Finance Gets Personal

In one of my recent posts (does a month ago count as recent?), I promised I’d share how I’m using frequent-flier mile magic to fly my family to Europe for free next year.

Now, I know this blog isn’t a place you’d expect to see advocating the use of credit cards, so here is my obligatory warning. PLEASE do not try this at home if:

• You have any credit card debt
• You have a credit score below 720
• You are planning to take out a loan or refinance a loan in the next 12 months
• You can’t afford to take a vacation and still meet your other financial goals
• You aren’t 100% confident in your ability to set aside money as it is charged, not spend any more than you would if using cash and pay off your entire balance at the end of the month

Are you still with me? Here we go…

(By the way, I am definitely not getting any kickbacks from any of the airlines or credit cards mentioned below. Unless they offer. Then I’m totally selling you guys out!)

The airline I’ve decided to fly with is American Airlines. Their basic round-trip reward flight “costs” 25,000 miles within the Continental U.S., and 40,000 miles to Europe in the off-season (October 15 - May 15). Of course, mileage requirements vary - check this chart to see how many miles it will take to get where you want to go.

Since there are three people in my family, I need to acquire 120,000 American Airlines frequent flier miles to fly to Europe and back for free (unfortunately, kids with their own seat are the same “price” as adults).

Step 1: Join the American Airlines AAdvantage Program
It’s free to join, and I’d recommend signing up for a card for each adult member of your family. Click here to enroll.

Step 2: Apply for a Citi AAdvantage Card
Citi has three AAdvantage credit cards to choose from: a MasterCard, an American Express and a Business Mastercard. Pick one (for now), and apply here, using the AAdvantage number you were emailed after completing step 1. Do NOT list your spouse or significant other on the card, or order a card for them (this gives you the greatest number of opportunities to apply for separate cards and earn more miles). For each card you sign up for and charge $750 on within 4 months of opening, you’ll receive 25,000 frequent flier miles.

Step 3: Sign up to Manage Your Citi Account Online
Once you’ve received and activated your card, register for an online account at citicards.com. This will help you keep track of your spending, know when your statement will be issued and pay your bill online.

Step 4: Charge $750 to Your Card within the First 4 Months (Preferably Within the First Month)
This is actually much easier and quicker than I thought it would be! Instead of taking money out of the bank each paycheck, I know that I am allowed $325 to spend on the credit card: $150 for groceries, $75 for my gas, $60 for my personal spending and $40 for entertainment. Then I set aside the money: instead of recording an ATM withdrawal in Quicken online, I input “On hold for credit card - $325.” Then, I see what other bills I can pay with my card without incurring additional fees: cell phone bill, cable bill, etc. Add in some other expenses, like the $300 deposit on the root canal I had this morning (which will be reimbursed by my flex savings account), and I’ve reached $750 long before my first statement. I keep an Excel spreadsheet of my transactions so I can tell exactly when I’ve reached the $750 mark (I don’t like waiting up to a week for the charges to show up online).

After you’ve reached $750, you can keep spending on your card in order to earn 1 additional mile for each dollar you spend, but make sure to stop using it about 5-7 days before your statement closing date (check your online account for the date). This way, you won’t have to go through two billing cycles before being able to close your account (and won’t have to wait an additional 30 days to apply for your next card).

Step 5: Pay Your Card Off Online as Soon as the Statement is Issued
Although you can’t make any payments before your statement comes out, you don’t have to wait for it to actually arrive in the mail. Just log in to your Citi account the day your statement is issued and pay off the balance (you’ll need your bank routing and account numbers from your checkbook).

Step 6: Check Back in a Few Days to Make Sure the Payment Has Cleared and Your Miles Have Posted
Check your Citi account online to make sure you have a zero balance, then log in to your AAdvantage account at AA.com to see if your 25,000 miles have posted. If so, you’re ready to close the card.

Step 7: Close Your Card
You’ll want to close your card quickly, because you need to wait 60 days before applying for the same card again. Also, the card has an annual fee of $85 that is waived for the first 12 months, and you don’t want to keep the card for a year and incur the annual fee. To avoid talking to five different customer service reps trying to retain you, simply follow these steps to close your account online:

Log in to your Citi account online and select the card you want to cancel. Go to the Help & Contact Us menu at the top of the page and select Email Customer Service. Click on Send A New Message. For the topic, select Account - Other. For the subject, say something like “please cancel AMEX card ending in 0000.” Make sure your email address is correct, and type a message to the effect of, “Please cancel my Citi card ending in 0000. Thank you.” Send message. You may not get a response, but within a business day or two, when you go back to your summary of accounts, you will see the red “this card has been closed” message for the card in question.

Don’t worry, your miles are safe!

Step 8: Repeat Steps 2-7 with the Other Available Citi AAdvantage Cards (Just NOT the Same One You Just Closed)
This is where things get a little bit interesting. Technically, you can have a Citi AAdvantage MasterCard, AMEX and Business MasterCard all at the same time and earn 75,000 miles in one month. However, I prefer to just do one card at a time. Once I reach $750 on a card, I apply for the next one. Since I don’t really have any business income, I’m not going to apply for the business card.

Step 9: Wait 60 Days After Closing Each Card to Apply for the Exact Same Card Again; Meanwhile, Get Your Spouse/Significant Other Started
After your account has been closed for 60 days, you can apply for the exact same card and get 25,000 miles again. This is called churning. If you don’t wait 60 days before applying again, however, you’ll likely be denied and have to wait another 60 days, so be patient. While you’re waiting for your 60 days, I’d suggest getting cards for your spouse or significant other (remember, don’t put your name on them). I’ve found that who actually uses the card isn’t usually a big deal - we trade cards for things like groceries and gas, and have never been questioned about using each others’ card (unless it’s a retail store or someplace where they typically ask to see your ID).

Throughout this process, it’s important to have a strategy in mind - especially if children will be traveling with you. You can choose to have one adult earn all the miles for the family (which will take longer and impact that person’s credit score more), or you can split the earning among the adults.

Here’s our strategy:

• I applied for a Citi MasterCard, earned 25,916 miles (25,000 bonus points + 750 points for the first $750 + 216 points for an additional $216 of spending), and closed my account
• My husband applied for a Citi MasterCard two weeks after I did, earned 26,149 miles and closed his account
• I applied for a Citi AMEX once I closed my first card, and am almost to $750. Let’s say I’ll earn 25,750 miles, putting my total miles at 51,666. Because I’m going to purchase my stepson’s ticket too, I’ll need to wait 60 days from the closing date of my MasterCard, and then apply for a new MasterCard. Because 51,666 + 25,000 is only 76,666 (and I need 80,000), I’ll keep that card a little longer and charge an additional $2,584 beyond the $750.
• My husband will apply for a Citi AMEX within the next few days and earn 25,750, putting his total miles at 51,889. Because he only needs 40,000 miles for his ticket, he’s done.

Step 10: Buy Your Tickets!
American Airlines posts their tickets 329 days in advance (I’ve heard they usually start posting them around 2 a.m. Central and are done between 4-6 a.m. Central). Because frequent flier seats are limited, you’ll want to book early!

If you’re planning a more complicated trip, like an open-jaw European flight (arriving in one location, departing from another), it is probably well worth your money (and perhaps unavoidable) to order your tickets by phone for a $74 fee per ticket. Sorry, should I now change the title to “How to Fly to Europe for $74?” Only if you gift me some miles, you new frequent-flier master!

(This post was included in the Carnival of Personal Finance, hosted by Wide Open Wallet.)

While I’ve been debating between buying a Dyson for $440 and a cheap vacuum for $100, it turns out there are a few other options I hadn’t considered before.

The first option is buying a cheap vacuum with my American Express card and paying it off immediately. It turns out that if I would have purchased my last vacuum with my American Express card, I’d be able to get my money back even though the manufacturer’s warranty had already expired. That’s because AMEX doubles the manufacturer’s warranty up to one year for any item with a warranty of five years or less. That means my Kenmore, which had a manufacturer’s warranty of one year, would have been covered for two years had I paid for it with my card. Since my Hoover also died within two years, that vacuum would have been covered too.

The second option is to purchase a vacuum from Costco. Costco offers a “lifetime guarantee” on most products (excluding plasma TVs and computers), which means that if I purchased a vacuum there and it broke five years later, I could get my money back as long as I saved the original receipt (or a copy of the receipt, since they usually turn black after a while) and the packaging. I had heard about this before, so I called the store to confirm - it’s true! The only problem with this option is that we don’t have a Costco membership. Our parents have Sam’s Club memberships, but despite their website’s claims of a “100% Satisfaction Guarantee,” they said I would probably not be able to return a vacuum I’d been using for any amount of time over 60 days.

So now the question is, do we buy a vacuum with the credit card to extend the warranty by a year, or do we buy a $50 Costco membership to get a lifetime warranty?

While I realize that a lot of people save money shopping at Costco, I’m worried I might end up spending more than I otherwise would, especially since I usually shop sales and use coupons.

I’m sure you know someone like this:

“Credit cards are great! I use mine for everything and pay it off each month. I flew to Tahiti last March with the airline miles I earned and I get $500 cash back from my Discover card at the end of the year. I know some people can’t handle credit cards, but they can be used to your benefit if you do it right!”

Admittedly, I am not one of these people. Maybe someday I will be, but I don’t trust myself to pay everything off and not spend more than I would otherwise.

One of my coworkers is, only she takes it to a whole new level. Every few months, she will open an American Airlines or Continental credit card that offers 20,000-40,000 airline miles for signing up. She’ll make the required number of purchases with the card and keep it open long enough to get the miles. As soon as the miles are transferred to her frequent flier account…bam!, she closes the card. She then has her husband do the same thing.

After waiting a few months, she calls the credit card company and applies for the exact same card. Makes her purchases, gets the miles, closes the card. Repeat.

She now has enough miles for her and her husband to fly to the Caribbean every six months for the next three years.

Crazy? I’m not so sure. The only drawback I see is that it might affect their credit scores by opening and closing cards so often. But since only 10% of your FICO score is determined by new credit, it shouldn’t affect it too much.

It’s really tempting to open a card for both my husband and myself and use the points to fly us somewhere for our fifth anniversary next year, but I think I’ll stay away for now. I can’t believe I’m quoting Dave Ramsey here again, but, “When you play with snakes, you’ll get bitten.” And I can’t afford to take any chances.

The other night I went to Old Navy and purchased a shirt for $4.97.

Within two minutes of entering the store, I was approached by a girl with a clipboard asking if I’d like to apply for an Old Navy credit card. After I declined her offer, she quickly moved on to a Hispanic lady next to me. While I don’t think this shopper spoke English, she glanced at me and told the employee no. She must have known by the look on my face that whatever the question was, the answer was no!

Then, the guy ringing me up asked if I’d like to save 49 cents by opening an Old Navy card! I laughed and told him no.

Based on the fact that every Old Navy customer satisfaction survey asks whether you were offered an Old Navy card, and the fact that I am asked every single time, I suspected that the employees must be required to ask everyone.

So I did a little research and found the following discussion among Old Navy employees on MySpace. It seems that employees have certain goals for the number of Old Navy Cards they need to get per month, week or even per shift. What’s worse, these “goals” are more like requirements for employment, as employees are threatened with loss of hours and possible termination if they do not perform up to expectations.

While it seems to bother some of the posters, many just see it as “part of the job,” and post tips about how to talk shoppers into applying for the card.

So, is there anything we can do to get stores to stop pushing these cards on us? (Besides taking it out on the employees, obviously.)

Here are a few options:

• If you shop at Old Navy (or another annoying store) and are given a customer satisfaction survey with your receipt, be sure to mention your displeasure with their strong-armed credit-card pushing techniques when asked if you have any other comments.
• Write a letter or email the company. Here is the contact information for Old Navy:Old Navy Customer Relations
  200 Old Navy Lane
  Grove City, OH 43123-8605custserv@oldnavy.com

I know that retail credit cards are supposed to increase company loyalty among card-holders, but what about the loyalty of non-card-holders? I’m seriously considering reducing my visits.