I treated some F*cker to McDonalds and Rite-aid.

[AmishSamurai]

Happened with my debit once. Some bum decided to have me treat them to nice tickets to a Clemson game. They caught on and the charges were reversed and my card number was changed.

[ninjainspandex]

How to fix this problem? Don't use a credit card. Happy ending.

i prefer to not use money at all i live in a mud hut and hunt my food with a sharp stick. I get my wifi from a nearby starbucks.

[Ivo]

Visa/Amex make money in two ways. One is that they get a percentage (1-3%) of every purchase made with the card. Secondly, they collect interest rate if you carry a balance.

With the Chase Sapphire card, I got 50K points. But there's an annual fee of $50. I also had to make $3K worth of purchases in 3 months. That's pretty easy when you use the card for everything (gas, groceries, stuff). So when I got the 50K points, I converted it to $625 worth of Amazon gift cards. So my net was something like $575 ($625 - $50).

I was already not counting the interest rate because those are too easy to avoid. Similarly the annual fee is simple to deduct from whatever amount you get from it.

The less obvious point is spotting where the "free money" is coming from.
You are not really getting the money from the bank, you are getting the money by "forcing" the retailer / whatever to give a discount which is passed on to the bank (and part of it to you though the offer) - note I'm not passing a value judgement on doing this, just stating it (I think most of the retailers tend to have pretty good margins and probably have raised the prices due to this a long time ago, so they can take the hit). The retailers are free to not accept credit card payments, although they know full well they are missing out on customers that way etc. In a way the credit card companies are forcing the retailers to increase the prices (assuming the retailers will do so to maintain the same margins), those who can get these efforts like you and MrPopo attenuate the effect of said raised prices, and those who can't just suck it up.

Beyond that, they don't give you money, but rather some almost-money thing (in this case Amazon gift cards) that "forces" you to consume further. This is also usual in this sort of thing because they have special deals and so on.

I'm not saying you can't make it work for you, and congrats for doing so, but in a 100% transparent analysis these considerations should be pointed out. As I don't usually think about these things I was genuinely interested in spotting where the "free money" was coming from, so thank you for your post.
I would do the same too if I had similar offers over here - for some extra 400-500 bucks in Amazon stuff I would.

I really don't think we generally get such deals in Europe. I think the borderline best we get here are cards attached to airline companies and you get extra miles - frankly for those it is not worth the trouble for me.
Another thing is I'm pretty sure I don't spend 1k a month, and that would be even if I could pay my rent and utilities with a credit card. So I probably would miss out on this type of deal anyway. Do you only have to spend 3k in 3 months once a year, or do you have to do that every 3 months?
If it is 3k every 3 months, that means you spent at least 12000 per year with the card and even if they are only getting 1% of that they only "gave" you less than half. With 3% it looks like a really great deal for the credit company I would say.

Ivo.

[gtmtnbiker]

As I don't usually think about these things I was genuinely interested in spotting where the "free money" was coming from, so thank you for your post.
I would do the same too if I had similar offers over here - for some extra 400-500 bucks in Amazon stuff I would.

I really don't think we generally get such deals in Europe. I think the borderline best we get here are cards attached to airline companies and you get extra miles - frankly for those it is not worth the trouble for me.
Another thing is I'm pretty sure I don't spend 1k a month, and that would be even if I could pay my rent and utilities with a credit card. So I probably would miss out on this type of deal anyway. Do you only have to spend 3k in 3 months once a year, or do you have to do that every 3 months?

Those bonus offers where you get money/miles for obtaining the credit card are one-time. So in the case of the Sapphire card, I had to spend $3K in 3 months to get the one-time bonus. From then on, there are no requirements other than the usual card rewards (e.g, 1% of what you spend as points, etc).

Here's an example of a Chase Freedom Card offer Note that the signup bonus is only $100. When I did it, it was $300 and according to slickdeals.net, it was as high as $350. This money comes from the Credit Card marketing budget. That is, the company is trying to get more new customers so they can increase their revenues. To get these cards, you generally have to have pretty good credit.

So who's paying for this? All of us in the form of higher retail prices. This will continue unless most retailers offer a cash discount for purchases. So if I'm not going to get any sort of discount for using cash for a purchase, I might as well use the credit card so I can get rewards.

Around here, most gas stations offer a cash discount of $.05 or $.10 per gallon. For those companies, I use my PenFed credit card which gives me 5% cash back on gas/grocery purchases. So at $4/gallon, I get $.20 cash back for using my PenFed credit card. So who pays for this? It comes from PenFed's profits which they get from interest rates and the merchant percentage charge.

There have been people who have gotten their card canceled because they were abusing the rewards. For instance, people using their PenFed card for fleet fuel purchases for their company.

[Ivo]

So who's paying for this? All of us in the form of higher retail prices. This will continue unless most retailers offer a cash discount for purchases. So if I'm not going to get any sort of discount for using cash for a purchase, I might as well use the credit card so I can get rewards.

Entirely agreed here, that is what I meant. And indeed not all people will be able to access those discounts, but those who can should do it while they can.

I think I might be able to time things properly to spend 3k paid by credit card in 3 months, but it would still be a bit tricky.

There have been people who have gotten their card canceled because they were abusing the rewards. For instance, people using their PenFed card for fleet fuel purchases for their company.

I presume the card T&C explicitly forbid this type of thing, so then it becomes a game of abusing it as much as possible without them noticing, which I'm not entirely fond of. They should revise the rules so that it either caps at a total value or something like that, instead of a wishy-washy rule that comes down to spotting if someone is "abusing" it...

EDIT: it actually is capped at 1500 spent per quarter. What is their problem with people abusing it then?

Ivo.

[MrPopo]

I was already not counting the interest rate because those are too easy to avoid.

And yet credit card debt is a huge problem among a certain segment of the populace.

Beyond that, they don't give you money, but rather some almost-money thing (in this case Amazon gift cards) that "forces" you to consume further. This is also usual in this sort of thing because they have special deals and so on.

In the case of the Amazon card, you can convert 100 points into $1 of something, whether it is Amazon gift cards, gas station gift cards, a $400 plane ticket, credit on your statement, or raw cash. My other card which does rewards is similar. Both have a cash option at the same rate as gift card rewards.

So who's paying for this? All of us in the form of higher retail prices. This will continue unless most retailers offer a cash discount for purchases. So if I'm not going to get any sort of discount for using cash for a purchase, I might as well use the credit card so I can get rewards.

But again, regularly using a credit card responsibly is good for your financial health. And I think less people would be up for cash discounts than you think. Once you get used to a credit card lifestyle it becomes a real hassel to deal with cash. Not necessarily the individual transaction, but the requirement of regular resupply.

[Ivo]

And yet credit card debt is a huge problem among a certain segment of the populace.

That is a bit different than what I'm talking about here. I'm just discussing paying for things that you have cash for but using the credit card instead. Most people that get into credit card debt problems are buying stuff on loans.
I think very few actually happen to have the cash but are careless and then pay so much more they get into debt and can't recover (but maybe I'm wrong).

In the case of the Amazon card, you can convert 100 points into $1 of something, whether it is Amazon gift cards, gas station gift cards, a $400 plane ticket, credit on your statement, or raw cash. My other card which does rewards is similar. Both have a cash option at the same rate as gift card rewards.

I'm surprised, but fair enough.

But again, regularly using a credit card responsibly is good for your financial health.

I know this is true, but I really think it is a bit bullshit the way that works. Doing this proves no more financial responsibility than not using a credit card at all. Never having a debt does not mean you are irresponsible and it probably should be considered superior than having many small, very temporary debts that never pay interest because that are always repaid within 20 days. That is just gaming the system to some extent. I'm not blaming the gamers but the rules. Of course, the credit agencies (which are the ones that give out your credit rating and make the rules) have a vested interest in people using the cards (responsibly or not), as even when they don't gain interest they charge the retailers (as we have been discussing)... So it is not surprising it works that way.

And I think less people would be up for cash discounts than you think. Once you get used to a credit card lifestyle it becomes a real hassel to deal with cash. Not necessarily the individual transaction, but the requirement of regular resupply.

This applies for any type of card (namely debit cards) and electronic payment, not just credit cards.

Ivo.

[MrPopo]

But again, regularly using a credit card responsibly is good for your financial health.

I know this is true, but I really think it is a bit bullshit the way that works. Doing this proves no more financial responsibility than not using a credit card at all. Never having a debt does not mean you are irresponsible and it probably should be considered superior than having many small, very temporary debts that never pay interest because that are always repaid within 20 days. That is just gaming the system to some extent. I'm not blaming the gamers but the rules. Of course, the credit agencies (which are the ones that give out your credit rating and make the rules) have a vested interest in people using the cards (responsibly or not), as even when they don't gain interest they charge the retailers (as we have been discussing)... So it is not surprising it works that way.

Well, if you never get involved in the credit system then companies have no idea if you'll be able to pay off the loan you're taking out. If you're paying back the money every month it demonstrates that you can responsibly manage your finances. Sure, you can responsibly manage your finances only dealing in cash, but there's no paper trail that demonstrates that.

[Ivo]

Well, if you never get involved in the credit system then companies have no idea if you'll be able to pay off the loan you're taking out. If you're paying back the money every month it demonstrates that you can responsibly manage your finances. Sure, you can responsibly manage your finances only dealing in cash, but there's no paper trail that demonstrates that.

It is true that with cash there is no paper trail, I'm not arguing that. I'm just saying that "borrowing and paying back" an amount you have money for doesn't really demonstrate that much either - even if you do it several times. It doesn't prove you can handle a significant debt buying a house.

They should really just focus more at the person's salary, the amount of the "downpayment" and so on and do a proper analysis, almost ignoring the credit rating unless it is negative or there is actual evidence of being able to handle that type of debt (e.g. already bought a car on credit and paid it off, that demonstrates in principle can handle a loan for a house etc.)

That said, some people really ARE unable to have a credit card on their hands without overspending, and similarly some people would be irresponsible enough to try to game the system and forget to pay back in time, getting "fined" with interest rates for their lack of attention.

Ivo.

[shmuk]

I'm fortunate enough not have experienced this myself, but I remember when I first bought some stuff from eBay abroad, I got a call from paypal (or the bank) regarding whether or not I actually authorised this payment. That's as close as I can get to the situation.