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Credit Card Churning | How to Begin, Which Cards, & Risk [Ep. 2] - YouTube
Channel: Kevin Jubbal, M.D.
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- Welcome to part two of the
credit card churning series.
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Now, in part one, we covered
the fundamentals, the basics,
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we covered, who should do this hobby.
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More importantly, who
should not do this hobby
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and other rules that you never
wanna violate in churning.
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So this is part two, let's get started.
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(soft music)
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Quick disclaimer, I'm not
a financial professional,
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I'm not a tax advisor.
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None of these things, proceed with caution
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proceed at your own risk.
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This is for informational purposes only.
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Now my two favorite resources
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as I talked about in the part
one video, doctorofcredit.com,
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and the churning subreddit.
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The churning subreddit,
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one of the users created
this awesome flow chart
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which is super helpful for people
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who are just starting off in the hobby.
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Now they also created a
specific coronavirus edition
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of the flow chart,
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'cause some of the credit
card policies have changed
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in the recent months.
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I am personally still accumulating points,
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even though I'm not traveling
during the near future,
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because the way churning usually works
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is you accumulate points
over months and years,
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and then you cash them out in the future.
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So that's more of a personal decision,
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but regardless, the
fundamentals we're talking
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about here are gonna apply whether now
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or in the future
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after this whole
coronavirus thing is over.
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Now, before we dive into the flow chart,
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you first need to decide
what are you optimizing for?
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Now for most people, it's usually travel.
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You get the most value actually that way.
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And especially if you are
a premed or medical student
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and you have either
medical school interviews
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or residency interviews coming up,
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then travel is what you
probably wanna optimize for.
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But if you're not gonna be traveling
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or staying in hotels in
the next couple of years,
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then cashback is a
totally fine option too.
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Now we're gonna walk through
a few bits of the flow chart,
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but at the end of the day,
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I wanna teach you guys
the actual philosophies,
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because the thing is
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the actual rules are constantly changing
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and you have to stay on top of it
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if you wanna be really
effective in this hobby.
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So it's more of like a give a man a fish
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or teach him how to fish sort of thing.
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I wanna teach you guys
the actual principles
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so that moving forward, you
can handle it on your own.
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So, all right, let's
dive into the flow chart.
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There are these anti-churning rules,
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which banks have created to
essentially discourage people
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from taking advantage of the points,
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which is what we're trying to do.
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The most infamous one
is the Chase 5/24 rule.
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What that means is that
if you've opened up five
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or more personal credit
cards in the last 24 months,
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they will not approve
you for any new cards.
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The only way to get
around that is you have
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to wait until in the proceeding 24 months,
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you don't have five new
cards on your credit report.
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This gets a little bit complicated though,
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because business cards
generally do not count
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because they're not put on
your personal credit report
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except for business
cards from three banks.
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You have Discover, TD
bank and Capital One.
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Regardless if you're watching this video,
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most of you are probably under 5/24.
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So let's go to the left
side of this flow chart,
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and then you need to decide,
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do you wanna get the
Southwest Companion Pass?
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The Southwest Companion
Pass is pretty awesome.
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It allows a companion to
fly with you for free.
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You just need to pay
the small flight fees,
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which are $5.60 one way
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if you're flying domestically.
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So the flow chart is really effective
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at helping you navigate
all these different rules
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from all the different
credit card companies
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and by answering these questions like,
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are you above or below 5/24?
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Do you want the Southwest Companion Pass?
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It helps you kinda prioritize
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what you should be focusing on
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if you're new to this hobby.
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One thing the floater
does not address though,
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is that when you sign up for a card,
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you want the maximum sign-up bonus.
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So they're constantly changing.
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For example a credit card may
have a 50000 sign-up bonus now
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but in the past, maybe they
had a 70,000 sign-up bonus.
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You may wanna actually wait
until it goes back up to 70K,
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it's gonna be a personal decision.
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I like gonna doctorofcredit.com
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because he's usually pretty updated
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and on top of the whole sign-up bonus
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and how it compares to previous bonuses.
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Now, going back to the Companion Pass,
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there's a lot of nuance in strategy here.
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So the Companion Pass when you earn it,
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well, first of all, to earn
it, you need 120,000 points
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in a single calendar year.
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So the way that most people
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in the churning community
do this is they will open up
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two Southwest credit cards.
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Each of the bonus is like 50 or 60K
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and now you're at a 100 or 110K
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and you have to actually spend some money
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on those cards to meet the bonus.
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So like 115 anyways, you'll
get to 120,000 points
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in a single year and then
for the rest of that year,
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you get the Companion Pass
plus the next calendar year.
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So that being said, generally,
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you want to apply to
these cards in December
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so that you get the bonuses in January.
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So you have the rest of that
year plus the next year.
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So essentially two years.
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Now, another thing to
note on the flow chart is
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that they do recommend opening
up business credit cards,
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sometimes even if you
don't have a business
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but we're gonna be talking about that,
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whether you should or should
not at the end of this video.
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Now, which card do I recommend?
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The general consensus
is that you wanna start
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with Chase because of the 5/24 Rule,
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which is the most restrictive
anti-churning rule.
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There's the Chase Sapphire Reserve
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and the Chase Sapphire Preferred.
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Generally speaking, these
are totally worth it upfront
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because of the large
sign-up bonus that you get
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but then after a year,
they may have an annual fee
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that you may or may not justify.
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So that's gonna be a personal decision,
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either you keep the card
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and you keep paying the annual
fee because you find value
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or you downgrade the card to another card
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that has no annual fee.
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So you may be thinking, okay, hold up,
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the Chase Sapphire Reserve
is like $500 annual fee,
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how is that worth it?
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Well with the sign-up bonus,
let's say 50,000 points,
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you can actually redeem those
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at a 1.5 cents per point ratio.
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So essentially that's $750 in travel,
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in hotels, things like that.
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So already you're ahead, $250
or whatever the amount is.
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But the thing is next year,
you're not gonna get another 50K
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you just pay the annual fee
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and you don't have any additional bonus.
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So then you have to decide
if it's worth it for you.
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Now, Chase recently changed the perks
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and benefits of their Reserve card.
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So now the annual fee
is up to 550 from 450,
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but you still get a $300 travel credit.
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Now that travel credit
is very easy to redeem,
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it's on Uber, Lyft, a lot of things.
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So in the churning community
we essentially just deduct that
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from the 550, so 550 minus 300,
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essentially 250, the effective annual fee.
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They added some Lyft
and DoorDash benefits,
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which I personally can't justify
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and with the added
annual fee and the perks
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that I'm not really using, I
couldn't really justify it.
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So I downgraded my card.
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So churning as a hobby is all
about getting the most value
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from a credit card possible.
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Usually what this means is
you get a large sign-up bonus
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and then a year later you
decide if the card is worth it.
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In which case you keep it long term
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or you downgrade it to another card
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that does not have any annual fee.
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You wanna downgrade
rather than close the card
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because if you close the card
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it shortens your average age of credit
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and that's not good for your credit score.
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So for example,
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you don't actually wanna open
up the Chase Freedom upfront
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because it has a very low sign-up bonus.
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So what you do is you
open up a Chase Sapphire
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and then a year later you can downgrade
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it to a Chase Freedom.
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Now the Chase Freedom has no annual fee
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and it does have 5% of rotating categories
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and this is where a lot
of people get tripped out,
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the daily spend the 3% here, 5% there.
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The thing is the amount you
spend day to day getting three
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or four or 5% here or
there doesn't add up nearly
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as much as getting a
large, chunky sign-up bonus
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several times per year.
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I mean, it's still important
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but it's more of a secondary consideration
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and your first consideration
and your first point
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of optimization should be
getting big sign-up bonuses.
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So after the Sapphire cards what next,
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I would generally go
with the Southwest cards,
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especially if you're at an
airport that fly Southwest.
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There's a lot of value here.
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I think for most people
it's very beneficial.
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And what you can do is
actually open up both
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of the Southwest cards
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at the same time using
the modified double dip.
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It's a more advanced strategy.
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You'll have to search
on Reddit on your own
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to find the details of how to do that.
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For hotels, Hyatt is
considered the favorite
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in the churning community.
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There's a lot of value
for the points there
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and then after that it's gonna be more
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of a personal decision.
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For me a lot of my own strategy
in churning has changed
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in the recent years because
of med school insiders.
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I have a large monthly
expenditure for the business,
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much more so than my personal expenses.
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So that's definitely changed my strategy.
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For most of you though,
unless you guys are outliers,
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like you have a business or
some other unique circumstances,
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following the flow chart is gonna
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probably get you where you need to be
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and remember the churning
community focuses
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on sign-up bonuses
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and you're always working
towards a new sign-up bonus
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at any given time
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and generally opening up a
card every one to three months.
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All right, next, let's
talk about assessing value.
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So when you're traveling
you need to decide,
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are you going for quantity or quality,
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meaning going for economy or luxury?
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There's no right or wrong here
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but I personally choose the
budget economy traveling
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for two reasons, first stoic fundamentals
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and I've talked about stoic philosophy
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and basics for students
in a previous video
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and second, hedonic adaptation.
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I don't wanna get to
the point where I'm used
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to flying business and
then for me to go back
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to economy is like this huge
chore or this huge like,
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Oh my God, my God, I'm
so annoyed right now.
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So think about this.
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Let's say you have 60,000
points with whatever airline,
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you have two options, either
you can fly round trip to Asia
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with those 60,000 points
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or you can do one way to
Asia with business class.
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So the actual cash value
of the first option
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if you just flat economy round trip,
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let's say it's like $900.
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Whereas the second option
if you fly business,
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if you were to buy that with cash,
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it'd be like 2000 or $2,500.
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So in this case the redemption
value of the cents per point,
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the actual value you're getting
per each point is higher
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with the business option.
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So does that mean that
it's a better value,
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usually in the churning
community they would say,
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yeah, that's like
obviously the better option
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but I don't think so.
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Again, the standard way of
assessing the value of any perk
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or benefit in the churning
community is to look
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at the actual dollar value if
you were to buy it in cash.
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For example, the Chase
Southwest priority credit card
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gives you four upgraded
boardings per year.
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Now I found this blog
post and the author talks
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about his experience
at the Chicago airport
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during which time these upgraded
boardings were $50 each,
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he says, "Okay, I get four
of these, they're each $50.
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"I got a $200 value here,
but here's the issue.
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"Would you ever actually pay
$50 for an upgraded boarding?
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"I personally, wouldn't."
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Another example, the lounges at airports,
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if you were to buy
lounge access for a year,
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it's $300 but would you actually pay $300
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for lounge access for a year?
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I personally wouldn't.
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So rather than the value of
buying these things in cash,
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ask yourself, what would you
pay to get the same perk?
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So for the Southwest upgraded boardings,
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I would personally pay
like five or $10 tops
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and for a lounge visit
maybe 15 or $20 tops.
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Now that is the actual
value that I'm receiving.
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So I use this actual
value in my calculations
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and in my decisions rather
than the market value of what
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it would be for me to actually
buy it in cash on my own.
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All right, last let's talk
about the risk and gray areas.
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Now this is somewhat of a spectrum.
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I'm definitely much more conservative
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than the average churner.
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I think that it's better to
have a low or medium flame
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that burns for a long period
of time for several years,
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rather than this really bright
flame that burns out quick.
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So it's like the high risk high reward
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versus the lower risk
and longevity approach.
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If you go high risk, you
can have cards closed,
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you can have points taken back,
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there's like a lot of downsides
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that to me aren't worth an
extra couple hundred dollars.
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So for example, there was this
thing called the gravy train
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with American airlines
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and people were abusing these mailers
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and ultimately they cracked down on it
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and a lot of people got
their accounts closed,
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the points were taken back.
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Some of those people were
in the middle of a trip
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and then their flight
back home got canceled
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and they had to figure that situation out.
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It's just the stress
isn't worth it in my mind.
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On the other hand, you can
play by the rules like I do.
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You can do it safe
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and you may not get the
exact same value short term
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but I'd like to think that
longterm there's more longevity
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and you benefit more that way.
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So these are the factors
you need to decide on.
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First, business credit cards.
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I only opened up business credit cards
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when I actually had a real business.
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Now, many in the churning
community suggest
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that you open up business credit cards
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as a sole proprietorship
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and you make up a business,
I personally wouldn't.
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I mean, if you do have
a sole proprietorship,
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if you're selling things on eBay
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or you have like a side hustle then cool
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but again, personally for me,
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just not worth the risk to be
lying about having a business
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and things like that.
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Next is manufactured spend.
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This is where you use a credit card
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to buy cash equivalents like gift cards
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and you can essentially
cash them out on yourself.
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It's high risk.
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You have to do it in person.
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It's a huge time commitment
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and it's higher risk of getting caught
[677]
and you're definitely
against the terms of service
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with these credit cards.
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I don't think it's worth it.
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If you need help reaching a minimum spend
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because let's say you need to
spend another thousand dollars
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in the next month to get the bonus,
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what I've done in the past to say like,
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"Hey mom, you know, I know you
live hundreds of miles away
[690]
"from me but here's my credit card info,
[692]
"charge the utilities on my credit card
[694]
"and then just pay me back cash."
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So that way I'm getting
that increased spend
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without actually having
to spend any more money
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or do anything shady
like manufactured spend.
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And the third one is self-referrals.
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This is where you refer
yourself to a credit card.
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So you get the referral bonus.
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So this used to be fine,
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but then in the last year or so,
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American express started
clawing back points,
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cracking down on this.
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I think the best practices,
just don't self-refer either
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at American express or any
other credit card company.
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Again, how you approach this
[719]
and your risk tolerance is
gonna be highly personal.
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I personally advise doing
it more conservatively,
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and these are the basics
of credit card churning.
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The first rule of churning is
you never talk about churning.
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and the churning community is
very secretive of themselves
[733]
because they're concerned
[734]
that if too many people join the hobby
[735]
and start taking advantage
of these offerings
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then the wells are gonna dry up
[739]
but the way I see it is when
I was in medical school,
[743]
a friend shared this with
me, I benefited hugely,
[746]
so I just wanna pay it forward,
help you guys out as well
[749]
because churning allowed me to fly
[751]
to over a dozen residency
interviews for free
[754]
and otherwise I would've
had to take out thousands
[756]
of dollars in additional student loans
[759]
to pay for those flights.
[760]
So I hope you guys find this useful.
[761]
I hope it's helpful.
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Again, be smart about it and much love.
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See you guys in the next one.
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(soft music)
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