- Welcome to part two of the
credit card churning series. Now, in part one, we covered
the fundamentals, the basics, we covered, who should do this hobby. More importantly, who
should not do this hobby and other rules that you never
wanna violate in churning. So this is part two, let's get started. (soft music) Quick disclaimer, I'm not
a financial professional, I'm not a tax advisor. None of these things, proceed with caution proceed at your own risk. This is for informational purposes only. Now my two favorite resources as I talked about in the part
one video, doctorofcredit.com, and the churning subreddit. The churning subreddit, one of the users created
this awesome flow chart which is super helpful for people who are just starting off in the hobby. Now they also created a
specific coronavirus edition of the flow chart, 'cause some of the credit
card policies have changed in the recent months. I am personally still accumulating points, even though I'm not traveling
during the near future, because the way churning usually works is you accumulate points
over months and years, and then you cash them out in the future. So that's more of a personal decision, but regardless, the
fundamentals we're talking about here are gonna apply whether now or in the future after this whole
coronavirus thing is over. Now, before we dive into the flow chart, you first need to decide
what are you optimizing for? Now for most people, it's usually travel. You get the most value actually that way. And especially if you are
a premed or medical student and you have either
medical school interviews or residency interviews coming up, then travel is what you
probably wanna optimize for. But if you're not gonna be traveling or staying in hotels in
the next couple of years, then cashback is a
totally fine option too. Now we're gonna walk through
a few bits of the flow chart, but at the end of the day, I wanna teach you guys
the actual philosophies, because the thing is the actual rules are constantly changing and you have to stay on top of it if you wanna be really
effective in this hobby. So it's more of like a give a man a fish or teach him how to fish sort of thing. I wanna teach you guys
the actual principles so that moving forward, you
can handle it on your own. So, all right, let's
dive into the flow chart. There are these anti-churning rules, which banks have created to
essentially discourage people from taking advantage of the points, which is what we're trying to do. The most infamous one
is the Chase 5/24 rule. What that means is that
if you've opened up five or more personal credit
cards in the last 24 months, they will not approve
you for any new cards. The only way to get
around that is you have to wait until in the proceeding 24 months, you don't have five new
cards on your credit report. This gets a little bit complicated though, because business cards
generally do not count because they're not put on
your personal credit report except for business
cards from three banks. You have Discover, TD
bank and Capital One. Regardless if you're watching this video, most of you are probably under 5/24. So let's go to the left
side of this flow chart, and then you need to decide, do you wanna get the
Southwest Companion Pass? The Southwest Companion
Pass is pretty awesome. It allows a companion to
fly with you for free. You just need to pay
the small flight fees, which are $5.60 one way if you're flying domestically. So the flow chart is really effective at helping you navigate
all these different rules from all the different
credit card companies and by answering these questions like, are you above or below 5/24? Do you want the Southwest Companion Pass? It helps you kinda prioritize what you should be focusing on if you're new to this hobby. One thing the floater
does not address though, is that when you sign up for a card, you want the maximum sign-up bonus. So they're constantly changing. For example a credit card may
have a 50000 sign-up bonus now but in the past, maybe they
had a 70,000 sign-up bonus. You may wanna actually wait
until it goes back up to 70K, it's gonna be a personal decision. I like gonna doctorofcredit.com because he's usually pretty updated and on top of the whole sign-up bonus and how it compares to previous bonuses. Now, going back to the Companion Pass, there's a lot of nuance in strategy here. So the Companion Pass when you earn it, well, first of all, to earn
it, you need 120,000 points in a single calendar year. So the way that most people in the churning community
do this is they will open up two Southwest credit cards. Each of the bonus is like 50 or 60K and now you're at a 100 or 110K and you have to actually spend some money on those cards to meet the bonus. So like 115 anyways, you'll
get to 120,000 points in a single year and then
for the rest of that year, you get the Companion Pass
plus the next calendar year. So that being said, generally, you want to apply to
these cards in December so that you get the bonuses in January. So you have the rest of that
year plus the next year. So essentially two years. Now, another thing to
note on the flow chart is that they do recommend opening
up business credit cards, sometimes even if you
don't have a business but we're gonna be talking about that, whether you should or should
not at the end of this video. Now, which card do I recommend? The general consensus
is that you wanna start with Chase because of the 5/24 Rule, which is the most restrictive
anti-churning rule. There's the Chase Sapphire Reserve and the Chase Sapphire Preferred. Generally speaking, these
are totally worth it upfront because of the large
sign-up bonus that you get but then after a year,
they may have an annual fee that you may or may not justify. So that's gonna be a personal decision, either you keep the card and you keep paying the annual
fee because you find value or you downgrade the card to another card that has no annual fee. So you may be thinking, okay, hold up, the Chase Sapphire Reserve
is like $500 annual fee, how is that worth it? Well with the sign-up bonus,
let's say 50,000 points, you can actually redeem those at a 1.5 cents per point ratio. So essentially that's $750 in travel, in hotels, things like that. So already you're ahead, $250
or whatever the amount is. But the thing is next year,
you're not gonna get another 50K you just pay the annual fee and you don't have any additional bonus. So then you have to decide
if it's worth it for you. Now, Chase recently changed the perks and benefits of their Reserve card. So now the annual fee
is up to 550 from 450, but you still get a $300 travel credit. Now that travel credit
is very easy to redeem, it's on Uber, Lyft, a lot of things. So in the churning community
we essentially just deduct that from the 550, so 550 minus 300, essentially 250, the effective annual fee. They added some Lyft
and DoorDash benefits, which I personally can't justify and with the added
annual fee and the perks that I'm not really using, I
couldn't really justify it. So I downgraded my card. So churning as a hobby is all
about getting the most value from a credit card possible. Usually what this means is
you get a large sign-up bonus and then a year later you
decide if the card is worth it. In which case you keep it long term or you downgrade it to another card that does not have any annual fee. You wanna downgrade
rather than close the card because if you close the card it shortens your average age of credit and that's not good for your credit score. So for example, you don't actually wanna open
up the Chase Freedom upfront because it has a very low sign-up bonus. So what you do is you
open up a Chase Sapphire and then a year later you can downgrade it to a Chase Freedom. Now the Chase Freedom has no annual fee and it does have 5% of rotating categories and this is where a lot
of people get tripped out, the daily spend the 3% here, 5% there. The thing is the amount you
spend day to day getting three or four or 5% here or
there doesn't add up nearly as much as getting a
large, chunky sign-up bonus several times per year. I mean, it's still important but it's more of a secondary consideration and your first consideration
and your first point of optimization should be
getting big sign-up bonuses. So after the Sapphire cards what next, I would generally go
with the Southwest cards, especially if you're at an
airport that fly Southwest. There's a lot of value here. I think for most people
it's very beneficial. And what you can do is
actually open up both of the Southwest cards at the same time using
the modified double dip. It's a more advanced strategy. You'll have to search
on Reddit on your own to find the details of how to do that. For hotels, Hyatt is
considered the favorite in the churning community. There's a lot of value
for the points there and then after that it's gonna be more of a personal decision. For me a lot of my own strategy
in churning has changed in the recent years because
of med school insiders. I have a large monthly
expenditure for the business, much more so than my personal expenses. So that's definitely changed my strategy. For most of you though,
unless you guys are outliers, like you have a business or
some other unique circumstances, following the flow chart is gonna probably get you where you need to be and remember the churning
community focuses on sign-up bonuses and you're always working
towards a new sign-up bonus at any given time and generally opening up a
card every one to three months. All right, next, let's
talk about assessing value. So when you're traveling
you need to decide, are you going for quantity or quality, meaning going for economy or luxury? There's no right or wrong here but I personally choose the
budget economy traveling for two reasons, first stoic fundamentals and I've talked about stoic philosophy and basics for students
in a previous video and second, hedonic adaptation. I don't wanna get to
the point where I'm used to flying business and
then for me to go back to economy is like this huge
chore or this huge like, Oh my God, my God, I'm
so annoyed right now. So think about this. Let's say you have 60,000
points with whatever airline, you have two options, either
you can fly round trip to Asia with those 60,000 points or you can do one way to
Asia with business class. So the actual cash value
of the first option if you just flat economy round trip, let's say it's like $900. Whereas the second option
if you fly business, if you were to buy that with cash, it'd be like 2000 or $2,500. So in this case the redemption
value of the cents per point, the actual value you're getting
per each point is higher with the business option. So does that mean that
it's a better value, usually in the churning
community they would say, yeah, that's like
obviously the better option but I don't think so. Again, the standard way of
assessing the value of any perk or benefit in the churning
community is to look at the actual dollar value if
you were to buy it in cash. For example, the Chase
Southwest priority credit card gives you four upgraded
boardings per year. Now I found this blog
post and the author talks about his experience
at the Chicago airport during which time these upgraded
boardings were $50 each, he says, "Okay, I get four
of these, they're each $50. "I got a $200 value here,
but here's the issue. "Would you ever actually pay
$50 for an upgraded boarding? "I personally, wouldn't." Another example, the lounges at airports, if you were to buy
lounge access for a year, it's $300 but would you actually pay $300 for lounge access for a year? I personally wouldn't. So rather than the value of
buying these things in cash, ask yourself, what would you
pay to get the same perk? So for the Southwest upgraded boardings, I would personally pay
like five or $10 tops and for a lounge visit
maybe 15 or $20 tops. Now that is the actual
value that I'm receiving. So I use this actual
value in my calculations and in my decisions rather
than the market value of what it would be for me to actually
buy it in cash on my own. All right, last let's talk
about the risk and gray areas. Now this is somewhat of a spectrum. I'm definitely much more conservative than the average churner. I think that it's better to
have a low or medium flame that burns for a long period
of time for several years, rather than this really bright
flame that burns out quick. So it's like the high risk high reward versus the lower risk
and longevity approach. If you go high risk, you
can have cards closed, you can have points taken back, there's like a lot of downsides that to me aren't worth an
extra couple hundred dollars. So for example, there was this
thing called the gravy train with American airlines and people were abusing these mailers and ultimately they cracked down on it and a lot of people got
their accounts closed, the points were taken back. Some of those people were
in the middle of a trip and then their flight
back home got canceled and they had to figure that situation out. It's just the stress
isn't worth it in my mind. On the other hand, you can
play by the rules like I do. You can do it safe and you may not get the
exact same value short term but I'd like to think that
longterm there's more longevity and you benefit more that way. So these are the factors
you need to decide on. First, business credit cards. I only opened up business credit cards when I actually had a real business. Now, many in the churning
community suggest that you open up business credit cards as a sole proprietorship and you make up a business,
I personally wouldn't. I mean, if you do have
a sole proprietorship, if you're selling things on eBay or you have like a side hustle then cool but again, personally for me, just not worth the risk to be
lying about having a business and things like that. Next is manufactured spend. This is where you use a credit card to buy cash equivalents like gift cards and you can essentially
cash them out on yourself. It's high risk. You have to do it in person. It's a huge time commitment and it's higher risk of getting caught and you're definitely
against the terms of service with these credit cards. I don't think it's worth it. If you need help reaching a minimum spend because let's say you need to
spend another thousand dollars in the next month to get the bonus, what I've done in the past to say like, "Hey mom, you know, I know you
live hundreds of miles away "from me but here's my credit card info, "charge the utilities on my credit card "and then just pay me back cash." So that way I'm getting
that increased spend without actually having
to spend any more money or do anything shady
like manufactured spend. And the third one is self-referrals. This is where you refer
yourself to a credit card. So you get the referral bonus. So this used to be fine, but then in the last year or so, American express started
clawing back points, cracking down on this. I think the best practices,
just don't self-refer either at American express or any
other credit card company. Again, how you approach this and your risk tolerance is
gonna be highly personal. I personally advise doing
it more conservatively, and these are the basics
of credit card churning. The first rule of churning is
you never talk about churning. and the churning community is
very secretive of themselves because they're concerned that if too many people join the hobby and start taking advantage
of these offerings then the wells are gonna dry up but the way I see it is when
I was in medical school, a friend shared this with
me, I benefited hugely, so I just wanna pay it forward,
help you guys out as well because churning allowed me to fly to over a dozen residency
interviews for free and otherwise I would've
had to take out thousands of dollars in additional student loans to pay for those flights. So I hope you guys find this useful. I hope it's helpful. Again, be smart about it and much love. See you guys in the next one. (soft music)
