It's certainly cost this person a lot more than $418, because most of this seemed to be earned with credit card reward points. Spend $4k in 6 months and get 75,000 points, etc. So.. great. Spend a lot of money (possibly buying more than you intended to) and get a reward.
I guess being on the other side of the table - a merchant - I resent the whole 'rewards' racket. A) I end up getting charged more as a merchant, and I can't not accept your card. B) It's encouraged a culture of chasing after rewards that often aren't really something you need or end up being hard to use for most people (airline miles).
Yes, there are a few people who can really 'make out' (like this guy) but in the end this is mostly just another way for banks to make extra profits off people's greed ('something for nothing').
"If I were to pay for this adventure with cash and book individual flights, it would cost almost $6,000"
I'm guessing there was a lot more than $6k spent on 'stuff' to get this.
He was clear he bought a ticket for $418 (or whatever). But it really wasn't $418. It was $418 all the money spent on getting rewards points. I thought I was pretty clear about that.
The article implies he simply used the cards to buy stuff he would buy normally which put him over the threshold dollar amount to earn the bonus miles. If this is true it's equivalent to getting the miles for free since he didn't buy anything out of the ordinary. I'm assuming he paid the cards off in full each month
You're ignoring the opportunity cost of having a card that gives airline rewards instead of, say, an Amazon Visa which wouldn't get him any "free" plane tickets but would instead get him Amazon gift certificates.
Credit card companies will give you free money (a portion of what they charge merchants), and that really has nothing much to do with how to travel cheaply.
If someone said "here's how to get $500 of stuff on amazon for $50" and the trick was to use $450 in amazon rewards earned from normal credit card use, that'd be a dumb article, right?
You're ignoring the opportunity cost of having a card that gives airline rewards instead of, say, an Amazon Visa which wouldn't get him any "free" plane tickets but would instead get him Amazon gift certificates.
Yes but you're ignoring that $4000 spend on Amazon Visa might net you a $40 certificate (@1%, I dunno the exact reward) where as $4000 spend on British Airways Chase might net you 75,000 miles (incorporating their bonus) which might represent $1000 worth of airline ticket.
In my experience, assuming you fly, the airline reward cards are the best in terms of the $ value of the reward.
Hmm. How can the airlines possibly give away 25% of what you spend? They are only making 2% of what you spend from merchants for providing the card or something thereabouts.
edit: Maybe some airlines do it by only letting you use reward miles on seats that they wouldn't have been able to sell anyway or something along those lines. But some don't. I know Southwest reward tickets aren't heavily handicapped or anything lame.
1) Signing on bonus. That 75,000 miles extra reward miles is a "one-off" for spending a certain amount at the start of the card. There is a cost of customer acquisition (CCA) for a credit card member and presumably some of the CCA is factored into the bonus. The 'hack' is to constantly apply, use, bin and then reapply for cards to maximize the bonus.
2) $1000 in airline fare isn't actually a $1000 liability to the airline, because that is the market price where as to them the cost price is going to be less... and as you suggest if they restrict it to a few seats per plane the cost price is even less.
Because so few people actually redeem their FFMs. They hoard them up. And then quite often, completely in the terms of the program, they don't earn enough and their balance gets wiped.
And yes, reward flights usually require you to pay tax, and for popular routes there may be only one FFM redeemable ticket per class per flight. Meaning you have to book ages in advance, choose less popular routes/times or be damn damn lucky.
The value is increased even further if you redeem the miles for first class tickets (which can easily be worth several thousand dollars, and which I suspect most people would never be willing to pay out of pocket for).
I use my CC to pay for rent and utilities and whatever other necessities, nothing extra. I've racked up 108K AA points (and counting) simply through that.
So I'm not questioning that the flights could be $418, however I do expect living expenses for the next 9 months for him to be massive depending on how he plans on handling himself (which he doesn't talk about in the article much).
Have to say I disagree with this. The point of schemes like this is that you're collecting miles for money you would have spent anyway - if you're spending extra money to collect miles, you're doing it wrong (since with most airline programs you can simply buy the miles for a few cents each to begin with).
But racking up $4k in 6 months is not actually all that difficult if you put everything on your card (utility payments, insurance payments, groceries, cell phone, gas, etc).
And if you can't meet the required spend by normal means, there are schemes out there to help you get there without actually spending any more money. For example (as mentioned below), buying $1 coins from the US mint with free shipping with your credit card, and then depositing them back in your bank account.
If you spend any amount of money with a credit card, and are responsible enough to pay it off every month (rewards cards typically have higher interest rates), there's no reason not to collect rewards from it.
The main question becomes whether to get a standard 1% cashback card or an airline miles card. This mostly depends on how much you fly (or plan on flying in the future). But if you do fly, the bonus miles offers and the potential value of the miles can be worth a lot more than the standard 1% cashback.
If you put everything you buy on your card it's not hard to rack up points really quick - especially if you can find a way to get your landlord to put your rent on your credit card. My wife and I are flying to NYC soon for free on this year's miles.
Rent is typically a big one - outside of that, maybe I just don't spend that much compared to everyone else? Outside of mortgage, if we spend $1000 in a month on combined food/utilities/misc, it's a busy month. That would be 12000 points based on most cards offering "$1=1 point". That just doesn't seem to get me around the world trips. I'd rather just save up and buy what I want.
Maybe I'm missing something blindingly obvious though? I can't help but think banks and card providers aren't going in to debt to provide these rewards. The price is baked in to costs to cover the extra fees banks charge when rewards card holders use their card.
American Express Blue Cash is great if you spend more than about $9000/year on it. The first $6500 in a year provides cashback at 0.5% on everything, 1% on "everyday purchases" (gas, groceries, drugstore, etc). After that, cashback jumps to 1.5%/5%. On average, people spend 15-18% on "everyday purchases", so that makes average cashback 2.025% after the first $6500 -- slightly better than a straight 2% cashback card, which are rare these days. To do the math:
- Regular 1% card: $9000 at 1% = $90
- Amex Blue Cash: $5525 at 0.5%, $975 at 1.25% (for the first $6500), then $2125 at 1.5%, $375 at 5% = $90.44 (the splits assume the average spending habits of 15% on "everyday purchases")
Yeah. I figure that at some point you've gotta make a decision: are you going to devote serious effort to chasing down frequent flyer miles and other rewards points or not? There are rewards for doing so, but you can also drive yourself crazy chasing after every last mile and wind up doing stupid things (like the people who deliberately spend extra hours on planes flying indirect routes to their destinations just to build up the miles).
A lot of cards have sign up bonuses. I'll sign up for a card, use it once, get 25,000 points, and close the card. This has helped my credit quite a bit too, which I've been tracking with free credit reports on creditkarma.com (and less often Quizzle). A higher number of closed account has surprisingly made a large positive effect on my credit as the Credit Karma reports suggested, which is why I opened accounts. I figure as long as I'm opening accounts to improve my credit I might as well go for the ones with good bonuses.
The Credit Card companies offer the rewards to encourage people to use their cards. The rewards may be about 1% of spend or so in general. By encouraging people to spend more, a significant proportion of those people will fail to pay the card off in full each month and get charged X% interest (not sure what common rates are, but they are pretty steep).
I'd imagine the companies have done their sums, and make much more on interest that they pay out in rewards when averaged across a large number of customers.
I would also suspect (haven't researched it) that reward paying cards will have a higher interest rate than non-reward cards.
Nope. They make the money for the rewards by charging merchants higher fees if you use a rewards card vs a non-rewards card.
My standard merchant fee rate might be 2.4%, but if you use a 'airline miles reward card' with me, I may end up having to pay 2.9% or 3.4% (or more). I can't not take your card - against Visa/MC terms of service - so I'm stuck paying for your 'rewards'.
As a business owner I rack up miles with business expenses. Hosting, services (ups mailbox, ring central, etc), phone, Internet, and paying my offshore team with pay pal earns me 75,000 miles a year.
On the personal side, rewardsnetwork lets me earn up to 5 miles per dollar at participating restaurants. Since my fiancee and I don't cook we earn quite a few miles this way too.
75000 airmiles would be redeemed for 2 or 3 flights in most cases. depending on what flights and when you bought the tickets, this might be a decent savings (assuming you can even redeem them for the dates you need or not). to get that, you're probably spending $40k per year assuming $1=1pt with some bonuses.
3% merchant fees on that $40k is $1200. The cost of a couple flights is probably a few hundred to $1000 or so. Even at regular merchant rates they may still turn a profit, cause most people won't redeem points. But they'll charge a merchant higher fees for the rewards card anyway.
You're already spending $40k - understood. Most people aren't, and are enticed in to spending more than they should to get 'free' stuff. Insane.
I put my school on a 0% credit card -- way cheaper than student loans!
I think most schools are charging fees now, though. There used to be a scam where you could massively overpay you tuition bill on a credit card and then the school would cut you a check for the difference. (Lots of people legitimately end up overpaying because grants or loan dispersements can hit your account at weird times)
The interest on that expense would completely wipe out the benefit of frequent flier miles or cash-back and would stick you with a drastically higher total payment (credit card rate =~ 19%, student loan rate =~ 5%). If you have enough cash to pay off college tuition within the payment period, I stand corrected. Most people don't.
You pay with the card, and then you pay off the card with the student loans. Many colleges don't accept credit cards for tuition, and a local one stopped recently.
Anecdotally, I think at least a few universities have stopped accepting credit cards because of the fees associated with accepting them - the merchant fee on a $30K tuition payment is not trivial. I wouldn't doubt that when offered, most people end up paying with credit cards because of the rewards programs.
That 'stuff' is just normal purchases. He didn't spend any extra then he normally did:
To answer your first question, I didn’t buy ANYTHING outside of what I would normally purchase to get these bonuses. For example, to earn 100,000 British Airways points, I had to spend $2,000 in six months – after prepaying my car insurance for the year, and putting all of my other payments (cable, gym, etc.) on the card for a few months I hit the bonus with ease.
Exactly. My credit union gives me points just for using their bill pay service. So I can get points when I use their CC and then get points when I use their bill pay service to pay on the CC. It even mails cashiers checks to my landlord for my rent payment and gives me points.
A) You generally don't know if something's a rewards card when they're using it (especially over the internet).
B) Do you want to be told - "sorry, I can't accept your BoA airline rewards miles VISA card, please use a different VISA card"? I'm pretty sure Visa/MC TOS prevent that.
> B) Do you want to be told - "sorry, I can't accept your BoA airline rewards miles VISA card, please use a different VISA card"? I'm pretty sure Visa/MC TOS prevent that.
Why would you do that? As far as a vendor is concerned, a visa is a visa is a visa. If you take a look at the card and say you don't want to accept it based on it being some kind of rewards card that's just bizarre nonsense that would definitely keep customers away.
Nope. A "rewards card" CC jacks up the rates I'm charged. It's the difference between paying 4.5% to process a transaction vs 2.2%. I don't particularly like being forced in to paying extra so someone can go on a 'free' airplane trip. It's not free. It costs me money. And it ends up costing everyone even more, because merchants have to add that 'cost of business' in to the price of everything.
Is that only on POS systems? Because I've never noticed that in all the years I've been doing ecommerce. Maybe I'm just not paying close enough attention.
Yes, different cards charge merchants different amounts. It's generally somewhere around 25 cents per transaction plus between 1.5 and 4.5 percent depending on the specific card being used.
I've had credit card payments refused for high value items (e.g. car repairs) in a way that did make me wonder if the vendor was trying to simply get me to use a different card.
I bet they just didn't want to pay the fees. Did they accept other cards?
Refusing AMEX is a big one from many vendors - AMEX fees typically start at 4-5%, and MC/Visa is typically 2-2.5%. On large repair bills of, say, $1500, and extra 2% is another $30+, just for accepting a different piece of plastic.
If you spend 250,000 frequent flyer points on a vacation, it's not free. This is not just because you had to spend money to get those points (which might have been spent on cash back credit cards for example), but because those points have value (almost as a separate currency) that could be spent on other things (and not just flights).
But, he still got a great deal using the OneWorld Awards program and it's definitely a great option for those who have the free time to do this.
I feel it takes so much mental energy to hack rewards cards that it's a net loss. He's obviously bright, I'm sure he could have used his time simply earning enough money to take his dream vacation.
As far as rewards go, amazon's reward card gives a good return without cognitive effort.
This was the best advice I was ever given before taking a job that had me traveling 4500 miles a week.
If I didn't do the challenge, I would have left 50,000 bonus miles and a bunch of upgrade stickers on the table. At the time it was free to do, so there was no downside, but if you're going to fly enough to qualify for platinum or executive platinum anyway the fee for the challenge is well worth it to get the bonus miles and priority boarding that much sooner.
I'm a little taller than average, so being able to prebook exit rows for free even when travelling on the cheapest economy ticket was worth it's weight in gold (or platinum. Ho ho!). I was doing a lot of transatlantic at the time, so it really was a big deal.
Your status must come up when you book ("Oh, you travel with us a lot. We'll just ignore the overweight bag fees today then...") and on the passenger manifest (more than once I had free drinks given to me, or better brands of drinks brought back from First).
Now that I have no status they don't go out of their way to do those things, despite having a ton of miles i'm slowly working through, and a bunch of unusable upgrade stickers. Meh.
The recent flight to Hawaii paid for with some of my miles made up for that though.
I did just that. Earned a lot of mileage traveling internationality, then took a big trip on airline miles. I'm at 30 countries in total now and still have a lot of miles.
Cool scheme. For that amount of travel I feel like he should have collected more miles and gone for the first class award (280,000 airline miles required for the same distance flown).
Sure, it requires twice as many miles, but if you're going to be flying multiple transcontinental flights, first class is nothing to scoff at. The total cash value of that many first class flights is going to be far north of $100k, so in some sense you're also getting more value out of it.
"I’m not kidding when I say that I spent probably more than 24 total hours in the past three weeks having a blast on this thing creating itineraries, checking mileage, and figuring out where the heck I could go without going over the limit."
The "having a blast" part is important. I've built similar trips myself, and playing with all these tools, finding interesting routes etc can be great fun (like discovering a way to get from Kyrgyzstan to Austria via Ethiopia and Jordan at no additional cost). It's a form of hacking that can be just as addictive as any other, and has the added benefit of helping you see lots of the world cheaply!
I can't help but be reminded of "hacking" casino comp systems. Please.
In truth, this trip cost well in excess of $418 due to the other purchases and time tie-ins involved.
I'm all for leveraging advantages, but there's leveraging, and then there's outright "gaming". The former can yield value when you factor in your time & attention, reasonable workflow safety margins, and compliance with spirit of a policy. The latter is merely a mental exercise to optimize a series of transactions around a single parameter, in this case the present dollar cost, to the complete exclusion of externalities.
At least he got some follow-on web traffic for his efforts.
For a time you could buy U.S. savings bonds online with a credit card. So the common trick was:
1) Get a rewards credit card (Citi had at 5% rebate card at the time if you wanted cash, but there were also other rebate cards like frequent flier miles.)
2) Purchase bonds at treasurydirect.gov. (I bonds were a favorite at the time, the fixed rate was over 1%.)
For a time you could buy coins from the US mint and IIRC, they had free shipping. People would buy thousands of dollars worth of coins and then go turn them into the bank and pay off the card while gaining all the points.
He gets most of his points for sign-up bonuses. He doesn't say the exact number, but it looks like he registered for at least four cards in the span of a year. Applying for a lot of credit in a short amount of time is a great way to hurt his credit score! I wish he'd write a follow-up about what happened to his credit after this experiment.
The US fetish with credit scores mystifies me. (I've lived in the US for 15 years.) Especially with the economy in its current state, why would you want credit at the moment?
Renting a house/apartment is basically credit because you are agreeing to pay the total rent over a 12 month term and as such landlords want a credit score.
In hot rental markets like San Francisco a better credit score can win you the application over the next person with a lower score. A poor score can even prevent you from renting even if you have monthly income to cover the rent.
Because credit cards are free if you pay them off. And you get benefits which, my friend, are also free.
- Miles/Cashback.
- Free international travelers insurance.
- Free car insurance.
- Free 1 year warranty on most electronic goods above a maximum 1 year warranty from the manufacturer effectively doubling your warranty.
- Concierge if you have a really good score.
- Discounts on car rental.
- Free access to airport lounges (high credit score + relatively frequent flying).
- Purchase price protection: If you bought an item recently and someone else is selling it for cheaper, get your invoice + ad together and get a refund for the difference (up to a limit).
(not an exhaustive list)
There is no need to be in debt to have a good credit score. Also, the higher your credit score the less interest you have to pay if you ever decide to get into debt (house/student/car).
TL;DR
Having credit available doesn't mean you have to use it and it comes with a lot of free perks.
I don't think the kind of hit you'd take from this kind of credit card game would have sufficient impact on your credit score to diminish those benefits.
If you do need to borrow money, having a good credit score allows you to get better interest on loans in the U.S.
I think the question you're really wondering about, though, is why someone would borrow a significant amount of money given the state of the economy. I don't have good answers to that question.
If you have a relatively stable income, when the economy is at its lowest ebb is the best time to borrow money and invest. You'll have less competition for the money and less competition for the investments you buy. Finally, the stated policy of the Federal reserve is to inflate the currency. This damages savers and rewards borrowers. The smart thing to do right now is to borrow and invest in things that provide a real return over the pitifully low interest rate.
If I have something that is:
a) currently cheap
b) likely to go down in value
c) exchangeable for things of real, lasting value
and I was prepared to let you borrow it from me, would you?
Interest rates are low.
Inflation is high (don't believe the govt statistics, look at your cost of living increases)
Things of real value are currently low
Your two risk factors are:
1) loss of ability to service debt
2) loss of value for the thing you exchange the debt for
As long as the thing you buy covers the interest rate and/or you have reasonably assured income (nothing is certain) then the loss in value shouldn't matter, unless we're talking speculation in something. But if you can buy into a real company earning over it's cost of capital, or real estate that is providing income over it's expenses, then you should, by all rights, be home and hosed.
Sure, it involves risk. But so does the zero case of sitting still and hoping things will get better.
Sounds like fun but the guy must shop to get to the following points in 11 months:
130,000 American Airline miles
105,000 British Airways Miles
40,000 Starwood Preferred Guest points
25,000 American Express points
I'm only guessing at the spend required for that many points but surely that is $200k - $300k in spend. Surely this blog post isn't accessible to everyone.
Having said that, I admire his sense of adventure to just pull-up stops from his life and travel the world for 9 months. It is something I really need to get around to myself.
Not if you play the system, particuarly 'sign-up bonuses' designed to lure new customers (who will then not be bothered to switch). The OP uses an example - AA Citi Cards currently give you 75,000 miles if you spend $4,000 in 6 months.
Using that as a base measurement (even though I'm now probably stretching the math too far in the other direction) he could rack up 300,000 miles spending $16,000. Very easy, especially if you also have some business expenses.
its not as difficult as you would think, its more a matter of effort and ability. i readily recognize i could have almost double the miles i currently do if i put more energy into it.
thats not exactly what i mean. for example, last month, i could've earned about 5000 more points by eating at different restaurants, instead of the ones i actually went to. would've required a bit of planning and a bit of effort. and eating food that i might not have particularly wanted to eat at that point in time, but the time/effort spent doing so wouldn't have amounted to much in the way of freelancing or volunteering.
point is, min/maxing is possible with rewards points, and people do it.
"I'm sorry we can't go to that place for our date... we have to go to this chain restaurant, because it gives me more rewards points..." For some reason, I don't see that going over well (unless she's a travel nerd as well, I suppose)
Every time you apply for a new card, you lose a few points; it falls off after a couple years (2 or 3, I forget).
There are people who make a game of applying for cards as fast as their credit rating will allow (I think 700 is roughly the floor, below which you stop applying).
If the company tries to charge an annual fee, you call them up, try to negotiate out of it, and if they won't, you cancel the card.
Having too many cards isn't that bad of a thing (as long as they are with different issuers). It can be a good thing, because part of your credit score is the amount of credit you are using out of your total credit.
Like everything else, you game your credit score... there is no real value to having it be perfect high, you just need "good", so you get approved.
Also, the miles that are best come from getting new CCs... not from spending. There is usually a minimum spend to get the initial bonus... but after you do that, you can move on to another card, and get far more than $1/mile.
For instance I got a card that gave me 75k miles for $1500 in spending.
yes this is a whole another argument that as a geek I get frustrated about. Not flying on a given trip doesn't reduce the amount of CO2 because the plane will fly anyway and either the weight reduction difference will be negligible in terms of CO2 or they'll just take more freight.
Then the counter argument to that is that if enough people don't fly the airplane won't fly at all... But that would just make it commercially infeasible to operate many routes and in turn whole airlines and then we just have a complete deterioration of the airline industry.
I'm surprised that this got downvoted, and you're both wrong; your argument is equivalent to saying that there's no point voting as you're only one vote in a big population.
Do people really care this little about the environment?
so yes, I do care about the environment. Air travel is something that concerns me, but of all the contributors to green-house gasses it is one of the ones that I see hardest to change/decrease. Case in point - I come from London but live in San Francisco and there is no other (reasonable) way to travel between the two cities other than by air.
I don't get how my argument is like voting. If we all vote together then something positive happens (change). If we all 'vote' by not flying then the airline industry collapses - which is not positive. If I've miss-understood your example + argument please elaborate.
The solution here isn't black & white unlike in voting (you vote or you dont vote). Sure you can choose to fly or not fly, that's a "solution" but the better solution is to create more efficient airplanes that emit less CO2.
As a sidenote: traveling and seeing the world is what made me start caring about the environment. When you go snorkeling in Hawaii or climb Machu Picchu, you can't help but care about the environment.
every convenience of modern life impacts the environment. the solution is not to give them all up, especially something as important as air travel (whether it's for business or pleasure).
I guess being on the other side of the table - a merchant - I resent the whole 'rewards' racket. A) I end up getting charged more as a merchant, and I can't not accept your card. B) It's encouraged a culture of chasing after rewards that often aren't really something you need or end up being hard to use for most people (airline miles).
Yes, there are a few people who can really 'make out' (like this guy) but in the end this is mostly just another way for banks to make extra profits off people's greed ('something for nothing').
"If I were to pay for this adventure with cash and book individual flights, it would cost almost $6,000"
I'm guessing there was a lot more than $6k spent on 'stuff' to get this.