[Editor's Note: This is a guest post from Dr. Wise Money, who as you'll recall used credit cards to pay for medical school in order to save thousands in student loan interest. She is now a resident, but continues to use credit cards to improve her financial situation. In this example, she manufactures spending by opening bank accounts with a credit card. I have no financial relationship with the author.]
I have always worked really hard: 7 jobs in college ranging from MCAT tutor to nanny. I even worked two jobs in medical school as a single mother. As a resident, I'm currently working four jobs if you count being a mother as one of them! So it is truly nice to make some money that takes little of my time. After all, time is the only irreplaceable resource in our lives. Time can earn money, but money can't buy back your time, at least not retrospectively.
This post will detail step-by-step how I made money by churning cash (interest-free from big banks) in the circle of money. This particular example was using Citibank and BOA. But you can apply the same principle to other banks as long as you do your research first. In fact, prior to publication Citibank stopped allowing me to do this, probably because they noticed I had opened and closed multiple accounts with them. [Further research Citibank doesn't allow this anymore.-ed] But it may still work for you and there are other banks out there that allow you to fund a new bank account with credit cards with various limits. The key is to get a bank where you can charge a new deposit to a 0% card without it counting as a cash advance. Here's a list.
But make sure you read all the fine print and avoid land mines such as the transaction being processed by your credit card company as “cash advance” rather than purchases. Research before you make the leap. If you are cautious and avoid the land mines, you can get rewarded pretty handsomely for your time. Not to mention, if you are in a pinch and need cash, this is great way to borrow cash at 0% interest for a little while (12-21 months depending on the 0% APR promotional period of a card.)
You can repeat the cycle as frequently as the processing time allow you, and like I did, make hard cold tax-free cash. I had credit limit of 55k on the credit card I use. Imagine an attending with 100k limit on a card. He or she can easily make 1-2k every time they run the following operation, which takes about 20 minutes on the computer. Better still, hire your tech savvy kid to do the secretarial job for you and fund their Roth IRA for their legitimate work!
If you are interested in finding out how to
- Borrow large sum of money from banks at 0% to negative interest rate for 12-18 months and/or
- Make tax-free money with a few mouse clicks by moving money between 2 banking institutions, please read on.
Steps:
- Open the cheapest/free online account at the bank
- Choose to fund the bank account with a CREDIT CARD
- Print out the authorization form. Complete form and fax it.
- Online account opened on day 1. Form faxed day 3. Citibank gets deposit on day 5. Credit card is charged on day 6. Funds available to pay bills on day 14 in $10,000 maximum increments. All funds paid back to credit card on day 19.
- The entire cycle takes 14 business days, well within the grace period of the credit card cycle.
- Each additional $10,000 you are moving will add an additional 1 day to the cycle.
In addition, call the credit card you plan to use and lower your CASH ADVANCE limit to the minimum. This is a protective mechanism. This prohibits your credit card company from charging the transaction (funding a new checking account with the credit card) as a cash advance. Cash advance usually has INSTANT interest in the magnitude of 20-30%. You will lose way more than you make if your credit card company charges this transaction as cash advance. By lowering your cash advance limit and requesting an amount higher than your cash advance limit, you make sure that your credit card company can only process your transaction as a PURCHASE (and give you cash back/point rewards) OR block the transaction. This prevents you from paying more interest to the credit card company than the rewards you get from them.
So at the end of this, all that was charged on the credit card when funding the new Citibank account was paid off completely by the money deposited into the account.
Circle of money:
Charge credit card –> Fund new checking account –> Pay off credit card
Each cycle produces 1.1% of the money moved because it was processed by my credit card as a purchase and produced tax-free cash rewards. The cycle takes me less than 30 minutes to do the paperwork, and in my case generated $550, or $1,100 an hour. After six cycles, that was $3,300. If it is still confusing, check out my video on it.
I hope you make some tax-free money too. Banks are getting smarter & closing this highly lucrative (for common people like you & me) opportunity by lowering the limit of how much you can fund a new checking account with a credit card or simply prohibiting credit card funding all together. But the Citi-BOA combo worked for me (I can no longer do it anymore, my name is probably banned from the fact that Citibank effectively paid me $2,500 last year without gaining anything from me).
Hope it works for you!
What do you think? Do you try to use credit cards to make money? What are your favorite manufactured spending schemes? Do you think activities like this are a wise way to make some extra money, or foolishly playing with fire? Comment below!
And this qualifies as responsible financial behavior how?
I hope your ability to care for patients is as adept as it is at manipulating the banking system for profit
It’s brilliant, and I applaud the OP. She’s playing the game, and it works well for her. You clearly don’t get it. That’s ok though! More for the rest of us.
I second that- it’s bank arbitrage of sorts, just like the “official” bank arbitrage- they take our money from savings accounts at 1% and lend it as mortgages at 5%
Whenever Dr. Wise Money’s methods are written about or referenced there is always one comment where someone personally attacks her. I don’t know why that always seems to be the case. It needs to stop though. You can dislike someone’s methods without attacking him/her personally or questioning his/her clinical ability.
Dr. Wise Money is clearly a very driven, and successful, person motivated by Money, Ideology, Conscience and/or Ego and that’s okay and pretty normal in Type A personalities.
To answer WCI’s question, manufactured spend activities seem to be “foolishly playing with fire” but I don’t have the time to devote to these very creative endeavors.
I’m not a big fan of manufactured spend. For 1 if you get banned by all the major banks your likely to have issues finding a credit card. 2 I’m not sure I truly find it moral to game the system to quite this extent. That being said I have no compunction about playing the account sign up bonus game. Ie get a new card,spend to point of getting bonus, payoff card, go to next one. I do it with real spending so I don’t feel as sketchy, I make probably 3 k a year doing it, and the most difficulty I have is remembering what card to shift all our spending to for a few months. Some even argue given how many loop holes for manufacturers spend have been closed that sign up bonuses are an easier way to get ahead.
Me too.
The sign-up bonus game is a different story. They advertise the programs with clear and defined rules. Manufactured spend like this, on the other hand, is borderline fraudulent (and probably would be if the banks decided it was worth the time to pursue).
I really like my cash-back credit cards, and if things like this make the industry move away from them or lessen their appeal then that would be sad.
“Manufactured spend” (MS) is a big topic in the “miles and points” community – those of us who want to maximize our travel rewards and get the most value out of our miles and points. The banks are very much aware of it, and they quickly shut down techniques that are used too heavily (good example – “Citi doesn’t allow this any more” above). So I recommend extreme caution here. (My personal decision is to leverage credit card bonuses and promotions heavily, but stay away from MS.)
I am surprised this is being promoted on a Physician Finance site. Guys, we are supposed to be above and beyond reproach. Society values our work to compensate us well, not only money, but with respect and esteem. There are so many ways to supplement income as a physician, not to mention the ability to wisely invest savings. Its really sad that this kind of scheming is being promoted. I’m not saying its illegal, or absolutely unethical. What I am saying is: we can do better!
I think I feel similarly. In a way it’s a little cheapening to the rest of the site, but it does have some value as a curiosity. The fact that credit card companies allowed this type of behavior in the first place is fascinating. For a resident though it seems awfully cheesy.
But that is the right word to describe it — a scheme.
I have to agree that I am not a fan of this post. I have been a long time reader of WCI and this one might be at the bottom. If I wanted to make money like this, I would have become a financial advisor or worked for a bank. This webpage routinely mentions ways banks and advisor go about charging high fees and doing things to make your money their money. This post seems to be promoting a way for the average person to do the same thing back to the banks.
If this is the bottom of the barrel for you, I am skeptical you’re a long time reader. Want to see a post that’s really bad? Check out this one:
https://www.whitecoatinvestor.com/medelita-scrubs-review/
Let’s just say I didn’t do THAT again. Live and learn.
I have been reading since 2012. I almost didn’t post the negative review, but it just does not fit with why I have followed your page for so long. I have learned alot from your page and expect I will continue to learn some finer details of personal finance going forward. This article promotes something that although legal and maybe ingenious, does not feel honest.
And I agree with you, the scrubs review is definitely worse.
Wow! I’m getting it by email now too! I love the brutally honest feedback.
When a guest posts on your blog, it is inferred that you endorse the
viewpoint of your guest. This post describes a shady, gimmicky
transaction. I am a big fan of this site. It contains very valuable
information. You have worked hard to demonstrate financial expertise &
trust in areas of investing and insurance (thank you for helping me to
avoid Whole Life & pay off $180k of loans in 2years after fellowship).
However, posts like this cause your site to lose credibility.
Please consider.
Loyal reader,
The people bashing the scrub review mystify me. Have they never tried Medelita scrubs and white coats? The difference in fit, comfort, and appearance between their scrubs and the stock hospital scrubs made to fit the most obese person in the place is tremendous. Medelita scrubs and white coats have saved me thousands of dollars, because I can look completely professional (dare I say good?) in an outfit that costs dramatically less than suit that fits me well, not to mentions the ease of care.
Generally everything I write has a dual purpose- to fulfill the mission of increasing financial literacy among docs and to make me money. That one didn’t do anything for the mission. It just didn’t fit in with the purpose of the site. It didn’t make me any money either, which shouldn’t have been surprising. Live and learn.
I didn’t mind the scrub review at all. In fact, that is how i originally found this site. I was looking for good scrubs to wear in teh office. Found Medilita. Googled for reviews and found WCI!! The rest is history. And the scrubs are awesome.
You have no idea how much better that makes me feel.
Scrub review isn’t that bad!!! 😀
Still think you need a good “wearing scrubs as a retirement tool” post on here. 😉 I might try to take a stab at that one for you.
I’m not against manufactured spend or credit card bonuses, but why allow a guest post about bonuses that have expired? Since the rules and bonuses of the credit card game are always changing, it doesn’t make sense to delay such a post by a few months. It would be better to post immediately or run a general article.
Thank you for the valuable feedback. The original post was basically all about the now expired bonus, but I tried to edit it to reflect more of a general article on credit card bonuses, credit hacking, and manufactured spending. Doesn’t sound like I did a very good job selecting and editing. Sorry to waste your time.
I think for most physicians past residency this wouldn’t be worthwhile. However, for resident physicians or medical students I could see how this could be valuable. Whether it is worth the risk/ethics is the real question.
Either way, I applaud the writer for her ingenuity.
It’s probably worth $3k to me to have all my bills on auto-pay and not worry about it. Thanks for sharing, though.
I’m not sure I agree with some of the commenters that this is an issue of ethics. This is a legal way to fund a bank account and if the credit card companies allow it, all the more power to the OP. Remember that card counting in Vegas was allowed for a long time and then eventually banned when it became popular. I foresee the same thing happening here.
there was a time in late last decade where you could borrow at a lower% than you were getting on cds
surely some might even borrow from equity lines of credit to buy munis, which is illegal
Why is it illegal to borrow from equity lines of credit to buy munis?
I agree. I don’t think that is illegal. You can only deduct the interest on the first $100K though.
This is not tax-free.
You might never get audited and thus get away with not reporting it as income and not paying taxes on it, but it is a taxable accession of wealth, plain and simple, no getting around it.
AFAIK cashback from credit cards and consider “rebates” on your cost of credit, therefore it is not taxable. Bonuses on bank account openings are taxable however.
Interesting. If bonuses on bank account openings are taxable, why aren’t account holders issued tax paperwork such as a 1099-INT or something similar?
Chase does do that now sadly.
Mocha, just because you don’t get a 1099 doesn’t mean it’s not taxable. 😉
If you push a broom for a day and get handed a $100 bill in return, you’re probably not going to get a 1099, but that’s taxable income, and failing to report that is the definition of tax evasion.
In this example is no cost of credit. If the author was paying thousands in annual fees then there might be an argument. There is also no true purchase, so it’s not like it’s a discount off your purchase price. This is a textbook example of “all income from any source derived” and a thus taxable event.
*there is no cost of credit
I agree with the others, it might be worthwhile as a resident but definitely not as an attending
(although even then, I’d argue you are getting a better long term return on your investment by spending the time to study and get good at what will likely be your primary and largest source of future income: medicine)
I realize I’m in a higher paying specialty and my earnings weren’t tax-free but I made a lot more than $3000 this morning and would rather spend my remaining free time with friends and family.
That’s kind of the way I feel about it.
Don’t hate the player, hate the game… but, this is a move that would make even Wells Fargo blush
I think there is a decent chance that regardless of “calling to lower the cash advance minimum” the card issueing bank may call it a cash advance anyway and one would be charged cash advance interest. Then the whole thing falls apart.
It would then be pretty hard to argue that the deposit to the new bank account was actually a purchase and not a cash advance. So the person using this scheme would be out of luck.
I agree with the others that the approach outlined is beneath the usually high standards of this site.
Thanks for the valuable feedback. It really is taken into account with regards to guest posts I accept and stuff I write myself.
I did like the last post when she used a credit card to pay tuition. I’m not a fan of manufactured spending though. Sure, I’ll sign up for a card and get the bonus, but if I have to make up the spending or open new accounts its not worth it any more for me. To many moving parts for something to go wrong with.
Also, how does a resident get a 50k card. I’m making way more than resident days, but my cards open up with anywhere from 15k to 30k. Don’t know anyone with a $100,000 limit…
Pre-medicine career.
Manufactured spending is difficult to stay up to date with because it is constantly changing. I definitely take advantage of sign up bonuses though. I don’t find anything ethically wrong with doing manufactured spending, but I was surprised to see this on this blog and don’t think it fits well with the overall theme.
What’s the theme that it doesn’t fit with? I mean, I pretty much blog about anything financial from the perspective of high-income professionals. I’ve even written about credit card rewards before.
https://www.whitecoatinvestor.com/rewards-credit-cards/
https://www.whitecoatinvestor.com/two-unique-ways-to-make-money-with-your-credit-card/
And this topic gets discussed frequently on the forum such as this thread:
https://www.whitecoatinvestor.com/forums/topic/credit-card-hackingchurningreward-chasingmileswhatev/
I agree this post is out of character. Mainly because it is about a loophole that doesn’t currently exist. You can not do what she did here any longer.
It is kind of like writing an article about buying ibonds with credit cards or USA mint coins. It used to work a decade plus ago, but no longer so why write about it
There appear to be a great deal of self-righteousness comments to this post. I agree that anyone who feels that this topic deviates from the standards of WCI has clearly not spent ample time browsing the archives of this blog.
Manufactured spending is an activity from which I shy away. However, is a Backdoor Roth IRA any more ethical? Exploiting loopholes to receive a tax deduction for which we would not otherwise qualify? What about claiming business expenses to decrease one’s tax burden? Is that also an unethical exploitation of a tax loophole that is technically legal? While working a side hustle to contribute to a second 401k is legal, is it ethical?
This topic is simply another creative way to increase your income and decrease your tax burden. Is it legal? Absolutely! But the dilemma of its ethical and personal application is to be determined by each reader individually. WCI is simply presenting these ideas and allowing each of us to decide if and how we will apply it.
Thank you for the informative post.
I totally applaud and agree with DocTErk’s comments above!
C’mon guys, what are we reading this blog for? It’s a financial blog for goodness sakes!
If we’re going to start questioning the ethics of a legal activity by a smart young resident, then maybe we should question how ethical all of us doctors are who are even reading this financial blog. If we were REALLY ethical doctors, then we should spend all of our free time reading medical journals and not reading financial blogs!
Although I have no interest in performing this “manufactured spending” I still enjoyed the article as pure entertainment. Dr WiseMoney is pretty smart to have figured out how to use this technique safely.
Remember, Dr WiseMoney is still a resident. We were all in that position at one time. With all the loans these new grads have now days, congratulations when one of them like this smart young lady finds a legal loop hole.
Keep up the good fight Dr WiseMoney! I thoroughly enjoy your creative efforts at money making and I don’t find it unethical.
Absolutely agree. What one seems to deem ethically okay is simply opinion and more likely familiarity with the rules. Its ridiculous if it is legal and allowed its simply a loophole, and has since been closed. Its not like anyone was harmed and the system was alerted to a ridiculous rule, it was exploited and then closed, that is exactly how capitalism and the market should work.
I think we have a lot of smart docs on this site. I’ve found myself swayed both ways, but it’s been entertaining.
Reminds me of this scene from fiddler in the roof, my favorite show when I was 5.
https://youtu.be/s7RmcdHrYuk
Dear White Coat Investor,
I was wondering if you could write a blog post regarding the conundrum from which many employed physicians (such as myself) suffer. We WANT to invest in no-load low cost Vanguard Index funds but our corporations only offer American Funds (R-3 shares in my case which can have fees up to 2%) in their 403b and 457 plans. In my case I have talked to admin several times but it goes nowhere. I still take advantage of these and for the tax savings and company match, but I can’t help but feel I am losing money to the fees. I think other physicians are in the same boat.
You are losing money. You should probably still use a bad 401(k) plan for three reasons:
# 1 The tax savings are worth it
# 2 The asset protection benefits are worth it
# 3 When you leave you can roll it over to a better 401(k) or an IRA
Be sure to lobby your employer for change, of course.
If you’re there long-term and total fees are over 2%, it may only be worth getting the match and then investing in taxable. Be sure, of course, to use a backdoor Roth IRA, HSA etc.
Dear WCI and other readers: I’m not sure if you were aware. I’m on another MD forum and her colleagues mentioned that dr Wise Money just passed away. There is a viewing tomorrow at Angel valley funeral home in Tucson. It’s very sad esp since she blogged that her goal was to work less upon graduation to spend time with her daughter (as a single mom). I don’t have any more details, only what her peers and colleagues are stating. May she rest in peace.
I just posted something in the forum on it: https://www.whitecoatinvestor.com/forums/topic/r-i-p-amanda-liu-aka-debt-free-doc-aka-dr-wise-money/
I’ll miss her and so will the rest of the physician financial blogosphere. There is a huge gap to fill. May she rest in peace.