5

I want to preface this question by saying that this is theoretical, and I fully understand that it is a slippery slope that could get out of hand if not handled properly, and that the gains do not outweigh the risks.

Base assumptions to this case:

  1. My credit cards (CC A and CC B) are free (no monthly/annual/transaction fees).
  2. I always pay in full and accumulate no interest.
  3. There is a 1% cashback annually on the amount I spent (e.g., using the CCs for $10000 in expenditures will net me back $100 at the end of the year). Or there is another reward program (the amount does not matter for the purposes of the question).

With proper planning and extremely strict financial rigor, would it be possible to use only CC A for regular purchases, and use CC B to pay for CC A? By my understanding, by paying in full, and never accumulating interest, the reward program would apply twice without ever having spent a single cent more.

Example:

  • End of January 2017: CC A was used to purchase $1000 in items during the month. I use CC B to pay for CC A's January expenses ($1000).

  • End of February 2017: CC A was used to purchase $800 in items during the month. I use CC B to pay for CC A's February expenses ($800) and I pay off the CC B bill from January ($1000) with a bank payment.

Apart from the compounding risk, what prevents someone from using this strategy?

  • 8
    Aside from preventing the rewards gains (negligible) which you have pointed out; CCs do not allow you to pay the CC balance directly with another CC for the simple fact that people would be able to hold loans indefinitely. They will allow you to take out a cash advance via CC since that immediately triggers interest accrual. If your scheme worked then I would be trying EXTREMELY hard to get a 200k limit on two cards and buy a house. – MonkeyZeus Jul 13 '16 at 20:56
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    Heck, even a 30k limit on two CCs would get me into a nice new car for the low, low price of nothing. – MonkeyZeus Jul 13 '16 at 20:59
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  • @DavidG - just to be clear, "You can't do this." It's very simple. – Fattie Jul 14 '16 at 13:43
  • It appears to me that if you have a good credit score, and are careful not to carry a balance past the 0% intro period, you could probably do no-fee balance transfers indefinitely, until either you hit the ceiling in terms of what banks will extend to you, or we have another 2008-style crash and banks want to pull in all their credit. You could really keep it rolling forever if you transfer to business cards like the Amex Blue Business Plus, as many of those don't show on your personal credit report. Of course, I am not suggesting that anyone actually do this, but it's fun to think about. – Ivan X Apr 22 '18 at 16:00
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If you had a CC issuer that allowed you to do bill-pay this way, I suspect the payment would be considered a cash advance that will trigger a fee and a pretty egregious cash advance specific interest rate. It's not normal for a credit payment portal to accept a credit card as payment.

If you were able to do this as a balance transfer, again there would be fees to transfer the balance and you would not earn any rewards from the transferred balance.

I think it's important to note that cash back benefits are effectively paid by merchant fees. You make a $100 charge, the merchant pays about $2.50 in transaction fee, you're credited with about $1 of cash back (or points or whatever). Absent a merchant transaction and the associated fee there's no pot of money from which to apply cash back rewards.

  • So what prevents someone from doing this is simply because the CC issuer wouldn't let you use credit to pay your balance, anyways not without charging something extra. Good explanation :) – David G Jul 13 '16 at 20:07
  • Nailed it. There was a short time in the 80's that cash advances were treated like charges. In the 80's one could obtain credit, do exactly as the poster suggested and put the money in CDs. If one could get 50K credit, they could earn 2k on a cd, or just under 10% of the average family income. – Pete B. Jul 13 '16 at 20:08
  • There was a time when Capital One had "access checks" with extremely generous no-fee rules that i could use to consolidate other bills for a free month of float but I haven't seen one since 2007. – user662852 Jul 13 '16 at 20:42
  • Note that the obvious way to try to do something like this would be with a service like PayPal that lets you (modulo likely significant ToS violations) pay yourself using a credit card, but their fees are sufficiently high to make it non-profitable. Such a scheme might be suitable to reduce the amount of interest you're paying, rather than getting credit for free or at a profit, but there are still significant issues to overcome. Approaches involving buying & selling BTC may also be possible, but likely risky (legally and otherwise). – R.. Jul 13 '16 at 23:03
  • @user662852 I get fee free interest free checks from time to time on one of my cards, but there's always some catch and if nothing else, the inability to roll over the float indefinitely (uncertainty about where you will get your next free or low-enough cost roll-over) is still a problem. – Michael Jul 13 '16 at 23:29
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Three things prevent you from doing this:

  1. Credit cards generally don't accept other credit cards as payment. You could do this with a cash advance or balance transfer, but

  2. Cash advances and balance transfers usually have fees associated with them, negating any reward you might earn. Your card might have a no-fee balance transfer promotion going, but

  3. Cash advances and balance transfers generally aren't eligible for rewards.

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    And if card company allowed this, I could keep paying card A due with card B, and card B with A ... infinite.... and reward points would be more so I actually make more money – Dheer Jul 14 '16 at 0:19
  • you could improve your answer by saying "cash advance or balance transfer" since they are effectively equivalent in this case. – james turner Jul 14 '16 at 19:28
2

A "balance transfer" is paying one credit card with another. You probably get offers in the mail to do this all of the time. As other posters have noted, however, this usually comes with finance fees rather than the rewards that you get for normal purchases because it's written into your credit card agreement as a different class of transaction with different rules.

I'm not sure if it's urban legend or true, but I have heard stories that suggest there were some "loop holes" in the earliest credit card reward plans that allowed for something like what you want. I doubt that any plan ever allowed exactly what you've written, but I've heard stories about people buying gift cards from merchants and then using the gift cards to pay their bill. This loop hole (if it ever existed) is closed now, but it would have allowed for essentially infinite generation of rewards at no cost to the cardholder. The banks and credit card companies have a lot of years of experience at this sort of thing now, so the threshold for you finding something that works and conforms with the cardholder agreement is pretty small.

  • I used to pretty regularly get offers to transfer a balance with no finance charge for 6 months or whatever amount of time. I don't recall if I ever got such an offer on a card that offered cash-back rewards. Maybe they didn't offer it on such cards precisely to prevent the sort of game the OP is describing. – Jay Jul 14 '16 at 13:29
  • The purpose of balance transfer is sort of refinance idea to move someone debt from higher APR to lower one in a lightweight method. For bank's promotion purpose, some credit cards balance transfer APR is 0% for a a period, but it always comes a fee like 3% or $50 maximum. If someone can pay less than original credit card APR and save more than 3% or $50, it is worth of doing so. If two credit card APR has no much difference, using balance transfer might just increase how much what you pay totally. – jclin Jul 14 '16 at 16:33

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