Here is a unique gameplan you can make to ensure that you're constantly scaling up and that you are leveraging the credit terms available to anyone that so seeks to take this path—often the road less traveled. I am talking about leveraging value from credit cards without paying them a dime in extra expenses.
This has been an oft covered topic that many news media outlets have covered. Many have been enamored with the world of travel hacking value out of credit card companies and being able to game the system while not being gamed themselves. Oftentimes, many people fall into the trap of credit card debt and the underbelly of purchasing products above what they can afford. That then leads them into the trap of falling behind on payments, and when shit hits the fan like what we are facing currently, they are crumbled with the pressure of surmounting debt.
What I want all of you to picture is you being able to be the top 1% at extracting value out of credit cards and not being the majority of the 99% who get sucked dry by interest charges, penalty fees, and other insufficient fund fees procured to by banks. This is my method that I have been using for the past 5 years now, which is constantly evolving, and which I am still perfecting to this day.
The Dividend Hack
Rule 1: Always know the general terms of use for this card. Many people do not read the terms of service. That is the most plebian thing to do, and is often quite common believe it or not. I can understand that position as I have once been in their shoes before, but understanding what you are getting yourself into when you apply for a credit card is a major key in being able to extract value out of such cards. You don't even have to be a genius nor spend hours of your time doing so. All you have to do is read the terms of service, and call them if you have any confusion. That's the easiest way to go about it while saving a bunch of headache trying to analyze that on your own. And I've taken the road less traveled by learning all of this on my own, but hopefully you don't have to go through the same struggle as I did.
Rule 2: Try and opt in for the card that has the most value. This is relative to what your goals are and what your current financial needs are. If your goal is to travel in the future, then you would need to find the credit card that has the most approval odds in your favor with the most amount of value for travel rewards. Even if the card has an annual fee, if the card's value outweighs the value of that annual fee, then it is so worth it.
For example, Southwest has a card that offers 3 tiers of card levels with the highest membership fee being $149. However, every year they credit $75 of travel credits towards your frequent flier miles membership or whatever, which is way above the annual membership fee should your purchase habits accrue points that outweigh that.
Another example is if your need is to get rid of credit card debt and total debt in general, you might opt in for cashback rewards cards with bonuses of $250 for the first $1,000 of purchase within 3 months. It also might have a balance transfer introductory APR of 0% for 18 months with a 3% balance transfer fee. Instead of getting a 6 to 15% personal loan that will refinance all of your loans into one, you can opt in for the balance transfer and pay ZERO interest charges.
Side note: You can also try persistently with getting that membership fee waived by calling the credit card department that deals with membership management.
Rule 3: If you decide to opt in for a credit card that has an APR with no 0% introductory APR on purchases, and might have a 14.99 to 24.99% variable rate based on creditworthiness obligation, you might want to do purchases this way: ALWAYS pay your balance in full the DAY you pay for something with the credit card. That way, if it is a travel or cash back rewards card, you will be getting more value than if you let it sit on your account for a full month accruing interest charges. I did the basic math and I figured that the value of a 1.50% cashback rewards card is voided when it reaches 25 or more days of interest accrual on the whole balance assuming the interest APR was 24.95% (or something like that). If you always pay your purchase in full the SAME day with an interest bearing credit card account, a few things happen.
1. You get more value in cashback than interest charges from the daily interest charge accrual.
2. Bank statements are always for month in arrears. That means that if a balance is sitting on the account, interest will keep on being earned on that balance the longer it sits there and the higher it becomes. When you pay it on the spot, you only accrue a few cents to a few dollars in interest accrual, with the 1.5% to 2% cashback being way above the 1 day interest charge.
3. You always pay for what you can afford. Instead of paying for a $25,000 car you can't afford by taking a note out on it, you only pay with cash you can afford, and you slowly compound the returns of cashback. So you're slowly gaining more money and it is almost like having a 2% dividend for purchases you already need or want to have (with the assets to support them).
TLDR:
Rule 1: If you want to lower debt with a 0% introductory rate on balance transfers and purchases, while gaining more assets, choose a cashback rewards card with the highest approval odds. www.creditkarma.com will help you find cards that you may be MOST suitable for. However, you can always roll the dice and check for cards outside of their recommendations if they have more value. Remember, each credit card application will do a hard pull on your credit score, so you want to make absolutely certain you have picked the appropriate one with the least amount of risk, or the best reward to risk possible.
Rule 2: You want to extract the most amount of value possible from a credit card. If still legal and it doesn't go against terms of use, you can opt to use manufactured spending by buying $x amount of gift cards and then using such gift cards for own personal gain by either trading them in for cash, liquidating them for cash with a 3% fee from western union, or buying arbitrage items to resale for on Amazon FBA. If it's a travel card, opt in for the card that gives you the most value. Let's say you can hypothetically get priority flight service by opting in for a Southwest Airlines card, you will be able to get x amount of points per $1 spent and also have $75 in gratuity travel credits from Southwest each year for being a member. Also each point goes towards your frequent flier miles club, making you one step closer to gaining a higher prestige within Southwest airlines.
Rule 3: If you absolutely must have an interest bearing credit card, or was unapproved for a credit card this time around and are stuck with an interest bearing card; you must ABSOLUTELY pay off any new purchase within 1 day or 2 to make sure the interest charges are MUCH less than the value you would get from the cash back rewards or travel credits received.
If you are also stuck with a balance transfer on it, you must always pay in addition to what you had purchased to accrue the interest debt as well as the principal debt of the balance stuck. If you DO have debt on a high interest bearing credit card, you might want to start paying weekly or even daily as opposed to once a month. That way, you are always cutting into the principal at a faster rate than when it accrues with a high balance sitting there for a month. So $10 per day is much better than paying $300 on the due date of the credit card.
Hope this helps. This year it is almost that time for me to begin applying for a new credit card so I have been researching this to see what options I may have and what I want to get this time around. Right now I have about $22,000 in credit outstanding and I have a 24% utilization rate (which means it is only utilized 24%). I have to decide between a 2% cash back rewards card or the Southwest Premier Travel Card as I do want to eventually get rid of all of my debt while maximizing my credit score, increasing credit lines, and getting more buying power with loans as I do want to buy a $350,000 condo by the end of the year (moon goals!) Stay tuned for the continuation of my credit card hacking adventures.
P.S. If you liked this post, then you will definitely love this video! Here is how I lower my debt each year for the past five years of doing this and what parameters I use in order to make sure the odds are best in my favor!
Disclaimer: I am not a financial advisor, nor do I give any sort of advice for you to undertake. The risk is borne solely by your own will and research.
