By Dr. James M. Dahle, WCI Founder
Most of you are very familiar with the various ways to make money with credit cards. The big bang for your buck is sign-on bonuses. However, that also comes with the greatest hassle, as you're constantly opening and closing accounts. The less impressive, but more consistent option is to put all your spending on credit cards that pay you 1%-5% back. We occasionally do some of the former and regularly use the latter. Almost all of our spending goes on our Fidelity Card, which gives 2% cash back directly into our Fidelity account. We buy gas on a PenFed card, which applies 5% cash back directly to the balance each month. Minimal hassle, and several thousand per year free.
In order to really get a lot of benefit out of these cards, you have to spend a lot on them. Two areas where docs spend a lot of money, but may not have realized that they could use a credit card, are student loan payments and tax payments.
Student Loan Payments
A reader wrote in with this explanation of how he has been paying his student loans off with his credit card:
In order to make credit card payments on your loan with Navient you need to be enrolled in autopay (you get a .25% interest rate reduction with this as a bonus.) Unfortunately, the amount you have deducted through autopay each month cannot be charged to your card, it must come out of your checking or savings account. However, if you call each month, a week before the autopay comes out you can make an additional manual credit card payment with no charge. There must be an amount due balance at the time you do this, so that is why you do this a week before your autopay withdrawal. Also, the additional credit card payment must be less than the autopay amount. If your autopay is $1200.03, then you just charge $1200.02 it will be fine.
Obviously, you have to do this each month which is slightly annoying. Also you must check frequently that your additional credit card payment did not make you “paid ahead” which will mess up some things for next payment because it will not show an amount due since you are “paid ahead.” It happened only once to me, but the remedy is to call and have your payment counter reset so it shows that you have an amount due. Once in a while I had to reassure the agents that a credit card payment was allowed. They quickly asked a manager and all was good.
Originally my wife and I we were both in a 10 year repayment plan so the autopay each month was quite high. Therefore, if I added on two additional credit card payments close to the autopay amount it would set me over my budget. So what I did was change both of our terms to a 20 year repayment plan, making the monthly autopay smaller. Then I just made a credit card payment equal to a penny less than the autopay. This additional payment plus the auto debit effectively put me right back into a 10 year plan; I just had more freedom to change my monthly credit card payment.
I did this with great ease for over a year for both my loans and my wife's loans and did it in the same phone call (making a credit card payment to my loans then switching to my wife's account to make a credit payment on her account. I racked up over 50,000 credit card points that year. This is very useful for credit cards which need you to hit a certain amount of spending in the first 3 months to get a point bonus, such as Chase Sapphire Preferred, which also gave me 40,000 additional points for signing up. I have not yet found a card that gives double points for loan payments but maybe a reader will know.
I understand this is quite long and convoluted but for points hobbyists like myself I found it quite interesting. As I mentioned before I kept my discovery quiet, because I feared that they would start charging for credit cards if too many people attempted this. However, I just refinanced my loans and my wife's loans with SoFi (7 year variable at 2.5%.) Sofi will not allow me to continue racking up points like this so I figured I would spread the word.
The secret is out. Take advantage while you can.
A lack of confidence has never been her weakness
Paying Taxes
I recently started making my quarterly estimated taxes using my credit card. Given how well the website has done, those payments have become, well, rather massive. I suspect I'll be paying at least $200K in federal taxes this year. Unlike the scheme above, there is a charge to doing this. However, that charge is 1.87%. As noted above, my Fidelity card pays me 2% back. So that leaves 13 basis points that go into my pocket, tax-free (it's treated as a refund tax-wise, not income). 13 basis points on $200K is $260.
But wait, there's more. I also get the use of that money for an additional 6 weeks or so. Assuming I'm earning 1% on it (easy to do in my high-yield savings account), that's another $230 a year. Sure, $500 isn't super crazy awesome money, but since it is EASIER and MORE SECURE to pay via credit card than via check, WHY NOT? I'd probably do this even if the fee was 2%.
But WAIT, there's more. That fee may even be tax-deductible as a tax preparation/payment expense (totally legit per the instructions for Schedule A lines 22/23.) Granted, that one is subject to the 2% floor, so it might not be worth much to you unless you have a lot of investing expenses, which I hope you don't. Even a $4K fee isn't going to lower my taxes any.
One hassle you might run into is your credit card limit. For example, consider the month of April. I have all my regular expenses, plus my quarterly estimated payment for federal taxes. Plus, if I underpaid last year (as I usually do) that final payment is due. Here in Utah, we also pay our state taxes all in April of the next year, since there is no penalty for the self-employed to do so, but the convenience fee on their site is a little over 2%, so I probably won't put that on the card. At any rate, all those taxes can add up to more than your credit card limit.
However, I have found that if you have income high enough to owe large tax payments, you probably have income high enough to get a very high credit card limit. Every time I call to raise my limit, the first question isn't “how much do you make” (that's the second one) it's “how much do you want?” And, like getting a mortgage in 2006, nobody seems to really care enough about the second question's answer to do any kind of real verification. (No, I'm not telling you to lie, just realize an estimate is fine.) Also, putting that kind of a load on your credit card is going to lower your credit score a bit, so don't do this kind of silly thing if you need to get a mortgage soon. But my goal in life is to get into a position where I don't need a credit score anyway (although I've noticed insurance companies are starting to use your credit score for some stupid reason).
Again, I don't know how long this deal will last, but it's worth a few hundred bucks a year to me anyway.
What do you think? Would you consider paying your student loan payments or taxes with a credit card? Why or why not? Comment below!
There are a million blogs dedicated to this. Thank you for not turning WCI into a credit card link site. Honestly, I’m surprised the effort is even worth it to you to open/close cards and chase 13 basis points.
I tried a post or two on credit cards a few years ago. The problem is the really good cards don’t have/need an affiliate marketing deal, so there isn’t much money to be made if you actually want to tell people which cards are really the best!
As to why I put my taxes on the card, it isn’t just the 13 basis points (although on $200K, that’s better than a kick in the teeth), it’s also the fact that I get to save a stamp and envelope. Just kidding. But it seriously is easier to pay it with a card instead of actually finding an envelope, finding a stamp, writing a check, dropping it all at the post office etc. The cash flow improvement and the money earned off that money sitting in my savings account is also a nice little side benefit. I probably wouldn’t do it if it cost me money, but since I’m actually making money doing it, it’s certainly worth it to me.
My first-in-wallet is my Sallie Mae Barclaycard, honestly. No real signup bonus but can’t beat 5% back on groceries, fuel and amazon. Sapphire Preferred for everything else. My only regret is that I couldn’t get two and now it’s not available at all. I think the cutback profile of the new CostCo card is pretty good, too. What’s first in your wallet?
I primarily use Capital One credit cards for my business and personal accounts. Not only do they have great rewards, but I consistently receive a much larger credit line than even the credit card I have at a bank I’ve been with for years. The personal card (Venture) is double points on every transaction and the business card (Spark) is 2% cash back. My mortgage servicer does allow credit card payments, but they charge a $45 transaction fee when using a card. However, if your mortgage payment is large enough there is a point at which the number of points gained more than makes up for the fee or you could make an extra principal payment in the same transaction and gain points on that. Not all banks allow you to pay with credit card, but check if yours does and see if the fee they charge works in your situation.
Paying taxes with a C.C. is a good idea to meet those sign-up bonus requirements. I hadn’t thought about that. Normally if I see there’s a fee associated with C.C. payment I just write the check without even checking to see what the fee is. Thanks for the suggestion!
I’m not sure but I think there is an extra charge if you use a credit card… I guess it depends on which tax website you use. I recall a few years ago that credit card payments would have additional fee.
I think it’s a good idea. We paid with credit cards when we could, but DRB doesn’t take credit card payments at all. That’s nice that you can with Navient (but isn’t it part of Sallie Mae? At least linked with them? And we wanted to get away from them as fast as possible… I’ll take not being able to use the credit card for the lower interest and better customer service/multitudes of fewer hassles than dealing with Sallie Mae). As for taxes, that is a good trick as long as your card pays you more. I use a combo of 3 credit cards that cover almost every category at 2% or more, but nothing for taxes, so it isn’t worth it for us. But, if we ever get a card with a percentage higher than the tax fee, we’d do it. Thanks.
How is drb? We just refinanced with them and have had a rocky start so far.
Citi Double Cash would pay 2% on taxes (and on everything else).
For the student loan payments, has anyone tried this with FedLoan Servicing?
Signup bonuses are a much easier way to get 50,000 points/miles/what have you. I’ll be sticking with my usual churning methods for bonuses with regular spending on Chase Freedom, transferred to United via a Chase Ink Plus Business.
There’s no doubt if you’re willing to put some work in, that there is money to be had there.
If you pay taxes which are clearly business expenses, then they are deductible without limit. For example, I own rental property; I usually pay the property taxes via credit card, and can deduct the associated fees on Schedule E. If you have a business entity which reports separately from your personal return, you may be able to deduct the business income tax payment fees on your business return. (But if you and your business are legally the same entity, then you may be stuck with the Schedule A 2% (and not deductible for AMT purposes) limitation.)
I thought about that angle, but I don’t think I qualify at least without declaring my LLC an S Corp. I’d love for someone to show me I’m wrong though. I think the fees for paying my taxes this way will be close to $3K or so this year.
I’m also a credit card nerd! And I also have that 2% unlimited cash back card through a Fido (Fidelity) cash management acct that requires 0 in the acct,; I also have the same Pen Fed gas card; but I also have AMEX blue cash preferred which gives 6% on groceries including a $250 bonus for a $75 annual fee (you make that up in 2 months, not even including the wonderful bonus!); and an AMEX Business Platinum for office supplies 5% back; and finally a 3% gas card. I am a dentist, my wife is a dermatologist and between us we get some $300 / month back as I buy a lot of office supplies, and we use the 2% FIDO cards for 2 offices, AND personal – every other ‘specialty’ purchase is between 3 and 5 %.
Why do you have a second gas card?
It’s the same 3 per cent card, sorry if I was unclear.
If you use a CC for business and get $$$ back, is that not income to be taxed?
No, I believe it is not. More of a discount. Some articles on it here:
http://www.creditcards.com/credit-card-news/irs-taxable-income-credit-card-rewards-points-gift-1277.php
http://www.investopedia.com/ask/answers/110614/are-credit-card-rewards-considered-taxable-income-irs.asp
However, bear in mind you cannot deduct the amount of the discount as a business expense though. So if you buy something for $100, and get $2 back from your credit card, your real price and your real business deduction was $98, not $100. So in effect, for a business, it’s taxable I suppose.
I’m a serious “miles and points” player. I’m surprised by your comment that the really good credit cards don’t have/need marketing affiliate deals. Cards like Chase Sapphire Preferred and Citi Prestige (which offer excellent benefits to rewards aficionados) are heavily promoted on highly regarded miles/points blogs like “View From the Wing” and “One Mile at a Time”. Can you list some not-so-well-known cards with top-notch rewards benefits?
Let’s put it this way- the cards I use and most easily recommend don’t offer an affiliate marketing deal.
I use the Capital one venture with the 2% for my large purchases. For the smaller card purchases I use my debit card which allows me to get a 1.6% interest rate on my checking account from my local bank, Bank of American Fork, if I use it 12 times during the month and have an automatic deposit into the account. I can get about $500 per year tax-free from the checking account.
If you have $100,000 combined balanced in bank of american and merrill edge you can get a travel rewards card that gives a 1.5% cash back no limit with a 75% bonus or 1.5×1.75= 2.65%. You have to redeem this for travel purchases on the card. I just got this card with the $100,000 in a roth and taxable brokerage with vanguard etfs.
This post is making me consider using this card for taxes as well.
I wish I could pay my disability insurance premium by credit card. Alas, I’m told that Metlife doesn’t allow it.
I don’t believe NationStar and SoFi allow credit card payments which sucks since mortgage and student loans are my 2 biggest expenses.
I’ve read conflicting stuff about Bluebird and Serve as potential credit card churning tools by serving as surrogate checking accounts for online bill payment but may no longer be available? Does anyone have any experience with that?
I use Bluebird to pay my mortgages. The way it works is you purchase Visa gift cards which act as debit cards and upload them to Bluebird at Walmart cash registers. You can upload up to $5k per month this way. Bluebird gives you actual checks which you can then use to pay expenses that wouldn’t normally accept credit cards.
The problem is that earlier this year Bluebird started shutting down accounts that were obviously being used for credit card churning. One of the most obvious methods is depositing funds and then immediately using online bill pay to pay a credit card bill. If Bluebird shuts you down the consequence is that you won’t be able to upload any more funds, but you can pull out your money.
Any thoughts on other methods to churn credit cards if Serve/ Bluebirds are getting shut down? I’m new to this and don’t want to bother if it’s a dead end.
Money orders. You can buy gift cards and then buy money orders with them. The downside is that I pay a bit under a buck per money order where there is no check writing fee with Bluebird.
WCI, with your massive credit card payments, you should be using the Southwest cards to get a companion pass. You may not even need the card sign on bonuses to get it, though getting those bonuses is a no brainer since you can use the points towards the pass and still redeem the points on their own.
I use the Citi Doublecash card as the everyday card — 2% back on every purchase (essentially), redeemable in cash directly back to my bank account. I’m I am dabbling in churning or if one of my other cards has a promotion I’ll use other cards until I hit the reward then go back to the Citi card.
Right now my Discover card is giving 5% back on Amazon purchases through the end of the year — can’t beat that since I buy just about everything humanely possible from there.
I don’t know how much use I’d get out of a Southwest companion pass. I guess if we flew someplace a lot on Southwest that would be useful.
Yes, that would be the idea. I don’t know the airline status in Utah — if Southwest doesn’t offer good flight choices and you don’t fly often with your family then it is of little use.
As a Gastroenterologist who is in the miles/CC hobby, I would highly recommend to those interesting in starting to do your research before you begin. Many of the most popular sites/blogs about miles and credit cards appear to be for your education but are actually nothing more than sites who’s only purpose is to make money by getting you to use their links. They are often owned by third parties such as Bankrate. Often times their advise is misleading and they will steer you to the card that gives them the most comission. I would suggest picking a trip or vacation and then choose cards which will help you with the particular flight and hotels you want.
I agree. Do you have any recommendations for doing flight miles research?
I have noticed that those popular miles blogs tend to promote their lavish adventures that are not realistic for the average travelers. Especially if one is not a frequent flyer and is just looking for the best value deals (rather than the most extravagant first class flight/hotel deals), I find it hard to justify churning some of the credit card deals.
So far, I have found the CHASE trifecta (Freedom, Unlimited, Sapphire) to be the most cost effective and versatile for booking flight/hotel since I don’t travel frequently enough to be a loyal customer of any particular airline or hotel groups.
Travel blogger buzz is a good site to separate the wheat from the chaff. He had good recs on sites to trust.
The Chase cards are good but are also the most advertised as the chase tends to give the highest commission to the bloggers.
One piece of advice I would give is to concentrate on sign-up bonuses and worry less on spending rewards. You will earn much more overtime by getting two-four sign-up bonuses a year than by spending unless you are heavily invested and manufactured spend which is time consuming. Convenience is also very important. If you live in a town near a hub, concentrate on building points with that airline. Often times airlines will offer award flights for low mileage from hub cities given the short duration of flights.
I love credit cards… they are free money. One of the greatest financial instruments out there if used responsibility. You get the benefit of convenience, a 30 day free no-interest loan, state of the art fraud security while getting rewarded for doing all your expenses on it. I was quite surprised initially that more and more Americans weren’t taking advantage of this wonderful financial instrument but were instead ending up on the other side of the equation and subsidizing free money for responsible users.
Unfortunately we can’t use credit cards for my wife’s student loans. Her student loan processor does not have a credit card option. Neither does her disability insurance. Otherwise we put every possible expense on credit cards unless there is an additional fee exclusive for credit cards. We’re planning to buy a new car next year. I wish I could put that expense on three or four new credit cards but car sellers do not accept credit cards for full payment and it’s really hard to bargain with them to accept some part of the payment with credit cards. My wife and I have traveled around ~$30,000 worth of free flights ever since I started. My wife was so against it initially but after a few free flights and seeing the big savings while hearing everyone else fret over flight costs, she slowly grew comfortable with it. We’ve had something like ~70 cards between us opening and closing when required. We just use cards that can be used for flying. She doesn’t understand a thing about this except you get free flights. You have to be interested and stay on top of things. I get a kick out of it so its fun. Banks are slowly improving their systems to address these loop holes but it’s far from over. Fortunately this came in very handy while my wife was in residency and fellowship so we didn’t spend any money on flights but we’ve traveled quite while sticking to budget. The savings has helped us accumulate towards a down payment and make other investments. Once she gets a job, we need not be as aggressive in applying for cards but I’ll probably just do it for the fun of it and frankly, it’s hard to ignore tempting credit card offers and let go of free money. I’ve put our applications on hiatus since November and March as we are closing in on a house in November. Both our credit scores reported by our loan officer are above 760 so it’s just a matter of sticking to FICO’s factors that affect your score. Can’t wait to get a bunch of new cards and do all the house spending on them once we close. I tell my wife that we may not be millionaires yet but we’re surely mile-onaires.
I have been using my Capital One Venture card for cashback on student loan payments lately. I haven’t tried my other cards because I don’t want to get hit with weird fees that negate the points/cashback
Sick brag on the “at least 200k in federal taxes this year”. Don’t think that slipped by us. Nicely done.
First world problem for sure. No more 14% effective tax rates for a while unfortunately, even maxing out every account I can come up with.
How are you able to pay Navient by credit card for one cent under the amount due? If you pay with the automated system (no fee) you can only pay the amount due. If you use an agent, they charge a $14.95 fee.
I just called Navient and read to them exactly the process you described, I even spoke to a manager who said there was a fee of $14.95 to use my credit card. Any help?
I pay my home insurance premiums using a credit card and then call the mortgage company and tell them to skip a payment this year. It is not much, but goes a long way towards meeting the 2k/3months spending for some cards. If I need a hundred or two more, I buy Amazon gift cards. I will try bluebird to make my regular mortgage payment or make some extra payments.