Manufactured spending isn’t for everyone. You have to have discipline to pay off your card each month and not carry a balance. Otherwise it defeats the purpose to collect miles and points if you’re paying interest to the credit card company each month.
Last year my sister signed up for the Barclaycard Arrival+ and she’s modestly purchased gift cards on her Barclaycard each month to earn double miles. Her Barclaycard Arrival came with 1 year interest free on purchases until May 2015. My sister and her husband remodeled their kitchen last year and during that period they started charging purchases to their Barclaycard and not paying the balance in full each month.
To avoid paying interest on her Barclaycard each month after May 2015, she asked me what options she has. Here are my 3 options ranked in order from top to bottom.
1. Pay the credit card off each month with gift cards
This options requires discipline, but this is my favorite option because it allows you to avoid paying interest to the credit card company and collect miles at the same time. This option requires 2 credit cards. So in a situation like my sister’s, she would have to apply for another credit card since she only has the Barclaycard Arrival+.
Scenario: Let’s say credit card 1 has a $3,000 balance and the due date is on the 15th of each month. I recommended to my sister to open another credit card and purchase $3,000 in Visa gift cards. Instead of paying off the new credit card after depositing the gift cards into her BlueBird account, take the $3,000 and pay off credit card 1 IN FULL. Now credit card 2 has a balance of $3,000. This allows you to do a balance transfer without have to pay the “balance transfer fee” to the credit card company.
Credit card 1 has been paid in full to avoid all interest charges and she’ll also earned miles on credit card 2 since she just bought $3,000 in gift cards on it. Once credit card 2 is due, then she can repeat the process by purchasing $3,000 in gift cards on credit card 1 to pay off credit card 2. Rinse and repeat.
This scenario would allow you to pay off your balance and chip away at it each month until you owe nothing to the credit card companies.
Risks involved: In this scenario you absolutely cannot charge daily items to your credit cards. Otherwise the balance is never going to get paid down to $0. As mentioned above, this scenario involves discipline, otherwise you could end up with a 2nd credit card that has a high balance.
Option 1 basically shifts your credit card balance back and forth between 2 cards each month until you’re able to get the balance paid down to $0.
2. Apply for a 2nd card that has 0% interest for 12 – 18 months
Option 1 is great if you have discipline to run around buy gift cards each month to avoid paying interest. If option 1 sounds complicated or like too much work, then the next option I recommended to my sister was to open a 2nd credit card that comes with 12 – 18 months interest free on balance transfers and purchases.
The Citi Simplicity is an excellent card that offers 18 months interest free. To put things into perspective again, let’s say my sister owes $3,000 on her Barclaycard Arrival. She could open a new card like the Citi Simplicity and make a 1 time purchase of $3,000 in Visa gift cards. Once she deposits the $3,000 to her BlueBird card, she could turn around and pay off her Barclaycard Arrival. She now has 18 months to pay off her Citi Simplicity since her balance has now shifted to a new credit card.
She could do a balance transfer, but that typically comes with a 3% fee. She could stop by her nearest Simon Mall to pick up $3,000 in gift cards and that would only cost her $23.70 in fees.
3. Sock drawer the credit card
This is my least favorite option, but my sister could take the credit card and put it in her sock drawer. Since she’ll be paying interest on the credit card each month, she would have to send the credit card company as much money as she can each month to get the credit card paid down as soon as possible.
Whatever option my sister chooses, she’ll have to get in the habit of not charging any new purchases to her credit cards. Adding new purchases to the credit cards will complicate things and it will take longer to pay off the credit card balance.
Each Visa gift card is going to come with a gift card activation fee. Although these fees are unavoidable, I’d much rather pay gift card fees and collect miles versus paying interest to the credit card company.
Do you have any tricks to avoid paying interest to the credit card companies? Share your thoughts in the comments below!