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Comment by dlnovell | Hacker News Reader

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.

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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.

get a card that pays 1% back in cash and don't bother with points.

better yet, get a card that gives you 3% when you buy gas or 5% back when you buy stuff at a store you shop at anyway (Target does this, for example).

if you're clever, cash can be amazingly flexible. its easy to redeem and accepted in most places.

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")

seems complicated enough

is there an annual fee?

No.

Yeah, I think I would come out ahead with that deal.

They do have a calculator to help you figure it out.

  https://www295.americanexpress.com/cards/loyalty.do?page=bluecash.maximize.new

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).

absolutely. time and dignity are valuable commodities.

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.

They want you to use your card because they get paid on the merchant side as well. So it doesn't matter if you always pay off the card on time.

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'.

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.

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.

it's all marketing genius by the credit card companies

As a student, I'm curious to see if I can put my tuition on a card... That would be useful. :-)

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.

As of a few years ago my school accepted CCs, but charged a $25 fee to do so.

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.

Wow that was obvious. Thanks for pointing it out; I was not thinking clearly.

Many colleges don't accept cards.

You can however charge your federal income tax (and some state income tax) payments against your card for a fee.

American Express even lets you use rewards points to offset this fee.

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)

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