Dangerous revenge: Beating credit card companies at their own game
But most people won't keep within those parameters. They'll spend the $3,000 and get the bonus — but then they won't pay the balance off. Or maybe they spend $3,000 on things they don't need. Or they will hold onto the card until the annual fee is due. Human behavior tells the companies that the odds are in their favor.
By strategically using cards with low introductory interest rates and free balance transferring, people may pay off accumulated debt quicker and with less interest. months sooner.
Finance counselor VanderToolen is not a fan of gaming credit cards. "The typical consumer has a difficult time managing their finances as is," he says. "We advise people to just use wise financial management."
But that doesn't mean not using credit cards at all. VanderToolen is a fan of building credit scores by using rewards credit cards and paying them off every month. Rewards credit cards simply, as the name implies, reward customers for using them. Often that reward is in "cash back" percentages for dollars spent.
Dolen also likes regular rewards cards and says he averages about $3,000 back every year from ordinary spending. "It's like free money," he says.
The island approach
The way Papadimitriou recommends using rewards cards is what he calls the "island approach." By this, he means using each card for only certain types of purchases. Different rewards cards have different terms. Some are better, for example, for groceries. Others give more back for gas.
Papadimitriou says that by using different cards, people may earn 6 percent back on groceries, 3 percent on department stores, 5 percent on gas and 2 percent on everything else.
There are catches to be aware of, however. A card may give an initial bonus, but that bonus may best be used to offset annual fees.
"This is not like you go out tomorrow and get three cards," Papadimitriou says. "But over time the goal is to have the best rewards card for each of your major expenses."
All these ways of using cards can go south quickly. "If you have a track record that you do not overextend yourself, then go for it," Papadimitriou says. "If you have the opposite, then don't go for it. It would be like giving alcohol to an alcoholic; it never works out."
Dolen agrees that people need to be very disciplined and that if they find themselves using cards in a self-destructive way they need to avoid using them.
But even using them correctly could be dangerous to financial health.
Mortgaging your future
When people open a new card, their credit score takes a temporary hit. Also, if they only keep cards for a short time and don't have any long-term cards, that reflects poorly on their credit history as well.
"If an individual is going to be purchasing a vehicle with a loan or a home in the next few years, it would be vital to manage their credit properly," VanderToolen says. "It might not show up as a loss to them today, but if they are offered a slightly higher interest rate on a home a year from now even if the interest rate is half a point higher on a mortgage, that will equate to thousands upon thousands of dollars of interest charges over the life of a mortgage loan."
In other words, if people have something major coming up that requires the absolute best credit score, then hold off.
For most people, however, playing with credit cards can be a dangerous game.