There is a surprisingly simple way to get a 35% discount on most all of your purchases at retailers such as Target, Amazon, Nordstrom, and Macy’s, to name a few, as well as Lowe’s, Home Depot, and gas stations.
Intrigued? Before jumping into the details, allow me to set the scene using Target as an example.
You can do much better than the 5% offered by Target.
Target offers a credit card (“RedCard”) that gets you 5% off all your Target purchases (with a few exceptions, not relevant to most people). A debit version is also available.
If you are a regular shopper at Target, you’d be a bit crazy not to avail yourself of this 5% discount. According to Target’s website, based on the USDA’s calculation of food costs, a family of four would save $675 per year on groceries alone. Not a fortune, but if you saw it on the ground, would you pick it up?
Hell (to use a ridiculous example for fun), if you took that $675 and put it in your ten-year-old daughter’s retirement account, it would be worth $27,888 when she retires at 65. Better yet, add the $675 savings each year until she is 18, and she’ll have well over $200,000. Are you going to do the smart thing and use a Target card, or are you going to deprive your child of over $200,000 in retirement? Well?
But you don’t have to settle for a lousy 5%. Here’s how to beat the system, and bump your savings at Target and other stores to as much as 35%.
The savings at Target are fixed at five percent. For every $100 you spend, you save $5. You’ve realized the full extent of your savings as you walk away from the cashier.
By comparison, the value of the points you get from other credit cards are variable, depending on how you use them. If you could find a way to put your Target purchases on a credit card that earns 5x points, you’d have the exact same savings, but with much greater upside potential.
An incredible sweet spot.
Most all credit card points have a base value of a penny each, and you can cash them out at that price. Some airline and hotel cards offer points that are worth less than a penny, but you won’t be using those for your 35% discount.
So 100,000 points are worth at least $1,000. When you go on the issuer’s travel site to book a flight, you can toggle between dollars and points. If the flight is $1,000 it will likely be offered for 100,000 points. But what if you can get that $1,000 flight for 50,000 points (usually by transferring the points to a partner airline)? Now your points are worth two cents each. Find that flight for 25,000 points, and now you’re up to four cents per point.
Opportunities abound for deals with points.
There are several ways to multiply the value of credit card points. For example, Chase offers cards that multiply the value of your points if used through their travel portal, increasing them by 25% or 50%. Similarly, American Express offers cards that refund a percentage of the points used. Use 100,000 points to book a flight, and get 35,000 back. And there are always promotions involving airline partners, where you can “buy,” say, 100,000 Aer Lingus miles with 80,000 points.
But the best method to maximize the value of points is through airline transfers. The following is a dry, but extremely informative video that explains the transfer process. If you watch the video, you may conclude that the process is just too convoluted. But note that there are services you can use, and myriad blog posts that discuss the best travel deals with points.
As stated in the video, the highest point values come from international, business, and first class flights. On long flights, business or first class travel is pretty much a necessity for me, lest I spend the first two days of the trip unable to walk or stand straight. I found a sweet spot travel deal on a first class flight that makes my Citi ThankYou points worth seven cents per point. Thus, if I can get 5x points by using my Citi card at Target, I am in effect getting a 35% discount. Our hypothetical $100 purchase at Target yields an impressive $35 in travel ((100 x 5) x .07).
In reality, I don’t get 5x points on my Citi card at Target, but I do get 5x at grocery stores. So, all I have to do is add a Target gift card to my grocery purchase. If I buy a $100 gift card, I earn 500 points, worth $35 because of the way I use them. Even if you go for economy, as set forth in the video, you’ll likely get a value of more than 2 cents per point. In that scenario, your $100 purchase at Target still yields $10 worth of travel — double the value of Target’s 5% discount — while still preserving the 5% cash option.
Does this only work with Citi?
Not many cards offer 5% on groceries. The Citi Custom Cash card pays 5% on your number one spending category each month (up to $500), so you can use it exclusively for groceries to assure the 5%. The American Express Blue Cash Preferred card offers 6% on groceries, on up to $6,000 per year. And cards with revolving 5% categories, such as Discover and the Chase Freedom cards, frequently make groceries one of the categories. With a few select cards, you can likely always get 5% on all your grocery shopping.
And you are not limited to grocery stores. The Chase Ink Business Cash card offers 5% on office supply stores, where you can also buy Target cards.
Does this only work with Target?
Heck no. So long as there is a gift card for a place where you spend money, you can earn 5% . The massive rack of gift cards at my local grocery store has cards for a slew of restaurants, as well as Amazon, Kohl’s, Nordstrom, Macy’s, Lowe’s, Home Depot, Shell, Arco, and even Bass Pro Shop.
Point aficionados get all weak in the knees talking about cards that earn 5% in various categories, but as you can see, you can earn 5% on most all of your common spending, including gas, through gift cards.
Keep your eye on the prize.
That annoying guy in the back shouted, “but I already get 5% on my Amazon purchases, so why would I buy an Amazon gift card?” Remember the Target example. We’re seeking the upside potential of the points. Amazon’s 5% is fantastic, but it offers no more. You are swapping 5% for a better 5%.
But this does bring up the issue of what I call cannibalization. I can buy a gift card for a restaurant in order to earn 5%, but I already have a card that earns 4% on dining. If I buy the gift card for a restaurant, I’ll have to use it instead of my credit card when I eat there, so I’m really just adding 1%. It’s not worth the added step for an additional percentage point. Buying too many gift cards can raise suspicions with the credit card company, as follows.
But isn’t this manufactured spending?
“Manufactured spending” is the act of artificially spending money solely for the purpose of generating rewards points. In a classic example of manufactured spending, the evildoer will wait until Staples is offering pre-paid Visa cards with no service fee, and will use a credit card to buy, say, $2,000 worth of Visa cards. He then uses those Visa cards to buy money orders, and deposits those money orders into his bank account, in order to pay off the $2,000 he just charged to his credit card. It’s “manufactured spending” because the circular transaction was for no other reason than to earn credit card points.
Credit card issuers view manufactured spending as gaming the points system, and if they catch on, can cancel your cards and claw back the points earned.
Buying Target gift cards is not manufactured spending, because you are using them for the intended purpose. The grocery store made a small profit by selling you the Target card, the credit card company earned a transaction fee for the use of the credit card, and Target then sold you $100 worth of merchandise when you used the card. Everyone’s as happy as a pig in slop. (Indeed, Target loves you for using gift cards instead of their credit card since it eliminates the 5% discount.)
If you went crazy purchasing Target gift cards, your issuer might take notice, but how much are you going to spend at Target? You’re not gaining anything if you buy things you don’t need. But if you buy the occasional $50 or $100 Target gift card when you buy your groceries – just enough to cover what you spend at Target – no one will mind.
The credit card company knows you bought gift cards, so don’t go crazy.
You might think that a gift card bought at a grocery store would just appear as groceries, but you’d be wrong. In exchange for lower processing fees, merchants agree to provide level 3 information to the credit card companies. That means they can see what you buy. So apply some common sense to your purchases. Don’t make it a habit to go into the store once a month to buy only a $500 Amazon gift card. It’s not that you are trying to hide anything, you are just trying not to get flagged as one who is gaming the system.
The best way to look at credit card points.
All the articles and YouTube videos that discuss the credit card points hobby focus on maximizing the number of points. But your first determination should be how you intend to use those points. If you want to fly first class to Hawaii, and that travel scenario makes your Citi points worth seven cents each, then earning 2x with the Double Cash card is a better return than earning 3x with a card where the points are worth only three cents.
Decide where you want to travel, and then determine the best card(s) for that purpose.