Hello Everyone, today’s post will be a little bit different than the usual posts as it is a guest post from Dima from www.dimascorner.com. Dima quit his job in September 2011 to travel the world and was able to fund the vast majority of his round the world flight using credit card rewards points. He is now using some of his credit card strategies to increase margins / maximize benefits when purchasing inventory to sell online. This will be the first of 2 posts on the topic, and the next one should be available next week.
Take it away, Dima.
Folks, my name is Dima and I just recently started with the Amazon FBA program. Back in March, I listened to Jesicca Larew talk about it on Pat Flynn’s Passive Income podcast and decided to give it a shot. As I was doing my research, I stumbled upon this great resource by Ryan that I felt I could relate to more than Jessica since he was just starting out himself. Well, kind of, but it sure felt like it when I went back and read all of his posts starting with the very first one.
Since then, Online Selling Experiment has been pretty much the only FBA blog I have been following regularly and learning a lot from so I figured the least I could do is to contribute and give back to Ryan and the community he has been building here. In the earlier guest post by his roommate, Jonathan mentioned leveraging credit card rewards programs to save (or squeeze some extra margin, however you want to look at it) when acquiring your inventory. I wanted to expand on that and expose you to a variety of cards and programs out there.
But first…
Disclaimer #1: Many banks have recently established a wide range of affiliate programs whereby websites and bloggers get paid a (rather hefty) commission for advertising their products, unintentionally turning some good blogs into the link-pushing machines with rather mediocre content. Neither Ryan nor myself are part of these programs nor will we receive any compensation for sharing information about any of the cards I mention in this blog post.
So who the heck am I to tell you about these things? And aren’t credit cards those evil things that shouldn’t be touched?
Well, let me tell you a quick story about myself first and then I will address some of the frequently asked questions about credit cards at the end of the post. So stick around!
Back in 2007, as I was graduating college and had a nice job lined up, I realized that I had no clue about personal finance. So I started reading, researching and following lots of personal finance blogs, fatwallet finance forum, and a bunch of other resources. In the process, I learned that, if used properly, credit cards are not the evil many make them out to be and can, indeed, bestow one with all sorts of rewards and benefits if used properly and responsibly.
Back then, the game in town was the 0% APR, no-fee balance transfer offers – essentially, folks were pulling out money from their credit cards up to their credit limit at zero interest and depositing it into their checking and savings accounts, earning 4-6% over the course of a year, then paying the balance back. Even as a total noob, I made a couple thousand dollars the first year doing that (and a bit more over the next couple of years).
These days, those offers are gone, and so are the bank accounts paying 5% interest on your deposits, so the “game” has shifted to cashback and rewards programs that reward you with frequent flier miles or hotel points for your purchases. Thanks to these, I have been able to score a business class round-the-world airline ticket for just $368 (in taxes and fees) so I quit my engineering job and travelled the world for seven months (and continued to travel for two years after that). In the meantime, I earned thousands of dollars in cashback as well as more miles than I can figure out what to do with – currently sitting on just under two million with another 400,000 or so waiting to post. As of today, I have 34 open credit cards (and many many more closed accounts).
So, while I can’t claim to be the expert, I learned a thing or two over the last few years that I have been able to leverage with my FBA business.
Disclaimer #2: Credit cards are not to be treated lightly. Do not open new lines of credit if you are carrying any debt on your current cards – fees and interest charges will greatly (and gravely) outweigh any potential benefits if you are unable to pay off your entire balances on time, every time.
There are various ways you can benefit from using certain credit cards when sourcing inventory for your FBA business. So not to bore you with a long post, I will start with cards that offer good cashback programs on every-day “spend” – regardless of what you buy as well as some FAQs. In the follow-up post, I will go over some cards that offer higher bonuses for specific spending categories, and those with rotating category bonuses.
Disclaimer #3: Because of the affiliate link business, many banks frown on non-affiliated websites linking directly to application pages for their credit card products – I actually received a cease-and-desist email from Chase at one point for simply linking to a couple Chase offers that I applied for myself, even though I clearly stated that I had no affiliation with the bank or their products. So I will not provide any links in this post – the intent here is not to hand-hold you through the process but rather to “teach you to fish”.
Daily Spend Cards
Here I grouped the cards that offer the same amount of cashback or points for all purchases, regardless of which store you shop or what you buy.
Fidelity rules here with no strings attached cashback with just one “catch” (see below). Yes, they are a brokerage firm, but they co-brand a couple credit cards issued by FIA Card Services (a separate division of Bank of America) which offer solid cashback programs:
- Fidelity Rewards American Express Credit Card – two points per dollar spent on anything and everything. Multiples of 5,000 points can be redeemed for $50 deposit, making this essentially a 2% cashback on all spending. I have been a happy user of this card since 2008.
- Fidelity Rewards Visa Signature Credit Card – for the first $15,000 every calendar year, you will receive 1.5 points per dollar spent on anything. After that, it goes up to two points per dollar, catching up to the AmEx version. The benefit here is better acceptance than American Express, but in reality, I have not experienced any issues with AmEx acceptance while sourcing my inventory. I have had a similar credit card since 2007 (with 1.5 points per dollar for all purchases) and just closed it to open this version with the 2% cashback after $15,000 spend.
The “catch” with both of these cards is that you would have to deposit the cashback into a Fidelity account to get the rate advertised; otherwise it would not be a deal worth mentioning. If you don’t have a Fidelity brokerage account already (401k and IRA won’t do), you can sign up for their free Cash Management account (used to be called MySmartCash) – it is essentially a checking account that comes with free checks and unlimited reimbursement of ATM fees, even when using the debit card abroad. This feature alone makes keeping the account worth it for me.
- Barclays Arrival Plus Credit Card – two “miles” per dollar spent on anything. The miles can be used to reimburse yourself for travel expenses (airfare, hotels, etc but not gas) at the rate of 1,000 miles per $1, essentially making this a 2% “cashback on travel” card. Note, this is not to be confused with cards that only offer 2% or two points per dollar spent on travel purchases. Arrival earns points on all purchases at that rate, but must be redeemed to pay yourself for your travel expenses. It also comes with a generous sign-up bonus of 40,000 miles, no foreign transaction fees (when you start sourcing from more exotic sources than your local Walgreens), and it is one of the first true PIN-and-chip cards offered in the US that should work everywhere around the world (as opposed to the recent introduction of PIN-and-signature cards which will still have issues in Europe). I just got this card a few months ago and already paid myself back hundreds of dollars worth of travel expenses.
- US Bank Club Carlson Credit Cards – five points per dollar spent on anything. Club Carlson is a conglomerate of hotel chains including such brands as Radisson, Country Inn and Suites, and Park Inn. The points can be used to book hotel stays for as little as 9,000 points a night and with the credit card, you get the benefit of last night being free – so if redeemed for a two night stay, you would only pay half the price in points. Arguably, it is the most generous hotel rewards program out there so I use this card quite a bit to rack up rewards at 5 points per dollar rate. Obviously, it would only be good if you travel quite a bit and plan on staying at those hotels. There are a few slightly different versions of this card with different signup bonuses and annual fees.
Disclaimer #4/word of caution: if you decide to research any of these further, be aware of the “card-pimping” blogs and websites out there (good chance that the first few google search results will be those). Many try to steer people away from publicly available sign-up offers for these cards to use their affiliate link associated with an inferior offer (but the one that pays them for the referral). I would strongly encourage you to use the bank’s official link to apply for any of these cards to discourage these “pimping” practices. My friend George does a good hilarious job of calling some of these out on his blog if you would like to educate yourself further.
Frequently Asked Questions
Not meant to be an exhaustive resource. There are blogs and forums entirely dedicated to various credit topics.
1) Does applying for many credit cards hurt your credit? – Kind of, but not really.
It’s true that inquiries (or “hard pulls”) from credit card applications show up on your credit report so, in general, it is recommended that you do not apply for new cards if you plan on taking out a big loan in the next six months (mortgage, education, car, etc). However, over the years, I found that each application only reduced my credit score by around 3-5 points and after about six months, I was back to where I started with. In fact, in some cases, my score actually went UP after I applied for another half a dozen cards.
Personally, I have probably applied to 80-100 cards since 2007. As I already mentioned, I currently have 34 accounts open and I maintain a healthy credit score that fluctuates between 720 and 780. I don’t carry any balances and always pay my bills in full and on time.
2) Are debit cards better than credit cards? – It depends on how you define “better”.
There are no debit cards out there that offer good cashback or any other comparable rewards programs, simply because banks make a lot more money on credit card transactions than on debit card transactions. But it goes beyond the rewards.
With many credit cards you get extra benefits you can also use to your advantage in FBA business – from purchase protection to extended warranty and extended return periods. But the main benefit (beyond the rewards) is leverage – the ability to use bank’s money to pay for something and have up to two months to pay it back (hopefully, after you already sold it on Amazon and reaped the profits). The way this works is that if you buy something at the beginning of your statement cycle, your statement won’t close for another 30 days. After that, you will have another 20 days or so to pay it off. Can you sell something on Amazon within 50 days? I sure hope so!
The only two things that debit cards provide is the implied limit on how much you can spend – only as much as you have in your bank account, which is a great way to avoid getting in debt. But as I mentioned before, if you have issues controlling your spending, you shouldn’t be getting new credit cards (and should not have gotten this far on this post anyways)! Moreover, if there are any issues or fraudulent transactions, it is up to you to convince the bank to get that money back to you – they don’t care since it’s your money that’s gone. With credit cards – it’s the bank’s money until you pay them back so you will have much better luck with credit card fraud disputes than with the debit cards.
3) What cards should I get and when? – That’s really up to you to decide, but even if you want to get a card I mentioned in this post, I would encourage you to wait for the second part where I will talk about other types of cards. For two reasons:
First, with your type of FBA purchases, you may decide that category bonus cards would work better for you than the ones I presented here. Second reason will apply if you decide to get a couple different cards as it is generally better to apply for all cards you want to get at the same time (on the same day) rather than spread them out. This way, when the banks pull your credit file at about the same time, they will not see each other’s “pulls”.
Lastly, if you don’t have any credit cards or only have one or two cards, brace yourself and only pick one new card to get at first, otherwise the sudden jump in your desire for credit may cause the banks to decline your applications. In a few months, you can get a few more.
4) How the heck do you keep track of all the cards? – Practice good organization skills. And no, I don’t carry all 34 cards with me at all times.
Since you are already running a business, I am guessing you have developed some sort of organization system to keep track of your accounting. Whether it is a spreadsheet, a personal finance managing program/app, or a full blown suite of tools like Quicken, use whatever works best for you. I use PocketMoney on my Mac to keep track of all my accounts. I don’t like it very much and I am considering switching to MoneyWiz which seems better (and has good mobile solution as well). I looked into Quicken and other expensive apps with millions of features and never felt that I needed that much.
As far as my wallet goes, I prefer to keep it as light as possible. A couple of bills, maybe a debit card just in case I need some cash (from MySmartChash Fidelity account so I can use any ATM and pay no fees), and 3-4 credit cards I typically use. The rest of them are spending their time in a business card holder book waiting for whenever I need to take advantage of their particular benefits.
Any other questions? Feel free to comment below! I am about to hit the road again for a trip down to South America so it might take me a day or two to get back to you but others might be able to chime in as well.
This is Ryan again, thank you to Dima for doing this guest post and sharing some tips! Keep an eye out for part 2 next week, and in the meantime please leave any questions or comments below.
Pingback: Using Credit Cards to Increase Margins – Part 2 of 2
Great article. I have been running my fba biz for years while racking up lucrative points as well. Thanks for the well written article.
Thanks KL, hopefully these couple of articles will help you get a little extra out of your efforts!
Hello Dima,
I also started FBA around March after hearing Jessica’s story on Pat Flynns podcast. I also really enjoy Ryan’s blog and seem to relate to his posts better than any other info i have found . I am working on starting an FBA blog of my own that shows a beginners perspective so I can help others ease
The transition of starting out with FBA.
I have a few questions about the credit cards.
I use a cash back rewards card but I guess I’m wondering why you have 34 cards isn’t easier to build up points if you just use 1 card all the time or just 3 or 4 main ones?
Thanks for the great article
Chad
Chad,
Good question! In my humble opinion, any normal and sane person probably does not need more than a couple of cards. Maybe add a couple more if you source inventory in specific categories (more on that in the next week’s post).
In my case, I am leveraging some of those cards when I source my inventory, but I also play a lot of other “games” with credit card companies – from opening new accounts to get big sign up bonuses (usually frequent flier miles) to running up a lot of spend in exchange for more points and cashback – topics well beyond the scope of this post.
Also, some cards are worth keeping (for me) for specific benefits, even if I don’t actually use them. For example, Chase United Explorer card offers primary insurance coverage on car rentals (as opposed to secondary insurance that all other credit cards offer). It also opens up more award seat availability on United flights. So I keep the card, and so far has been able to negotiate annual fee waivers for it. On the other hand, US Bank will not waive the fee for Club Carlson cards I mentioned in this post – but the 40,000 bonus points they give upon renewal each year are worth more to me than the annual fee (not to mention the last night free benefit) – so I keep that card as well.