Credit card companies are competing harder than ever for our credit card spend and balances. We’ve all seen the 0% promotional rates, 25,000 point sign-up bonuses, and annual fee waivers from time to time.
Do it right, and there’s tons of hidden value in ambitious credit card offerings. Do it wrong, and you could pay the price for a long time to come. The banks are counting on you making mistakes. In fact, their profit depends on it. Here are a few tricks that will allow you to milk credit card offers for all they’re worth and drive your bank absolutely crazy.
1. Churn, Baby, Churn!
Credit card issuers try to lure customers to new credit cards with big sign-up bonuses. In return for giving you a hefty welcome bonus, which can often times be worth $300 or more, they’re counting on you using the card and spending big for years to come.
Some cardholders have gotten wise and bounce from offer to offer, collecting the bonus points, using the points, then closing the account. Rinse wash repeat from card to card, issuer to issuer. This is a great strategy assuming you’re mindful of a few roadblocks banks have put in the way to prevent the behaviour.
First, some banks make you spend a minimum amount within a given time frame to be eligible to receive the welcome bonus. If a bank makes you spend $1,500 within the first three months to receive the bonus, make sure you can do it by shifting your card spend, without having to spend any more than you otherwise would have spent anyways.
Second, be mindful of the annual fee. If you’re getting a credit card with a $120 annual fee, and it’s only giving $150 in welcome bonus value, the $30 gain may not be worth the trouble. Wait until you find an annual fee waiver offer, or the welcome bonus is significantly greater than the annual fee. Some banks even waive the annual fee if you keep a minimum amount of money in your checking or savings account with them – see if you qualify.
Third, there is a limit to the number of credit cards you can apply for and cancel. Each time you do so, it negatively impacts your credit score for a short period of time. We recommend spreading out your applications (every 90 days or so) to avoid getting declined for “too many recent inquiries.” You don’t necessarily have to cancel your credit card, but you’ll want to do so if the card starts charging an annual fee in the second year, and you have no intention of using it at that point. Stay informed and start familiarizing yourself with which rewards credit cards you have an interest and when those cards typically offer their best deals. Compare credit card offers routinely to get the best deals available.
2. Pre-Authorized Debit for Your Credit Card
Did you know that even if you pay the credit card minimum payment you won’t be eligible for the grace period if you don’t your balnce in full? You’re not alone if you didn’t. Did you know that if you’re late for a credit card payment, you’ll not only lose your promotional rate, but you’ll be charged interest at the regular rate for the entire time period since you made your initial purchase?
If you want to take away any chance that you’ll ever pay interest on your credit card ever again, there’s a simple rule to follow and it’s full proof. Follow the bank beating Golden Rule: use pre-authorized debits to pay your credit card balance in full on your payment due date. You’ll never be late, carry a balance or be charged interest.
Banks dislike pre-authroized payments on credit cards so much, some still require you to mail or fax the application in, trying to make it as cumbersome as possible.
3. Rate Surfing
If you’re not able to pay down your credit card balance we recommend one of three interest rate reducing strategies.
First, see if you can find a 0% balance transfer offer for 12 months. This will give you time to start paying down your balance without paying any interest.
Second, see if you can pay off your credit card balance with a cheaper home equity line of credit (HELOC). Many heloc’s charge interest rates comparable to your mortgage rate, which are at historical lows. Paying 2.5%-4% on your credit card will be a lot better than 19.99%. We put it as the second best option after balance transfers, because nothing beats a 0% offer and because we prefer unsecured debt, if rates are equivalent.
Lastly, if you don’t have a mortgage, see if you can get a low interest rate credit card at 9.99% to 11.99%. While still not cheap credit, it’s a hell of a lot better than 19.99%! Sometimes, if you call and ask your bank for a lower rate, they’ll give you one on your existing card, avoiding the hassle of having to get yet another card.
All in all, there are a number of proven bank beating strategies to choose from to get more bang for your buck. Just stay disciplined, and always remember the Golden Rule: use pre-authorized debit to pay your credit card balance in full every month.