Monday, April 15, 2013

Travel Credit Cards - Meeting Minimum Spend Requirements

Chapter 1 - Three Types of Travel Credit Cards
Chapter 2 - Credit Card Churn Example
Chapter 3 - Credit Score FAQ
Chapter 4 - Tracking Your Points/Miles
Chapter 5 - Meeting Minimum Spend Requirements
Chapter 6 - Maximizing Regular Spend

In talking to my other baby friends, I often hear, "I really want to use travel credit cards to take my parents traveling like you do, but they just don't spend that much every month!"

Well, while not everyone can make the math work with their income levels and personal budgets, many "regular" people can if they have a few tricks up their infant sleeves. You don't have to be a millionaire to hit your minimum spending requirements.

My parents are pretty strict with their spending. Most of their monthly budget is focused on things they need (rent, groceries, cell phone bills, diapers, cable/internet, metrocards, etc.). They'll buy me an occasional new outfit when I outgrow my clothes, but you won't be finding me in a fancy $900 Bugaboo stroller anytime soon. But then how did they spend $11,801 in 3 months to hit their minimum spending requirements for their 7 new credit cards?

Recall, my parents applied for the following credit cards in January/February while they were in Thailand.
  • Amex Platinum x 2 - $3,000 each, $6,000 total
  • Chase Hyatt Visa - $1,000
  • Citi Thank You Preferred Mastercard - $300
  • Citi American Airlines Business Mastercard - $1,500
  • Barclay US Airways Mastercard - $1 
  • Citi American Airlines Amex - $3,000
Well, I tried to convince my father to let me walk my readers through every dollar he spent, but he was a bit ashamed of how much he was spending on Imodium AD, so he was a bit cagey about disclosing too many specifics. He did, however, green light sharing some of the tricks he's been using.

But before we start, my father's #1 rule is "Do not spend more than you would normally."

Sometimes the miles/points thing can get...well obsessive. When given a new credit card, some people become driven to spend, spend, spend. The banks and credit card companies LOVE these customers. We can sometimes overlook the fact that we could have probably bought a first class plane ticket with the amount of cash we overspent our annual budget by. At MOST, every point you earn is worth between 2-8 cents on average. But even at the high end of the range, would you throw away $1 just to earn 8 cents of a very restrictive currency?

But with that cardinal rule in mind, here's how my parents have been able to hit their minimum requirements and get those sweet credit card sign-up bonuses.

1. Stop Using Cash. Living in New York City, my parents can go a few weeks without spending any cash at all. Just about every store, restaurant and taxi takes credit cards. From the $1.69 bottle of Vitamin Water at the 7-11 to the $6 cross-town cab ride to the $3.95 bacon, egg & cheese breakfast sandwich at the local deli, you can charge it. Cash is always king, but when you're not getting a discount for using it, plastic is your best friend. Besides, you know you hate getting $0.92 cents back in change for a $1 bottle of chocolate milk (+ $0.08 sales tax).

But even if you're not living in the greatest city in the world, I'm sure you can charge most of your expenses (with the exception of rent and taxes). Between $4/gallon gas and weekly grocery bills, I'm sure there's quite a bit of regular spending you can shift to credit cards.

One trick my father likes to use is to pay for the restaurant bill at group dinners and have everyone pay him cash. But he always makes 110% sure that he's not getting shortchanged by his friend Crime, because paying for the missing $5 will negate any points you earn. Why is his friend nicknamed Crime? Because Crime doesn't pay.

2. Amazon Payments. [UPDATE: As of October 2014, this method is no longer available.] The massive e-retailer is so focused on helping you spend money on their website, that they offer their own online P2P payments system (like Paypal) that will allow you to transfer money to your friends/family using your Amazon account, linked bank account or... your credit card. And unlike Paypal, there are no fees!

I won't spend too much time explaining how to use Amazon Payments ("AP"), because there are so many better weblogs out there who do a great job (like this Extra Pack of Peanuts post). But basically, each person with an AP account can send $1,000 every calendar month to anyone else who has an AP account.

But since Amazon has to eat the credit card transaction fees, they frown on people who just use AP to rack up miles/points. My father could, however, hypothetically loan money to his friend Handy Manny, who is also hypothetically sending money to his girlfriend, Doc McStuffins, for his share of the rent. And if Doc McStuffins were to pay back my mother for Wiggles concert tickets, then we'd theoretically be all even at the end of the month, wouldn't we? But note that my mother never pays my father via AP. That's on purpose.

3. Prepay Your Bills. Sometimes you dread getting those emails in your inbox telling you your monthly statement is ready for you to view, because it means they actually want you to pay them. Maybe you don't have all of them, but I'm sure you have a few: cell phone ($200/mo), cable & internet ($140/mo), electric ($50/mo), car insurance ($90/mo), etc.

But since your parents are going to HAVE to pay these bills anyway for the foreseeable future, they could prepay them before the due date.  Assuming they're not living paycheck to paycheck, they might even be able to pay for a month in advance on their credit card, and they'd have a few hundred dollars towards the minimum spend right there.

4. Charitable Donations. Sometimes, you or your parents are in a position to help those in need with your wallet instead of your time. Maybe it's an organization that helps women escape sex trafficking in NYC. Maybe a soup kitchen in the Lower East Side. Maybe you're just trying to support your child's private school's fundraiser. For whatever reason/cause, you should be proud to acknowledge you have excess and to share with others who could use it more than you. Timing these charitable donations (that you were planning to make anyway) to coincide with your new credit card minimum spending requirement timefames is just good planning.

Sometimes, however, your heart is bigger than your wallet. Maybe you're not in a position to donate (in the traditional sense) but there is a way to help others by giving them a loan instead of a gift. You can join a website called where you make micro loans (starting at $25) and get paid back over time (12-24 months). You don't earn any interest, but you do get to feel good for helping a woman in rural Peru to buy fertilizer for her family farm or a father in Kenya to buy a water tank for his small business.

If you're not sure how Kiva works, you can try it for free by clicking here. You'll get a free $25 to loan out to the Kiva borrower of your choice and see how it gets repaid every month. You won't get the $25 when it's repaid, but you'll hopefully be encouraged by seeing first hand how Kiva works.

5. Prepaid Gift Cards.  This "trick" can be a little dangerous if you're not careful about keeping track. My parents suggest only using this one if they're running out of time to reach their minimum spend, because it has the potential to lose you money. There's generally 3 types of giftcard situations.

First, can you buy a prepaid Visa, Mastercard or American Express card from your local grocery store or drugstore and put up to $500 dollars on it using your new travel credit card. You have to pay an extra $5-7 fee for activating the gift card, but now your that much closer to hitting your minimum spend and have a card that you can use whenever you want in the future and where ever they accept Visa/MC/Amex.

However, now you have a $500 gift card burning a hole in your pocket. Some people will be highly tempted to spend it quickly (and excessively) just to get their $500's worth as soon as possible (like how travelers buy garbage souvenirs at international airports to get rid of their Argentine pesos). Others will spend some of the gift card, but then lose track of it somehow and waste the remaining value completely. Even if you leave only $5 left on a $500 gift card (that you paid $506 for), you're losing $11 worth of value to get those 506 hotel points (which are only worth ~$10 if you assume 2 cents/pt).

The second type of gift card is a retailer/restaurant gift card. You can buy these at any number of office supply stores, grocery stores, drugstores and gas stations. They're good for other stores like Amazon, BestBuy, Chili's, Target, Cracker Barrel, Starbucks, Old Navy, Kohl's, etc.

Fortunately, there's no additional activation fee, so a $50 Bed Bath & Beyond gift card only costs $50. Now you've "spent" $50 on your new travel credit card and bought yourself more time to spend it at a store you're very likely to buy things from without paying any extra fees. The bad news is that the gift card can only be used at that particular retailer. But if you know a thing or two, you'd know that BB&B owns Buy Buy Baby, so my parents can use this one gift card at either store (I, of course, clearly prefer the latter). Same thing with buying a Gap gift card and using it at either Banana Republic or Old Navy or my favorite, Baby Gap.

The third type is the reloadable cards. These are cards (similar to the first type) that you can buy and activate for a fee. They're used to add money to your balance on one of a variety of accounts (Bluebird, Paypal, GreenDot, REloadIt). Sometimes, you can get your money back by cashing out the card at a bank or using it to pay your bills online - even your rent or credit card bills. However, this strategy is more complicated and often manipulated for "manufactured spend" by the super aggressive. I'm not a big fan of this strategy as it can often attract the attention of your bank, your credit card company or possibly even the FBI. But if you want to read about it further, you should click here on the Frequent Miler Blog.

So let's start adding up the various techniques using a hypothetical NYC family with an adorable little 18 month old girl who loves swings and chocolate ice cream.

1. Regular Spend = Groceries ($150/wk) + Restaurants ($100/wk) + Commute ($25/wk) = $1,110 / month
2. Amazon Payments = $1000 / month x 2 people = $2,000 / month
3. Prepaid Bills = Cell Phone ($150) + Cable/Internet ($125) + Car Insurance ($90) = $365 / month
4. Charitable Donations = $0-500 / month
5. Retailer Gift Cards = $200 / month

That's $3,675-4,175 per month of "regular" spending which would be $11,000-12,500 of spending over 3 months (of which half comes via our dear friends in Seattle).

But remember, you NEED to pay off your monthly balance in full at the end of every month. If you don't, the 20-30% interest charges will negate all the miles/points you've earned and put you in a hole that may cripple your future financial well-being.

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