Stacked Points

In my last article, I touted the benefits of using a rewards card on virtually everything you can, making two key points:

• Retailers build the cost of accepting credit cards into the prices of their goods and services so you should use a rewards card on every purchase possible because, in essence, you’re getting a rebate by way of points earned.

• The average reward program returns a value of about 1 penny per point.

Well, folks, I’ve been doing a bit more pondering on the subject and concluded that, in many instances, it’s possible to get more than a penny back (sometimes a lot more) for every dollar you spend. So, consider this “Part Deux” on earning points.

You see, many companies offer rewards associated with either becoming a club member or frequent user of their products or services, regardless of how you pay for your purchases (cash, debit, check, credit card). Some of my favorites are in the travel industry – airlines, hotels, and parking. Other examples include sandwich shops (buy 7, get 1 free), car washes and even dry cleaners. Used with a rewards card, you can maximize your earnings on each purchase by stacking your points.

Note: I don’t include those supermarket “club” cards because those are a ridiculous scam, since every supermarket offers them and gives you a discount right then and there for having a card – i.e. there is no ‘loyalty factor’ allowing you to earn free groceries. Anyone who doesn’t use these cards and pays the inflated price instead of signing up for/using the free card right then and there at the register is just a plain idiot.

Here’s an example of a high-value point-stacking exercise, and the math that supports it.

Since I travel quite a bit, I’m always driving down to the airport. Instead of using the parking lot at the airport, I have professed my loyalty to a national parking garage chain that offers their own loyalty/points program. The way it works is that I earn 5 points for $1 spent, and then those points are redeemable for free parking at a later date. These points are not worth $0.01 each. They’re worth more. Here’s how it works:

1 week of parking costs about $140 at this lot (~$20/day, valet)

1 week of parking using the company's rewards points costs roughly 4,000 points.

I then arrive at the value per point by the following formula: $140/4,000 = $0.035

So, on this program, I earn $0.035 back on every dollar spent with this company, just because I use their service. I use the points I’ve earned at the parking lot to get my free parking when I take my family on vacation, like on my upcoming trip to Hawaii. Of course, I am using my rewards credit card for every dollar I spend with them, earning me another penny in value back (and since I redeem my card points exclusively for hotel stays, I technically get more than 1 cent per point). In essence, every time I shop with this particular parking lot, I’m getting a total of over $0.05 back for every dollar I spend.

Here’s one more example with an airline. Pick your favorite, as most every one works the same way.

Buy a ticket from New York to LA = $400. Distance traveled is 2,500 miles.

Since most airlines start redemption at 25,000 miles, that would be 10 cross-country trips, costing a total of $4,000 to get to the 25,000 miles. If you then redeem your points for another cross-country free round-trip ticket, you’re redeeming 25,000 miles for a value of $400. That translates to $0.016 per point ($400/25,000).

Now, purchase your tickets with the airline’s rewards card to sweeten the deal…

Assume your airlines card pays you 2 points for every dollar you spend for purchasing your tickets. That’s another 1,000 points (or miles) for every $400 ticket you buy. After approximately 7 trips, you’ll have earned enough to purchase that $400 cross country ticket on points. That means you’ve only spent $2,800 instead of $4,000 to earn your 25,000 miles (and that assumes you bought nothing other than airline tickets with that card)!

You don’t have to be as anal as me in dissecting every points program to death (although it can be great fun in the wee hours of the morning), but the “point” is that several companies have great loyalty programs. And if you stack your points between programs, you’ll make out like a veritable bandit. If you’re a frequent user of a particular product or service, make sure you search for a company that offers you something back for doing business with them.

You get the point.

CardTuna

Cash is Dead

The other day, I heard a commercial for the upcoming switch to 100% digital TV in February, 2009. Leading up to the pitch in the advertisement, the voiceover said “Everything’s better in digital, like your music, your pictures, and now even your TV". I found it rather odd that the ad didn’t mention anything about money.

You often hear proponents of the physical greenback making thoughtless statements like “You shouldn’t use credit cards – they’re too dangerous. If you don’t have the cash for it, don’t buy it”. Well, granny, I respectfully disagree.

The electronic currency movement will inevitably give cash its place in the history books and museums, next to the other exhibits of extinction. Aside from the obsessive-compulsive reasons to embrace electronic currency such as not having to handle a bill that 4,563 nose pickers, 67,858 uh “self pleasurers”, and 23,067 restroom non-hand-washers have previously had their hands on, there’s a better reason to ditch the coin, bills and checkbook and fully adopt the world of digital dollars.

The reason is simple – Rewards.

In my last article, I explained that the value of a point was roughly one cent – an almost universal standard across rewards programs. Yes, you can get a better value in many cases and, on the flip side, you can also get short-changed if you don’t choose your credit card account and rewards program wisely. Most rewards programs will give you a point per dollar on everything you spend with your card, and some extra points per dollar for “on-spend” purchases – that is, the brand that markets your card – such as the United Mileage Plus Chase Visa, which offers two points per dollar spent on eligible United Airlines purchases.

So, if credit card companies want to give you money back (again, roughly 1%) for everything you buy using their card product, why wouldn’t you do it? Regardless of how you pay for your purchases, be it cash, debit card or credit card, retailers price in the cost of accepting credit cards into everything they sell. And for a retailer, it ain’t cheap. This cost is called the interchange fee and, depending on the card association (VISA, MasterCard, Discover, American Express), that fee can be roughly anywhere between 2%-4% of the amount charged. Here’s how that fee income gets distributed, using the United Chase VISA I mentioned above, assuming a 2% fee as an example on a $100 purchase at Wal-Mart (disclaimer – The numbers below are for illustrative purposes only. I don’t claim to know anything about the specifics of the VISA/Chase/United contract):

1) VISA collects the $2 and gives the remaining $98 to Wal-Mart.

2) VISA gives the issuing bank (i.e. Chase) their cut. All deals are different, depending on the bank and the complexity/value of the rewards program. Let’s assume Chase collects $1.40 of the $2 that VISA collected.

3) Chase uses the $1.40 to fund the loyalty program – a penny per point – so $1.00 on a $100 purchase. Now, the issuing banks do factor in breakage – a bet that not all points will be redeemed, which means the banks actually spend less than a penny per point. (Breakage is not necessarily a good thing for a bank, as it’s an indication that their loyalty program isn’t resonating with their customers). Chase may pocket the breakage, or their contract with United may require them to share the breakage or pass it all back to United.

4) Out of the $0.40 that remains, a portion – let’s say $0.30 - is passed onto United for use of their brand.

5) The remaining $0.10 is kept by Chase and most likely gets used to fund the marketing of the loyalty program.

There you have it – that’s how roughly 2% of every dollar you spend gets filtered through the system. Every one of us is paying for the rewards programs that exist no matter how you pay for your products or services, whether it’s a stinkin’ pack of gum or a $2,000 replacement transmission.

So, ditch the paper and embrace the plastic. There are a few exceptions, like those contractors who want to charge you a 3% fee for using your credit card, or Uncle Sam who allows you to pay your tax bill on a credit card, again for a 3% fee. Using your card on these types of transactions makes no sense because you’d be spending 3% extra to get your 1% in rewards, so don’t do it. Also, I’d be remiss if I didn’t make any differentiation between debits and credit cards. Debit cards, while practical, do not generally offer rewards, so don’t use them.

Use a rewards credit card for everything you can – even some of your monthly bills can now be charged to a card. Then, at the end of the month, pay off your bill with all of the cash you didn’t spend. You’ll be getting the most for your money, and you’ll be keeping your hands very clean!

Cheers,

CardTuna

Vacation in Hawaii for four, just $20. Not possible you say?

I want to tell you about my recent rewards success story. But first, let me explain something. There are a few schools of thought around credit card rewards programs, and here they are:

1) It takes too long to rack up the points and are too much trouble

2) The points are good to have when one wants to get something that one might not otherwise purchase on one’s own

3) Points are another form of currency, to be spent as wisely as any other form of currency

Most rewards cardholders who spend a few hundred bucks a month on their cards likely fall into the first category. That’s because redemptions typically don’t begin until 2,500 points (for which one can usually just get a measly gift card). At a few hundred points a month, it can take years to earn a simple reward.

My pal GridMaster subscribes to the second point of view – racks his points up to buy that splurge item he wouldn’t otherwise consider (see “Watch Your Point Values When You Redeem” below).

But me – I subscribe to the third point of view and look at my points balance as if it were cash, and I weigh my redemption options with the same level of care that I choose to spend my hard-earned coin.

As a result, I recently struck the “deal of a century”. I redeemed 270,000 points from my hotel rewards program for a full week at a category 7 (i.e. top notch) hotel and three tickets (non-stop) to Hawaii.

My rewards program allowed me to take 120,000 points (included in the 270,000 points) and deposit it into the airline frequent flyer program of my choice (this is not typical - usually 120,000 airline miles would cost close to 250,000 miles alone, but my rewards program offered a great hotel/air combo deal). So, I chose the airline account that had a 30,000 mile balance – that gave me 150,000 points – more than enough for 4 round-trip tickets – all I had to pay was $5 a pop for my online booking fee. As a result, I’ve got a full week in Hawaii with airfare for just $20!

I figured this was the best value I could get for my points – here’s how it breaks down:

7 nights at the JW Marriott in Oahu – normal room rate = $440/night including tax. Total value = $3,080. Point cost = 150,000. $ value per point = $0.0205

3 round trip tickets (from points) = $480/ticket, $1,440 total value. Point cost = 120,000. $ value per point = $0.012. I “paid” for one of my tickets from my existing miles account balance.

Total trip value (not including fourth ticket) = $4,520. Total points “spent” = 270,000. Total value per point = $0.0167.

Sure, I could have saved 120,000 points and used them for a future vacation at a higher cash value, but I determined it was better to spend the points now, keep the $1,440 I would have spent on airfare and use it when I get to Hawaii for meals and entertainment.

Consider this – most points programs approximate the value of a point at around $0.01. So, when you “earn” one point per dollar, you’re really getting a rebate of about $0.01.

In reality, it’s probably a little less on average across all points programs. So, when you go to “spend” your points, you can maximize your value if you get more than penny per point value. Or, you can redeem for merchandise, cash back or something else for a value under a penny per point. In the case of GridMaster, he got a $200 surround system for 36,000 points. That’s a value of $0.00556. Not a great exchange, but like he said, he got something he wanted but wouldn’t buy on his own. GridMaster did say he prefers to exchange for cold hard cash, so I’m sure that’s one of his card’s better benefits – hopefully he’s getting a minimum of a 1-to-1 exchange (100 points = $1.00).

In my case, as I mentioned before, I advocate the “combo” programs like the hotels and airlines. They’re a great way to rack up points that much faster. Since I travel frequently, I rack up points at a great clip just by staying at the same hotel chain over and over again. Then, I got their credit card, which earns me extra points with each stay (15 times what I would get with another card), plus the standard 1 point per $ on everything else. The points I earn on my credit card spend get deposited into my hotel loyalty program. So, it took me about 8 months to rack up enough points to turn into a week in Hawaii, airfare included. Not too shabby.

In the end, it boils down to your lifestyle and your appetite for spending. If you’re not a big card spender, don’t take too much time to worry about it because it will take years for you to rack up anything of value. Concentrate instead on the card’s other features such as rate and terms. However, if you are in it for the points – do your homework and squeeze the most out of your rewards, then turn them into something you really want. After all, it’s your money!

Sick in West Texas!

The right card made all the difference!  I was going to visit relatives in Midland, Tx and hadn't booked a hotel because there is always something open.  On the plane I began to feel a cold coming on.  By the time I had landed and Picked up my rental car I felt lousy.  I was driving pst the 3 usual "Motels" and wasn't very excited to stay at a place where I'd have to pull up to my room in the car.  I wanted to be pampered a bit by then.  I stopped in and found that since a rodeo was in town their rates had gone up.  It was going to be $139 a night.  For a Motel.  I got on the phone and called the Midland Hilton and they said that it would be $159 a night.  So ... I took that.  When I came to check in they parked my car, helped me with my bags, and took me to the check in desk.  The desk clerk asked what card and I asked do you have a discount.  She said "YES!" If you have a Chase Visa we have a Discount.  I pulled out my Card and got the Room for $139 a night.  amstillThe same as the "No-tell Motel".  Made my day and made me feel a lot more comfortable.  I'm still sick now and on my way home, but I'm so glad I had a good stay at the Hilton.  I was able to use the Steam room at the SPA, got excellent Room service, and the concierge sent a quart of OJ, Cold Medecine and a couple extra tooth brushes.

It pays to ask! and this time it wasn't just about the $$!

Late payments will imprison or impose capital punishment on your rewards

You already know all the good reasons to pay your credit card bills on time, like maintaining or improving your credit score, avoiding ridiculous rate hikes and late fees, not to mention steering clear of unwanted notices and embarrassing phone calls from collection agencies. But there’s another reason you want to pay your bill on time, and that’s the access to your rewards you’ve earned.

Typically, credit card companies will not only restrict use of your card when your account is in past-due status (which prevents you from earning rewards points, let alone access to your credit line). In addition, your issuer will likely prevent you from redeeming the rewards you’ve already earned!

This ruling is often revealed in your card’s terms and conditions or program disclosures with language like the following examples:

Bank of America’s Worldpoints language: “To participate in the Program, you must (a) maintain a Card that is open and has charging privileges, and (b) be an individual (no corporations, partnerships, or other entities)”

Capital One’s language: “Your account must be open and in good standing in order to redeem, which means it isn't past due, overlimit, fraudulent, restricted, part of a consumer credit counseling program or in a bankruptcy settlement”

Citibank’s language: “To be eligible to earn and redeem [rewards], your [card type] account must be open and current and must not be in default. Citibank may revise or terminate the [card type] [Reward] Program at any time with 30 days prior written notice”

Even though these are your rewards that you’ve rightfully earned over months and years of using their product and paying your bill on time, issuers will invariably lock-up 100% of your rewards bank while your account is in past due status.

Here’s another sneaky catch to watch out for: Some card companies, like Capital One, will even revoke the points you earned in the billing cycle where you made a late payment! Their terms and conditions language is: “If a late fee is charged to your account, you will lose any miles applied to your rewards balance during the billing cycle containing the fee”. So, say you have a big charge like a $2,000 car repair that you throw on your card. Then you pay late that month – all of the points you earned on that charge, and all other charges in the month – they take away from you!

The moral of the story is, if you’re racking up points at a good clip or you’re planning to cash-in your rewards any time soon, make sure you keep your account in good standing (you should be doing this anyway)!

Note that there ARE a few exceptions to this rule. For programs like airline mile and hotel credit cards whereby points accumulated on a monthly basis are subsequently deposited into your airline or hotel loyalty program account, you will be able to access these rewards because they no longer reside with your credit card company.

Unfortunately, and by design, the credit card companies’ Terms & Conditions legal disclosures are less interesting than watching paint dry or grass grow. The reason the language is usually printed in gray 4 point type and includes paragraphs with no less than scores of lines bunched together is because they don’t really want you to read it, but the law says they have to provide those rules to you when you apply for a card.

To understand the various rules of your different credit cards or the cards you’ll apply for in the future, you need to familiarize yourself with this very important language. Hopefully someday, for everyone’s sake, we’ll all have a resource that can provide the “Cliff’s notes” versions in simple, plain English!

Until then, consider your T&C’s a great cure for insomnia.

CardTuna

More on your FREE annual credit report

Folks,

Your new resource for all things credit, a.k.a. this blog, is way ahead of the curve. Yesterday, this article on free credit reports ran on msn.com, a full nine days later than we ran our post "It's time for your annual checkup".

That said, the msn article has some additional information that you may find useful, so be sure to check it out. And, stay tuned to Card Fish for more insightful posts throughout the year.

Cheers,

CardTuna

Papers please!

Watch those cross-border fees when using MasterCard in 2008.  MasterCard, feeling pressure to continually grow earnings now that it's publicly-held, has increased cross-border transaction fees from 20 to 40 basis points as of January 1st.

This means that your most recent fees update from your bank will show an ability for them to charge more for the "foreign fee" (for transactions outside the U.S.A.) this year and forward.

What does this mean to you if you travel internationally?  Check your credit card T&Cs before you go overseas and find the cards with the lowest "foreign fee."  Consider using travelers checks, at least in countries where it's pretty safe.  

And remember when you're visiting the Great White North that those bar tabs in Toronto are most definitely "foreign" to your bank and MasterCard.

Call your credit card company collect for faster service?

There's an interesting idea from the good folks at the Consumerist yesterday.  They've suggested that, instead of using the 800 number on the back of your card, call them collect via the International number.   The theory is that international collect calls cost the bank a lot more, so they prioritize the calls to avoid keeping you on hold for too long.

The problem with this is that the incremental costs associated with international collect calls are relatively inconsequential in relation to the sum total of a bank's telecom expenses

If it works to get you through faster, billiant!  But can anybody confirm that this really works?

Watch Your Point Values When You Redeem

Do you have a rewards points program with your credit card, maybe something like WorldPoints?

Well, here's a couple of hints to help you burn off all those points you accumulated while burning up your credit lines.

1. Check your points online periodically.  Check your paper statement against the point totals online.  You want to make sure you've been credited properly for all the points you've earned.  You also want to make sure you don't have any points that are going to expire shortly--it'd be a shame to let all that hard work spending to earn the points go to waste!
2. Check the rewards periodically.  The assortment and point totals necessary to redeem for a certain gift might change from time to time.  You might suddenly see a new reward show up, perhaps something you've been considering buying with cash, that you may want to jump on.  You might also see a "good deal" for the points appear.
3. Consider your points from a POV of personal value.  Let's face it, the redemption prices of the products you have access to are going to be lousy.  (After all, the credit card companies have to minimize the costs associated with the points programs!)  So don't worry too much about what's the best dollar value "deal."  Rather, look for items that provide you with a surprise or delight.  Something that feels like a splurge or luxury, yet has a high level of utility to you.

I recently decided to cash in about 36,000 points from BofA's WorldPoints program, as I'd stopped using the card and figured I'd better use the points before I forgot about them.  I found a great "surprise and delight" product on the site in the form of a Phillips surround sound system with DVD player.  It probably doesn't have a huge price tag associated with it.  But it actually works just fine for my bedroom TV, was something that I've avoided paying $200 for over the last 9 years and--this is the key--made me feel great when I was watching the most recent Die Hard DVD the other night.  I loved the feeling of having surround sound while sitting in my bed! 

Now, do I normally advocate points programs?  Nope.  All my new cards provide benefits back to me in the form of cold, hard cash.  But, if you've got a product rewards program, take a few minutes to get the best of those points.  (Before you convert to a cash rewards program!)

Anybody else out there get a cool product from their rewards program?

It's time for your annual checkup!

Just like you go to the doctor each year for a complete physical (you do go, don’t you??), you need to get a pulse on your financial well-being to make sure nothing’s amuck.

Each year, you’re entitled to a completely FREE credit report from each of the three credit bureaus (Experian, Equifax, and Trans Union). And there’s no better time than the new year to check that everything on your credit report is in good order. All you need to do to receive your free credit report is visit www.annualcreditreport.com. This is the ‘real thing’ - There are other sites out there (like www.freecreditreport.com) that are designed to sell you report packages and credit monitoring, and will try to rope you in to paying for something, so make sure you visit the right site, i.e. www.annualcreditreport.com.

When you get your report, carefully check through the list of accounts and make sure you recognize each of them. This can be a tricky process as many of the account listings can look unfamiliar – for example, an instant financing loan that you might have received a card for but never used. The best way is to grab all of your various credit cards, private-label store cards, and loan docs so you can match up your account numbers. If you find an account or other activity like an inquiry that appears suspicious, you can contact the credit bureau that reported the suspicious activity. Links to each of the bureau websites are below:

www.experian.com
www.transunion.com
www.equifax.com

So waste no time and grab your free annual credit report today. It’s usually much more pleasant and less-invasive than visiting your general practitioner!

Cheers,
CardTuna

Increasing Your Credit Line by Doing Nothing at All!

How do you increase your line of credit with an existing card?  The obvious solution is to simply ask the bank to extend the credit limit.  And that works, as long as your payment history is good, have a good FICO score, etc.

However, another way of getting more credit is to just do nothing.  On Dec 31st, for example, I got the word from Bank of America that they were increasing my credit limit to $23,500 from $20,000 on a platinum MasterCard that I've had with them since 1988.

The back story is that I've not been happy with BofA for a while now.  They have been slowly jacking up my rates, even though I've been a long-term customer.  (Although not a "good" customer, as I pay my bill in full every month.)  So I stopped using the card back in September and switched over to an Advanta credit card, which had a much better rate, should I ever need to revolve a balance.

Turns out that BofA quickly noticed I wasn't using their product and they weren't even collecting interchange on me.  So they thought that by increasing my credit limit and sending me a bunch of checks (with a 1.9% balance transfer rate--whew, what a lousy offer!) that I'd mend my ways and come back to Bank of America.  Well, I probably won't go back to using their MasterCard, but I do appreciate the larger line of credit.  You never know when you might need some short-term credit to tide you over.