Bonus Stacking: The Basics

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I can't claim credit for the idea, but I can claim credit for the term.

Bonus stacking.

It's the art of combining credit card and banking bonuses to rapidly (as in, by next month) earn free flights and hotel rooms. Not only is it completely legal, but in the long term it also helps your credit score.  I started doing this a year ago and have gotten four free domestic flights and a room at a five star hotel in Cancun. In all, I've have gotten well over $1,500 in travel savings for a few hours of effort. I cannot recommend bonus stacking enough.

The gist: in order to attract and retain customers, credit cards and banks offer reward programs. Almost across the board, the points (or miles) in these programs are worth a penny apiece and are usually given for each dollar spent. Which means for every $1,000 you spend, you'll get $10 in value. Racking up the $30,000 in purchases required to enough points for a $300 ticket could take most of us years, which is what the companies want, since in that time you'll likely have given them far more in finance charges and late fees. 

In order to get you going, though, the financial companies like to start you off with a sign-up bonus to lure you in, usually between 5,000 and 10,000 points. With a little organization, you can stack the sign-up bonuses from several cards to immediately earn enough points for flights and hotel rooms.

Here is the nitty-gritty:

1.  You need a decent credit score to even get the cards in the first place. This is good thing in my opinion because if you are bad at managing your credit to begin with, the last thing you need is is a half a dozen bright, shiny credit cards lying around asking to get used. Anything above 650 will usually start you off.  
2.  In the short term, this will hurt your credit.  From the companies' point of view,  if you are ordering a large number of cards, it's because you are about to fund a super-model, cocaine-filled orgy and then off yourself at the end. Or similar. So ordering a large number of cards will ding your score, probably 15-20 points.  Because of this, it is best to order a number of cards all at once, because the next month your score will drop.


3.  In the long term, this will help your credit. A significant bulk of your score is determined by your credit-utilization ratio. This is the dollar amount of credit you have versus the amount that you are using. If you are $9,000 in debt on $10,000 in credit, your score will be lower than if you are $20,000 in debt on $50,000 of credit. So adding another ten credit cards will actually inflate the amount of credit you have (because you are NOT going to start using your bonus stacking cards, right?) and month after month your credit score will go up. 

4.  You can use the credit building thing as an excuse.  I got greedy once and ordered six different American Express cards in a day and they called me to see what was up. I said I was trying to increase my score by increasing my available credit. They asked for proof of income, I faxed it to them and they approved all six cards. Those bonuses got me two free plane flights.

5.  Be organized. A simple spreadsheet program like Microsoft Excel, Open Office Calc or Google Docs (which I use) will do wonders for your sanity. This is because different cards require different hoops to jump through. Some require a single purchase, others require a certain dollar amount of purchases (say $250). Some have annual fees that are waived the first year, meaning you have to cancel them before the year isup. Some post their bonus points in four weeks, others in six to eight. In a future post I will give tips on free finance programs and provide a spreadsheet template to help minimize your Advil use.


And that's about it!  Future posts will cover different programs and how to get the most out of your points.

How to: Get your ATM Fees Reimbursed

I thought I was going to cry the first time that I logged onto my Bank of America checking account while traveling in Slovakia and saw that the last three ATM transactions had been hit with $5.00 surcharges (on top of the $2.00 the Slovakian ATM had charged me).  Basically, more than a day's travel budget had been blown on fees.

What, did the bank WANT me to carry around huge amounts of cash while I was traveling in order to minimize my withdrawals?  Or did they want me to bring a bunch of money from the states and get hammered at the exchange bureaus (if you didn't know, ATM withdrawals give you the best rate of exchange)?

So that's why, after looking around, I settled on Evantage Bank.

Why?

Evantage reimburses your ATM fees, even international ones!

This was proven on a recent trip to Honduras and another one to St. Maarten.  Rather than fearing the ATMs, I was able to visit them as often as I wished.  True to their word, Evantage paid for my ATM fees.

That's the big one for me, because I live in the South Bronx, which has a cash based economy, so I find myself withdrawing money once a week even at home. 

On top of that, Evantage has:

1. High yield checking (currently at 4%) up to $10,000.
2.  Low requirement to get that rate (10 check card uses a month)
3. No phone tree when you call customer service! A real Oklahoman immediately picks up and answers your questions!

Obviously I can't use my check card 10 times a month abroad, but what that means is that when I'm in America, my liquid cash earns 4% and when I'm abroad I'm saving almost that percentage in ATM fees. 

 All in all, it's pretty sweet.

How to: Bribe an Official

Although I try to avoid bribing when I can (and have successfully talked my way out of having to bribe the police a few times), sometimes it's necessary.  When?  When I've messed up, that's when.   
Scenario: Something has gone wrong, and the official is acting like he is going to do something bad to you.

Your Magic Words: "I'm sorry about this.  Is there a fine?"

The Rationale: Of course there isn't a fine, but this is the official's way of taking money without looking like it's for him/herself.

After They State the Fine: HAGGLE!  Yes, haggle.  I had a Moldova train attendant who wanted $100 and I got him to $60, and I had Cambodian border guard who wanted $20 and I got him to $10.  There is no harm in trying, and it saves you money.

Your Magic Words: "I wish I could pay that, but I don't have that much.  I only have ___  on me!"

After They State a Mid-way Price: "But sir, if I pay that, I will not be able to eat tomorrow.  At most I could pay..."

And so it goes.  Just remember that when someone gets a bribe out of you, it means they will try to get it out of others after you.  So use sparingly.

Passive Income From Lending Club: Minimizing Loss

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The risk of using Lending Club is debtors that don't pay. So far, I've only had three loans fall behind, and so far there were three different outcomes. 

1.  Worth noting, though, is that the only loans that were late were those that I invested in as new loans.  I have yet to have a loan that I bought on the trading platform go late, and that's because I only bought loans from debtors who had been paying on time for eight months or more.

2.  The first was when I wasn't regularly checking the account, and when I caught it it was already more than a month late. The debtor had made only one payment before he stopped paying. I tried to sell the loan, but no one would buy it, even at 2/3 off the price. I believed I was going to loose the money.  The something interesting happened. The loan was referred to debt collection and then the whole thing was paid off. I don't know if he secured another loan from elsewhere or put it on a credit card, but either way I got my money back.

3.  The second one happened while I was checking on the first. I noticed that its status was "In Grace Period", which meant that the loan was late, but less than two weeks late. After "Grace Period", Lending Club marks it as "Late", which will make it hard to sell (I assume most people, like me, do not buy late loans). So  I put it on the market and steeply discounted it at $20, a 20% discount.  It was purchased a day later. I lost almost $5, but it was better than loosing $25.

4.  The third one is currently late, but I'm waiting and seeing. It was one of the loans I picked up when I was still bidding on new loans instead of buying them on the trading platform. It was a $75 loan that had been paid for 6 months before the debtor fell behind. I saw that it was "In Grace Period" and put it up for sale, again at a $5 discount. Possibly because it wasn't a steep enough discount relative to the worth of the loan, no one bought it. I saw that the debtor had been communicating with Lending Club and had been put on a payment plan by them.

I now had a choice: discount deep enough to sell and loose that money, or hold onto the loan and hope the debtor caught back up on his payments.

Since he had paid on time for six months, I decided to take a gamble and see if he would bring his account current. If he does, I am going to sell the loan. With the listing at "current", it hopefully should sell with only a minimal loss. His next payment is due on 3/10/10. I will post after to notify everyone if he paid.

Lessons:

1. Don't invest in new loans.
2.  Check the status of loans weekly to make sure all are current.
3. If a loan is in Grace Period, immediately try to sell it before it becomes "Late".
4. Keep loans to $25, so that you don't have to loose too much money trying to sell them before they become late.

Update: Someone bought the $75 loan off me.  It was still discounted at $5 off, but considering I'd already gotten $4 in interest payments off of it, my loss was $1.  

I'd like to also point out that since I've made hundreds of dollars in interest from Lending Club, loosing $6 is just the cost of doing business.  The trick is to stay on top of it so that you don't end up holding a bum loan and having it blow a hole in your bottom line.

Travel Gear: Chargepod

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Okay flashpackers, let me know if this is worth having:

Chargepod Base Unit

When I travel, I take a netbook, a digital camera and (sometimes) an HD camcorder. In the past, I've been annoyed that I have to pack a separate power cable for each of these devices, and since I've also seen flashpackers with all those AND cell phones and iPods, then The Chargepod from Callpod might be worth having. 

Basically, you buy it and adapters for your devices and it allows you to charge everything off one plug.  It looks tiny, too; smaller than the size of a cellphone in the pictures and apparently it only weighs a few ounces.  So not only will you likely be saving space, but you also won't be fighting for outlets in hostels or the airport.

So, if you have a Chargepod, leave a comment and let me know if it's worth it.

Passive Income from Lending Club: Step-by-Step Investment Strategy

Here's the biggest thing I learned from my time with Lending Club: don't invest in new loans.

Why? Even though you've looked at their credit history and read why they needed the loan, checked to make sure their income is verified and asked questions about their monthly obligations, there is still one thing you don't know: Will they repay?

Luckily, Lending Club has a way to sidestep this: the trading platform.

Run by FolioFN, this is where Lending Clubs notes can be bought and sold, and it provides filters that let you find the loans you need.

After I got to "Browse Notes" on the platform, here is what I do:

1. For "Status", click the checkbox for "Never Late". Unclick the others. You don't want someone who pays their loans late. Ever.

2. Put the "Remaining Payments" at 28. This means that they have been paying on time for eight months straight. This is more of a "gut" number. If you want more saftey, pick a lower number (which means they've paid on time longer). Vice versa if you want more risk.

3. Click "Search".

4. The right hand column is "Yield to Maturity". Click on it twice. This will order them from greatest yield to least.

5. I look for loans that were originally $25 (by now they're around $20) and that have yields higher than 11%. Buy them.

6. Although I've been tempted to buy loans with high returns that were above $25, I have stayed away. Why? You can absorb a $25 default. A $200 default will kill your bottom line. Buying a large number of small loans will spread your risk more than a small number of large loans.

7. I recommend checking the platform once a day rather than trying to invest everything at once. One day all the good loans available might be at 10% and the next day you'll find good ones at 13%. I recommend buying $100-200 a day until you're fully invested.

Passive Income from Lending Club: Overview

In my continued quest to earn passive income, I am really glad I found Lending Club.

Lending Club is a peer-to-peer lending site where people apply for loans through Lending Club, Lending Club vets them and then it chops those loans up into $25 "notes" that people like you and me can purchase. Essentially, we are putting up the money for the loan and we get the repaid principal and interest. Lending Club takes 1% as its fee.

With the stock market having completed its bull run and looking to go sideways for the near future, this is the strongest return on investment that I've found. Plus: low volatility.  Currently I am averaging 11%, and the principal and interest is paid monthly into my account.

To give you an idea of how this helps: Say you invest $10,000 and are making 11% interest. You will be making an extra $1,000 a year after Lending Club takes its cut, paid monthly. This means that as you are trotting around the globe, you are getting an $83 a month paycheck.

In cheaper countries, like Cambodia, $83 is pretty much all you need.  In a country like Ukraine, that'll still cover half your expenses, meaning you can travel twice as long.

The drawback, of course, is that someone might not repay the loan, in which case you can loose the money you invested.  Although Lending Club says they have been able to fully or almost fully recover 40% of loans that go into collections, you are still risking your money.

I've gotten pretty savy with it, though, so there's more to come on how to maximize your return and minimize risk and loss.