Anyone Can Make Money Doing This

Citigroup's (NYSE: C  ) marketing team must think I'm stupid. "We are making changes to your account terms. These changes include an increase in the variable APR for purchases to 23.99%," reads a note from the company that I received last week.

But that's not the worst part. This is:

As a valued customer, you have the ability to earn a special rate that is below your current purchase rate if you accept these changes.

The bold text isn't mine. Citi included that in the letter it sent. So you'd think the offer to follow would be pretty sweet, right? Wrong. The terms are:

  • Transfer $3,000 or more by Dec. 10.
  • Receive a special rate of 9.99% on this balance transfer until Jan. 1, 2011. (Technically below my current "purchase rate.")
  • In addition, effective Dec. 20, the "special rate" becomes effective on all existing and new purchase balances until Jan. 1, 2011.
  • After that, the rate increases to 23.99% for all unpaid balances.
  • Oh, and there's a 3% balance transfer fee.

And you call me a "valued customer," Citi? Geez. How about you just steal some beer from my fridge instead? Maybe kick my imaginary cat? Egg the house? Anything other than this whopper of a rotten deal.

The non-offer offer
What's most troubling about this so-called offer is that it isn't really an offer at all. Rather, it shows a striking lack of attention. We don't carry a balance on this card. We never have. Instead, we use it to charge a modest number of business expenses each month, earning Hilton HHonors rewards points for each purchase.

Citi, in effect, is offering me an interest rate I don't need and won't use. Nothing of consequence, which means I'm no more a "valued customer" than my 4-year-old son.

So why did this presumably top-drawer bank waste the postage? I posed the question to two of the Fool's top banking analysts, Morgan Housel and Matt Koppenheffer. You won't like their answers.

Living off the ignorant
"Citigroup knows exactly what it's doing here," Morgan says. "It works. People fall for this stuff hook, line, and sinker. It's a sad truth, but the majority of borrowers don't have the financial literacy skills to understand they're being hosed by a lender's offer."

Matt has a similar perspective. "In the end, the credit card industry really thrives off of people simply making bad decisions about their personal finances -- namely treating short-term revolving credit as longer-term financing," says Matt.

In other words, just like Bank of America (NYSE: BAC  ) , JPMorgan Chase (NYSE: JPM  ) , and Discover Financial (NYSE: DFS  ) do with their cards, Citigroup hopes you'll take the bait and become a profit generator for the bank.

My advice, though, is to stick it to lowball credit offers with awful terms by demanding more than they're offering, because better deals are out there. I grabbed one from American Express (NYSE: AXP  ) over the weekend.

Anatomy of a credit multibagger
Amex likes me, and for good reason. I've been a customer since 1991, and my wife and I charge the majority of our monthly expenses to our green card. We do this because (a) we've been in debt, and having a card that's due in full each month enforces ongoing spending discipline; and (b) Amex's Membership Rewards program helps us fund exotic vacations we wouldn't ordinarily be able to afford.

As of today, we no longer use the green card. We've upgraded to what American Express is calling the Premier Rewards Gold card. Why? Because, by my math, we're going to earn at least a 500% return on our incremental investment.

Barely a month old, the Premier Rewards Gold card offers double points on gas and groceries and triple points on travel. Those who spend more than $30,000 per year on the card earn a 15,000-point bonus that can buy a $150 gift card.

We'll pay Amex $50 more per year in fees. But we'll earn multiples of that. Between feeding three kids -- two whose food allergies demand regular trips to Whole Foods -- and daily commuting, we spend at least $1,000 per month in gas and groceries. Also, because we concentrate more than 50% of our monthly spending on Amex, we'll qualify for the year-end giveaway.

In short: We're spending $50 to get at least 27,000 extra points, which I calculate to be worth about $270 in rewards -- a five-bagger. From a credit card. Better than 23.99% interest and nothing, don't you think?

More good news
Of course, you don't need Amex to rescue you from bad banks. You can get MasterCard (NYSE: MA  ) and Visa (NYSE: V  ) cards from issuing banks offering 1% or more cash back. Some of them even carry no fees. Shop around, and chances are you'll find something far better than what your bank is offering.

Make your lender treat you like the "valued customer" it claims you are. It's the least you deserve.

To learn more about making the most of your credit, check out our credit collection.

Whole Foods is a Motley Fool Stock Advisor selection. American Express and Discover Financial are Motley Fool Inside Value picks. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy just checked the temperature outside. Brrrrrr!

Read/Post Comments (7) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 16, 2009, at 3:23 PM, Turfscape wrote:

    From the post:

    "Geez. How about you just steal some beer from my fridge instead?"

    In the interest of full disclosure, I'm letting you know that I will be using this line in casual conversation frequently. Thanks for the laugh!

  • Report this Comment On November 16, 2009, at 3:41 PM, CiberSigns wrote:

    I thought exactly the same thing when I got my Citi "Offer Letter" Funny think is, my wife have had that card for 13 years, never had a late payment, always pay in full, and we get the a rate of 23.99. Good thing we don't carry a balance on that.

  • Report this Comment On November 16, 2009, at 3:50 PM, tkell31 wrote:

    I got the same offer from CITI, but I'm already enrolled in their free cash back program that until a year ago paid a rather ridiculous 5% back on purchases at supermarkets, gas stations and restaurants. They recently cut that further from 3% to 2%, but I pay my balance in full each month so it's just free money to me.

    Last time I checked no one was forcing anyone to use a credit card. Granted the rates are loan sharkish, but shouldn't that further deter people from using them? Just how stupid and greedy is the american public? And why is it people think they should be entitled to money they didn't earn (essentially what using a credit card is all about) and then complain about the conditions placed on repaying that money? Hey, here's a crazy idea, live within your means and just throw these stupid offers in the trash.

  • Report this Comment On November 16, 2009, at 4:02 PM, tkell31 wrote:

    Citi offers a better program then AMEX as far as rewards go, but no need to clutter up the entertaining read by mentioning it.

  • Report this Comment On November 16, 2009, at 4:30 PM, TheGreatFoolish1 wrote:

    i'm going with tkell's idea and throwing the credit card offers in the trash. nobody gets rich by spending 30k on credit cards to make 100 bucks. life happens, things go wrong, and then you start paying 24% on that debt. the way to win with money is to only spend money you already have.

  • Report this Comment On November 16, 2009, at 5:02 PM, Turfscape wrote:

    tkell31 said:

    "Last time I checked no one was forcing anyone to use a credit card."

    No, no one is forced to use a credit card, but they are integral to global society. Quite simply, we live in times when it is impractical to use cash for many, many things that are part of daily life. And, many times, we encounter situations for which we need a substantial amount of money immediately and don't have the cash on hand to cover it. We may have the income to provide for that purchase over a longer period, but the purchase is an immediate necessity.

    Example: I walk in the house and go to pour myself a glass of milk, only to find that the refrigerator is not operating. Multiple parts have failed and it is out of warranty. I need to replace it. Can I survive for four months while I save up the cash to purchase? Sure. Is that practical? No. So, I ring it up on a credit card that I pay off over 4 months.

    That's good for me and it's good for the economy. What's not good is if I am suddenly, and without alternative, forced into a rate that turns my four month payoff into a 7 month payoff just to cover the interest rate.

    But, please tell me again how irresponsible it is to use credit...

    P.S. Get a home loan to buy your house? Or did you do it with cash?

  • Report this Comment On December 01, 2009, at 2:22 PM, bzhayes wrote:

    This was a good article until you extolled the benifits of paying $50/year for a card with a rewards program.... but you get triple points!!!! Send me $50 and I'll give you quaduple points in the bzhayes rewards program....

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