How I Made Over $500 by Paying my Student Loans and Taxes

I was a late comer to the credit card reward points game. I always thought that I spent too little on average each month to ever make a credit card really worth it. I also despise any type of debt, and view it as the antithesis of freedom. Plus after living in Europe, where credit is not readily available, I had gotten used to just using direct debit cards for everything. I was not aware that Americans are often offered absurdly large bonuses when signing up for credit cards.

These bonuses normally have a minimum spending requirement of between one hundred and a few thousand dollars which must be placed on the card within the first 3 months of opening an account. If you cannot meet this requirement through your natural spending habits, its not really worth it to sign up. It would be stupid to spend money that you don’t have on things that you don’t necessarily need or want just to get the bonus.

Living in Eastern Europe, one learns that cash is king. Many cheap dining establishments don’t take credit cards, and its normal to pay one’s rent in cash. Since my complete rent and half my food expenses each month are paid in cash, I didn’t think that I could naturally reach the $4000 minimum spending requirement required for what I have determined as the ideal general rewards card for a budget traveler living outside the USA.

This is the Chase Sapphire Preferred card.

I like this card for the following reasons:

  1. No foreign transaction fees. If I can’t use the card abroad and on foreign train/bus/plane websites without being charged a 3% fee, then its worthless to me. This card has no fees when used overseas.
  2. No fee for the first year of use. There is no fee for using this card during the first year which would diminish the net worth of the rewards bonus. After the first year, the fee is $95/year. However, one can later downgrade the card to avoid this. More on this later.
  3. Huge sign-up bonus. The 50,000 point signup bonus equates to $625 when redeemed through the chase rewards platform. An additional 5000 bonus points is awarded when you add an additional authorized user to the account.
  4. Point versatility. All points awarded between different credit cards are not of equal worth. Chase points are some of the best, and can be used globally for airline flights, and not just the primary carriers located within the USA. They can also be transferred directly to certain airlines’ frequent flier accounts, where their relative value can be increased even further.
  5. Double points on travel and dining expenses. As a frequent traveler who lives abroad, the majority of my expenses are travel and dining. However, the fact that you only receive 1 point for all other non-dining and travel expenses is this card’s main weak point.

As a self-employed individual who officially calls the USA my home, I needed to make large quarterly income tax payments. I also still need to make student loan payments towards my Bachelor’s degree. You can read here about how I not only studied tuition free, but was even paid to complete my Master’s degree in Germany.

Taxes can be paid online using a credit card for a 1.87% fee here.  Although its effectively only a 0.87% fee given that there is a 1% reward bonus provided by the Chase Sapphire Preferred card for non-travel and dining charges.

Many student loan providers are no longer taking credit cards, so I get around this by using the website gift of college to make charitable donations to myself. There is $15 fee for making the maximum single donation of $500, which basically equates to a 3% fee. Although its effectively only a 2% fee given that there is a 1% reward bonus provided by the Chase Sapphire Preferred card for non-travel and dining charges.

Another option is to use radpad to pay your rent with a credit card. They will mail a physical check to your landlord. This is another great way to qualify for the Chase Sapphire Preferred’s huge signup bonus.

It normally only makes sense to pay one’s taxes or student loans with a credit card in order to qualify for a signup bonus. Otherwise, it’s just a waste of money due to the fees. Even worse would be to not pay the statement off immediately and thus accrue interest. This would really be throwing away your money.

In my case I made a $3000 tax payment and put $1000 towards my student loans.

Signup Bonus – Effective Tax Payment Fee – Effective Student Loan Payment Fee = Profit.

$625 – $3000 (0.0087) – $1000(.020) = $578.9

After one year, you can call Chase and downgrade the Sapphire Preferred card to a different card such as their Freedom card to avoid the $95 annual fee. In the mean time, you could signup for a different one of their cards and get another signup bonus.

If you travel and dine out a significant amount, consider getting the Sapphire Reserve card. But note that this card has a large $450 annual fee, so you really need to do the math to see if its worth it. Otherwise, just get their United frequent flyer mile card. You can transfer any bonus points left in your Chase Sapphire Preferred card account to the new Reserve card account or the United card before downgrading the account. In addition, all future points acquired on the new Freedom card that you receive after downgrading can also be transferred to your new Reserve card account to increase their value.

Click here to signup now for your own Chase Sapphire Preferred card.

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