase price from Visa.
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^^^
I don't think anyone will call that unethical, that's just being smart and aware of what your rights are.
Some might consider churning unethical because it's using the CC only for the rewards and then closing them/not using them anymore, and it just seems suspicious.
I agree that it's not what it was meant for and that it's "fishy", but personally I still don't find it unethical.
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Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation.
For those of you playing the "GetItRight Drinking Game(tm)" at home, remember that equating taxation to violence is only a sip. Had "gun" or "gunpoint" been used, that's a whole drink. ;^)
Shit, I already chugged it. Oh well, fill'er up!
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I don't think it's unethical, but I'm not a fan for two main reasons:
1- I like a simple life and simple pleasures, and CC churning just feels like a hack/one-up/cheating the system type view. I don't like encouraging that mentality within myself.
2- I've seen several very intelligent people, one of my brothers included, completely screw themselves trying to CC churn. I know it's a failure of planning, and it's always people still in debt that it happens to (who absolutely should NOT be churning), but it just seems too risky overall IMO. I know the anecdote doesn't make the evidence, but it's hard not to internalize the conclusion anyway.
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2- I've seen several very intelligent people, one of my brothers included, completely screw themselves trying to CC churn. I know it's a failure of planning, and it's always people still in debt that it happens to (who absolutely should NOT be churning), but it just seems too risky overall IMO. I know the anecdote doesn't make the evidence, but it's hard not to internalize the conclusion anyway.
Lack of organization and planning will definitely hurt you in this game. That is why I think it is perfect for people interested in early retirement. A lot of people will post to r/churning and say "I just signed up for a card and need to spend $5000 in the next 3 months, how can I do it?" These are things you need to figure out before signing up for anything.
But I'm curious, how did your brother completely screw himself trying to churn? The worst case I can think of is getting a hard pull and failing to hit the required spend for the sign up bonus. So you basically miss out on $300-500. Unless he did it just prior to applying for a mortgage or something.
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2- I've seen several very intelligent people, one of my brothers included, completely screw themselves trying to CC churn. I know it's a failure of planning, and it's always people still in debt that it happens to (who absolutely should NOT be churning), but it just seems too risky overall IMO. I know the anecdote doesn't make the evidence, but it's hard not to internalize the conclusion anyway.
Lack of organization and planning will definitely hurt you in this game. That is why I think it is perfect for people interested in early retirement. A lot of people will post to r/churning and say "I just signed up for a card and need to spend $5000 in the next 3 months, how can I do it?" These are things you need to figure out before signing up for anything.
But I'm curious, how did your brother completely screw himself trying to churn? The worst case I can think of is getting a hard pull and failing to hit the required spend for the sign up bonus. So you basically miss out on $300-500. Unless he did it just prior to applying for a mortgage or something.
I think the gist was unexpected car expenses and dental bills came up (which IMO there's really no such thing, but that's beside the point...) and he had been churning + "debt hopping" between cards to keep it at a 0% interest rate. I don't know if he lost track or couldn't pay minimums or what, but he ended up in a pretty bad financial spot (late 20s, has a pretty well paying job, but is a spendypants). I think he ended up about $45k in the hole with CC debt by the end of everything. Naturally, as a dysfunctional family (LOL) we don't talk openly about things, so I'm not sure on all the details. But he always talks about all the "hacks" and "tricks" he's working on. There's always a new business idea. Sigh.
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When it comes to personal ethics, one of the most important questions is whether or not it "feels right" to you.
Logic fails us in this regard, but I would posit that engaging in behavior that feels wrong makes us unhappy, and is thus counterproductive.
So listening to that inner voice can be important, even if we can not pin down the exact reason why the inner voice is objecting.
I'll agree that doing things that make one unhappy seem counterproductive and should probably be avoided, or at least reevaluate why something feels wrong. Everyone is different and may value different things.
I take issue with your first statement of the most important thing to personal ethics being if something "feels right". Many here advocate the use of violence to steal from others, they give this a nice benign name: taxation. Ethics must be measured in universals. The non aggression principle is a good measure as it is a universal. The initiation of force, violence, fraud, is wrong and nobody wants to be the victim of that. If ethical actions are measured against this then it becomes a lot more clear what is ethical or not. If there is mutual consent, there can be no violation the the non aggression principle.
Someone can still dislike credit card churning for whatever belief it conflicts with (not wanting to receive something for free), or happy hour sales, and choose not to participate if they dislike getting something for nothing. They simply choose not to participate in those things. The problem comes when that individual initiates the use of force to impose his beliefs on others by using violence or the threat of violence to discourage others from offering or accepting credit card bonuses or happy hour sales. At that point there is the initiation of force and a clear unethical action.
You just can't help yourself.
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Am I forcing my counterparty to do something against their will?
No.
I just noticed Chase has a history of the 10+ cards I've cancelled with them in the past (listed as "inactive" in my chase account). They clearly could deny me a new card if they wanted to. It wouldn't be hard for CC companies to develop a "credit card churner" blacklist of personas non gratas and screen applicants against that list. Actually on that thought, I gotta run and monetize that idea in the form of a new startup.
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As the ultimate cause of this thread, sorry for not being able to follow it very closely. Obviously deborah was the one who started it, but I contributed the phrase "financial vampire". Y'all have introduced some good arguments, and I'm obviously fighting a losing battle. That said, even though I'm struggling to find a better way to argue it, I'm sticking to my guns here, especially once you escalate into the shell game of manufactured spending.
A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
Interesting viewpoint.
By this "extractive economy" argument, inheriting money is also unethical. Would you forego an inheritance since you are doing no good in exchange for your inheritance?
The transfer of inter-generational wealth is not extractive. The whole reason a fortune was built up was to serve the lives which came after it. Because of the life-serving nature of this fortune, you could argue that the heirs earned the inheritance, since the inheritance was at least partly built up to give them (and their heirs, and their heirs' heirs, etc) a secure foundation.
The only extraction happening is the double taxation of the estate tax.
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If all parties involved agree and consent to an arrangement, there is no crime, nothing unethical. Are payday loans at exhorbitant interest rates unethical? Of course not, there is no victim, no fraud, just an arrangement both parties consent to.
Considering the incredibly poor financial literacy of the average payday loan debtor, I think you could very easily argue that they don't have informed consent. Just because they can get people to agree to the contract doesn't make the behavior ethical. Usury is legal but it sure as hell ain't ethical.
Further example: why is it accepted practice that hospitals charge $3K for an MRI where as open market providers can provide it for $600? Yes, it's all within the rules of a free market, but charging exorbinant prices just because you CAN is NOT ethical.
Ethics is something very different from criminality and legality. I can get "one over" on lots of people in entirely legal manners, but I don't, because it's not ethical, it doesn't serve to further society, and it doesn't leave the world a better place than I found it.
A lot people are essentially arguing "hey, it's capitalism, whatevs, I'm gonna get mine while I can". Look around you. Look at the devastation modern capitalism has wrought around the world in the past two centuries. While the first centuries of colonization were hardly voluntary on the side of the exploited, since the post-colonial era all exploitation has been entirely "legal" or "contractual" but, again, it sure as hell ain't ethical.
Here I'm getting beyond credit card churning, but I have to argue against contractualism=ethical.
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All right, I have read this post, and understand what both arguments are trying to convey.
First of all from a credit card point of view, they are not loosing money on this at all. All cards charge a percentage of the purchase to the company that you used to card to as a user fee.
For example, in my market, two years ago when I had a point of sale terminal for my business, Amex charged 7.3%, MC charged(for the premium cards, which is all reward cards) 5.3% and Visa premium card were 5.6%. If the average reward is 1-2% then as you can see they are charging a higher fee then the reward given. The do not care if you churn, because the have collected enough of a fee to break even on the higher rewards for the first bit.
No on to the other point, I agree that this is completely ethical, the companies have this built into their expenses, and count on many people charging most, but not all of the amount to get the bonus, therefore, it is a non issue. I do not agree with churning from a environmental point of view, however. Consumers, who are not mustachian, will but stuff to get the rewards, I will give them the benefit of being able to pay cash right after purchase(even though we know that many cannot, and end up paying interest on these cards.) the problem is they bought stuff, a new TV, a new DVD/Bluray Player, even a trip to somewhere nice. This is killing the environment, and that is my issue. For some of us to pay their mortgage in order to get the rewards, if your mortgage company is willing to pay the charges, ok.... but to just buy stuff is fucking the world over big time.
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As the ultimate cause of this thread, sorry for not being able to follow it very closely. Obviously deborah was the one who started it, but I contributed the phrase "financial vampire". Y'all have introduced some good arguments, and I'm obviously fighting a losing battle. That said, even though I'm struggling to find a better way to argue it, I'm sticking to my guns here, especially once you escalate into the shell game of manufactured spending.
A credit card churner is intentionally extracting money out of the system. Someone with legitimate insurance claims is entirely different. They just had a bad year, etc.
The reason I called it financial vampirism is that you're essentially creating money out of thin air. You provided no good, service, etc. But the money has to come from somewhere, therefore, you're a vampire sucking it out.
Lots of the modern economy is horribly extracting and serves no good. For more on what I mean by an extractive economy instead of producing or life-serving, see the book "Radical Homemakers".
Interesting viewpoint.
By this "extractive economy" argument, inheriting money is also unethical. Would you forego an inheritance since you are doing no good in exchange for your inheritance?
The transfer of inter-generational wealth is not extractive. The whole reason a fortune was built up was to serve the lives which came after it. Because of the life-serving nature of this fortune, you could argue that the heirs earned the inheritance, since the inheritance was at least partly built up to give them (and their heirs, and their heirs' heirs, etc) a secure foundation.
The only extraction happening is the double taxation of the estate tax.
This argument doesn't pass my "sniff test." you are arguing inherited wealth from the standpoint of the person who earned it originally not the person who inherits it (The extractor in question). The receiving generation has necessarily contributed nothing to society and reaps the benefits of being a member of the lucky sperm club. Ie they are "extractive."
More to the point this idea of "extractive" just falls apart on so many levels. People who collect passive income from investments are not creating anything. They are merely getting paid for taking risk. Similarly churners are not creating anything, they're only getting paid for the risk of participating in arbitrage.
(It is certainly possible to lose capital playing the miles game if you carry a balance, lose a gift card, etc.) this possibility represents risk by any reasonable definition.
As to the "double taxation" of inheritance taxes,that's a whole other rabbit hole that I'm not willing to go down right now, perhaps another reader will start a whole new thread on it!?
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If all parties involved agree and consent to an arrangement, there is no crime, nothing unethical. Are payday loans at exhorbitant interest rates unethical? Of course not, there is no victim, no fraud, just an arrangement both parties consent to.
Considering the incredibly poor financial literacy of the average payday loan debtor, I think you could very easily argue that they don't have informed consent. Just because they can get people to agree to the contract doesn't make the behavior ethical. Usury is legal but it sure as hell ain't ethical.
Further example: why is it accepted practice that hospitals charge $3K for an MRI where as open market providers can provide it for $600? Yes, it's all within the rules of a free market, but charging exorbinant prices just because you CAN is NOT ethical.
Ethics is something very different from criminality and legality. I can get "one over" on lots of people in entirely legal manners, but I don't, because it's not ethical, it doesn't serve to further society, and it doesn't leave the world a better place than I found it.
A lot people are essentially arguing "hey, it's capitalism, whatevs, I'm gonna get mine while I can". Look around you. Look at the devastation modern capitalism has wrought around the world in the past two centuries. While the first centuries of colonization were hardly voluntary on the side of the exploited, since the post-colonial era all exploitation has been entirely "legal" or "contractual" but, again, it sure as hell ain't ethical.
Here I'm getting beyond credit card churning, but I have to argue against contractualism=ethical.
This argument ignores the fact that the counterparty in question is the credit card company that writes the contract! Equating too big to fail banks and their fleet of attorneys with a payday loan borrower is problematic at best!
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I feel no need to weigh into the ethical aspects, though my gut response is to assume if each side is following the contractual rules of the deal that is signed up for then who cares about the ethics. It is a business arrangement and who am I to argue either side is wrong, I don't stand in judgement of contracts other make with each other. (but follow the rules, cheating would be unethical)
For myself, I just find the whole issue of credit card deals feels dirty to me. I have used them before, and they tend to complicate matters and generate paperwork which I would rather avoid. I just signed up for a Capital One card which has a bonus, but they also have no fees on international purchases so I plan to use it for international trips rather than my Discover card. But I wouldn't have signed up just for the bonus.
So I have no ethical problem, but those that make lots of money by churning and applying for all the various deals just seem cheap to me. Not unethical, just annoying... :D much like extreme couponers, or people in my line of work who jump from job to job taking the sign on bonus and then leaving when the required time is complete. It's not a matter of ethics, and I'm sure it is worth it financially for some, but it just isn't for me.
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First off, the very concept of credit cards is to encourage the customer to spend more than they could if they had cash so they can charge you exorbitant interest rates. I have zero sympathy for the credit card issuers. Why else would a company offer you basically a revolving 60 day loan at 0% interest...so they can make $0.10/per swipe or whatever it is? Doubtful.
That said, these are incentives to get you to try their product. 90% of the time I try the product, get my bonus, use the bonus towards something and then I don't use the card anymore. The product wasn't good enough, so they didn't win my "every day spend" business.
I used to use AMEX points for my every day spend. I would always try different cards to see if they had a more valuable rewards program for me. You at least get the bonus because you can't try the rewards program without the bonus. For years I always came back to AMEX.
Then while I was churning cards Chase won my business from AMEX. I tried it for the bonus...and Chase points are more valuable for me than AMEX points. So now all of my "every day spend" goes onto my Chase card. I still sign up for CITI, CapitalOne, Wells Fargo, etc. cards. Maybe one day one of them can win my business from Chase.
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This argument doesn't pass my "sniff test." you are arguing inherited wealth from the standpoint of the person who earned it originally not the person who inherits it (The extractor in question). The receiving generation has necessarily contributed nothing to society and reaps the benefits of being a member of the lucky sperm club. Ie they are "extractive."
More to the point this idea of "extractive" just falls apart on so many levels. People who collect passive income from investments are not creating anything. They are merely getting paid for taking risk. Similarly churners are not creating anything, they're only getting paid for the risk of participating in arbitrage.
(It is certainly possible to lose capital playing the miles game if you carry a balance, lose a gift card, etc.) this possibility represents risk by any reasonable definition.
At the risk of further derailing the thread, I didn't have the book in front of me, but I finally looked up the terms I was contrasting (extractive versus life-serving). If you're at all interested in the distinction explored further, read "Radical Homemakers" by Shannon Hayes. It is a very Mustachian book in the vein of YMOYL. In fact, nearly all of the subjects she interviewed arrived at many of their life choices and conclusions after reading that book.
The extractive economy is where corporate wealth is regarded as the foundation of economic health. All choices are measured in terms of "does this make the economy better". Mining our earth’s resources and exploiting our international neighbors is accepted as simply the cost of doing business.
The life serving economy is similar to the "food as politics" movement. It evaluates everything in terms of 4 criteria: family, community, social justice, and ecological health.
Extractive decisions are ones in which the increase of monetary wealth, "deals", and whatnot are the sole yardstick. The life-serving economy strives to put decisions in much greater context, both globally at present (is this consumption exploitative of others right now) and long-term (will this damage the earth or help make it better).
Similar to what dycker1978 said above, I think churning is extractive because it's enabling of greater consumption. Yes, maybe some of you just take the cash, pay the bills, and use it as a very small bit of extra income. But the vast majority of churners are doing it to enable travel, often at a level that I think needs to be more carefully evaluating in environmental terms.
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I agree with some of the other posters ahead of me: Credit Card "churning" is no different then buying the loss leader at the grocery store. The deal is what gets you in the door, and they hope you'll keep using their product.
From the credit card issuer's point of view:
1. Out of all their customers, churners probably make up no more than 10%, and are seen as simply the cost of doing business. We probably are net negatives for them because we don't pay a dime of interest.
2. The other 90% of customers are EXTREMELY LUCRATIVE, paying thousands of dollars of interest, generating substantial transaction fees, etc.
Even for us, there are risks of hedonic adaptation in the form of increased utilization of air travel that may continue long after the benefits of earned miles expire, resulting in us still being net positives for the airlines.
I suppose one could argue that we're increasing the costs for other customers, but this argument falls on its face if you look at the ridiculous profit margins of credit card operations (Visa at 46%!!). If 100% of us stopped churning, they wouldn't lower prices for others by a dime.
I think the gist was unexpected car expenses and dental bills came up (which IMO there's really no such thing, but that's beside the point...) and he had been churning + "debt hopping" between cards to keep it at a 0% interest rate. I don't know if he lost track or couldn't pay minimums or what, but he ended up in a pretty bad financial spot (late 20s, has a pretty well paying job, but is a spendypants). I think he ended up about $45k in the hole with CC debt by the end of everything. Naturally, as a dysfunctional family (LOL) we don't talk openly about things, so I'm not sure on all the details. But he always talks about all the "hacks" and "tricks" he's working on. There's always a new business idea. Sigh.
I'm sure in your brother's case, the CC company was laughing all the way to the bank (oh wait, they were already there!).
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So I have no ethical problem, but those that make lots of money by churning and applying for all the various deals just seem cheap to me. Not unethical, just annoying... :D much like extreme couponers, or people in my line of work who jump from job to job taking the sign on bonus and then leaving when the required time is complete. It's not a matter of ethics, and I'm sure it is worth it financially for some, but it just isn't for me.
Hmm, this seems like an interesting perspective on a forum about maximizing efficiency and frugaility.
And i'm not sure how complicated credit cards can be. I mean, it literally takes about 2.5 minutes to sign up for a credit card, 30 seconds to activate it once it comes in the mail, and another 30 seconds to set up an auto bill pay on it. So the Chase Sapphire requires $3000 spending in three months in order to get 45K or so bonus points, worth $450 in cash back. I make the spending threshold with my normal spending, plus some other creative spending, which i'll be honest, might take me another 5 minutes or so to work on. Then, a few months later, I spend about 60 seconds canceling the card. So for about 9 total minutes of work I've made $450 dollars.
I just fail to see how this equals financial vampirism or annoying, or dirty. To me its just smart, efficient spending, i.e. maximizing your earnings potential (or minimizing your costs) by putting your money to work in strategic ways.
Its just interesting because it seems like on the forums here we give people tons of advice that might result in saving $10 or $20 bucks a month and we all nod our heads and say "smart!". The last thing any one would pipe in and say is "nah, that's just cheap and annoying, i wouldn't do that". It must have something to do with credit card companies and the feelings people have about them, or about debt in general. Because, short of selling drugs or doing something illegal, I have a difficult time imagining a lot of people walking away from $450 dollars in exchange for 9 minutes of effort- even Mustachians. Then again, I guess its happening, so...
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Similar to what dycker1978 said above, I think churning is extractive because it's enabling of greater consumption. Yes, maybe some of you just take the cash, pay the bills, and use it as a very small bit of extra income. But the vast majority of churners are doing it to enable travel, often at a level that I think needs to be more carefully evaluating in environmental terms.
I think this makes sense actually; if the churning in and of itself creates more consumerism or 'extractive' activities then I think there is a potential ethical concern/environmental concern.
Personally, I 'churn' more for the cash back rewards. Occasionally, i'll sign up for a card with a bonus to defray the cost of travel that I am already planning to take. My kids have grandparents that we have to visit, so if I can defray some of those travel costs with a credit card bonus (whether thats airfare, a rental car, gas, etc..) then I'll definitely do it.
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
this is my take on it.
i am not really a churner, but getting the sign-on bonus's through more legitimate spending (paying for purchases, utilities, etc... on a single CC to meet the spending requirements) seems fine.
buying prepaid cards and depositing/bill paying that money back to yourself through artificial means is a bit much for me.
the only thing i would try the above for is to pay on items that typically dont allow CC payments, student loans and mortgages being two methods i can think of.
i am actually still looking for a reasonably easy way to make my mortgage payments this way. most of the methods i have seem to come across are getting phased out pretty fast, are not an option in my local area, require that i manually buy multiple CC's since they have such a low purchase limit, or the purchase has an unfortunate fee that wipes out most/any gains.
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It kind of depends on what you mean. I see no ethical issues from attaining a sign up bonus through meeting required spending amounts. Similar to a buy one get one free sale or any other kind of promotion. However, the use of "manufactured spending" to meet the spending amounts, where I didn't actually spend the required money, I just artificially cycled it, then that would make me question the ethics of it a lot more.
this is my take on it.
i am not really a churner, but getting the sign-on bonus's through more legitimate spending (paying for purchases, utilities, etc... on a single CC to meet the spending requirements) seems fine.
buying prepaid cards and depositing/bill paying that money back to yourself through artificial means is a bit much for me.
the only thing i would try the above for is to pay on items that typically dont allow CC payments, student loans and mortgages being two methods i can think of.
i am actually still looking for a reasonably easy way to make my mortgage payments this way. most of the methods i have seem to come across are getting phased out pretty fast, are not an option in my local area, require that i manually buy multiple CC's since they have such a low purchase limit, or the purchase has an unfortunate fee that wipes out most/any gains.
This is where I'm at as well, though I don't have a philosophical problem with Manufactured Spending, I find the hassle factor goes up too far for my liking. I'm doing just fine with pushing my real spending through the card of the month, currently a Southwest Plus card. Companion pass, here I come...
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This argument doesn't pass my "sniff test." you are arguing inherited wealth from the standpoint of the person who earned it originally not the person who inherits it (The extractor in question). The receiving generation has necessarily contributed nothing to society and reaps the benefits of being a member of the lucky sperm club. Ie they are "extractive."
More to the point this idea of "extractive" just falls apart on so many levels. People who collect passive income from investments are not creating anything. They are merely getting paid for taking risk. Similarly churners are not creating anything, they're only getting paid for the risk of participating in arbitrage.
(It is certainly possible to lose capital playing the miles game if you carry a balance, lose a gift card, etc.) this possibility represents risk by any reasonable definition.
At the risk of further derailing the thread, I didn't have the book in front of me, but I finally looked up the terms I was contrasting (extractive versus life-serving). If you're at all interested in the distinction explored further, read "Radical Homemakers" by Shannon Hayes. It is a very Mustachian book in the vein of YMOYL. In fact, nearly all of the subjects she interviewed arrived at many of their life choices and conclusions after reading that book.
The extractive economy is where corporate wealth is regarded as the foundation of economic health. All choices are measured in terms of "does this make the economy better". Mining our earth’s resources and exploiting our international neighbors is accepted as simply the cost of doing business.
The life serving economy is similar to the "food as politics" movement. It evaluates everything in terms of 4 criteria: family, community, social justice, and ecological health.
Extractive decisions are ones in which the increase of monetary wealth, "deals", and whatnot are the sole yardstick. The life-serving economy strives to put decisions in much greater context, both globally at present (is this consumption exploitative of others right now) and long-term (will this damage the earth or help make it better).
Similar to what dycker1978 said above, I think churning is extractive because it's enabling of greater consumption. Yes, maybe some of you just take the cash, pay the bills, and use it as a very small bit of extra income. But the vast majority of churners are doing it to enable travel, often at a level that I think needs to be more carefully evaluating in environmental terms.
As you mentioned in your disclaimer, this is a bit of a derailment of the specific discussion at hand.
Your comment however, is very interesting. But by the definition you lay out, almost everything that we do is extractive. (which doesn't mean that your observation is untrue.)
From a Mustachian point of view I'll just point out that by this definition of extractive, investing in a low-cost index fund is horribly extractive.
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Not exactly referring to credit card churning, but I have been wondering about similar things, namely referral rewards.
If you get credit for each person you refer, and refer a great deal of people to a service, essentially earning yourself hundreds of dollars worth of the product without paying, is that ethical? I believe most people would say yes, because the company knows the risk of offering this promotion, and in theory you are directing all those people using your code to the company and giving them business.
Interested in hearing my fellow mustachians' thoughts on this!
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So I have no ethical problem, but those that make lots of money by churning and applying for all the various deals just seem cheap to me. Not unethical, just annoying... :D much like extreme couponers, or people in my line of work who jump from job to job taking the sign on bonus and then leaving when the required time is complete. It's not a matter of ethics, and I'm sure it is worth it financially for some, but it just isn't for me.
And i'm not sure how complicated credit cards can be. I mean, it literally takes about 2.5 minutes to sign up for a credit card, 30 seconds to activate it once it comes in the mail, and another 30 seconds to set up an auto bill pay on it. So the Chase Sapphire requires $3000 spending in three months in order to get 45K or so bonus points, worth $450 in cash back. I make the spending threshold with my normal spending, plus some other creative spending, which i'll be honest, might take me another 5 minutes or so to work on. Then, a few months later, I spend about 60 seconds canceling the card. So for about 9 total minutes of work I've made $450 dollars.
I've tried quantifying the hourly pay of applying for my cards. If I overestimate the time spent applying, spending and canceling, it is around $1000/hour. In reality, it is probably closer to $3000+ per hour.
Definitely not worth the time for some people, but those people are making $6 million a year and probably aren't posting here.