We’ve all heard stories about people traveling the world and enjoying lavish vacations for “free”, all thanks to credit cards. Many of us have even experienced it ourselves. A handful of us are probably experts in the subject, and scour all of the online forums discussing strategies and maybe even offer advice for others. If you are the expert, then you probably don’t need to read further. Maybe just head over to our guide to medical specialties to see what doctors outside of your field do.
Everyone else, read on.
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You can jump over to the list of credit issuers if you want to get started right away.
Winning does not take much time
With any skill in life the more time and effort you put in, the better you will become. The same goes for credit cards. However, the barrier for entry is not high. Over the past decade that I have been enjoying the perks of credit cards, I’ve probably spent fewer than 20 hours learning the subject matter. That’s twenty hours over 10 years. If I had redeemed cash on all of the benefits, it would have amount to somewhere north of $50,000. That’s right, all non-taxed benefits. Some of these credits were redeemed for flights and hotels, so the cash value is actually higher than that. I spend very little effort today managing anything with my credit cards, and maybe a few minutes of searching online if I wanted to sign up for a new card.
You could certainly invest as little or as much of your time as you’d like, but the yield is pretty high.
How credit cards pay the consumer
The benefits from the credit cards essentially come from one of two forms: (1) cash back or (2) arbitrary bank currency (i.e. points) that could be redeemed for cash or a service like hotel or airline credit. Cash back is the simplest concept–you essentially redeem a dollar amount for a bill statement or deposit into your account. There is no convoluted formula, timing, or additional step to redeem the credit. Points, however, are arbitrary designations made by the issuer. They can often be redeemed for cash value or used in another form to purchase products or services. The distinction is that the value of the points is subject to change. A point could equate to a penny, but could very much be worth much less. This is often called a “devaluation”. The take-home point is that there is inherent risk to holding onto a large number of points since the value could change depending on the business decisions of the issuer. The reward of points is that sometimes you can redeem oversized value for something that could otherwise cost significantly more with real money (One example is using $100 worth of points to purchase a hotel room that would otherwise cost $300 in cash).
The points or cash back are usually calculated from a percentage of spending on the credit card itself or through sign-on bonuses. A sign-on bonus simply means that the issuer gives a fixed amount of value after a threshold of spending (Spend $500 in a month and they’ll give you back $100 in statement credit). From our standpoint, the bulk of our rewards will come from sign-up bonuses but as physicians we are likely to have enough daily and work expenses to generate value from credit cards.
Why are credit card companies giving out free money?
There is no free lunch. Someone has to pay if you are receiving benefits as the consumer. That someone is the business that accepts credit cards. Those of you who run your own medical practices are painfully aware that there are interchange fees plus a certain amount depending on the processor. The credit card company is essentially passing the cost of the benefits to the business accepting the credit cards.
In addition, credit card companies make their money from late fees and interest earned from financing. One of my credit cards has an annual interest rate charge of 29.97%! There’s no reason to feel bad about maximizing value from these guys.
Business cards are advantageous
Self-employed physicians will have expenses that can often be paid for using credit cards. Some of these expenses can be quite large, especially if you are purchasing high dollar medications like chemotherapy. Most credit card issuers will have a business card equivalent in their offerings, and annual fees are deductible business expenses.
Furthermore, credit card points do not count as business income, so there are no tax burdens involved with receiving statement credits or spending bonuses. Any benefits received from business cards are usually transferrable to personal accounts as well.
Strategies for credit card use
The following categories are some of the strategies for maximizing credit card perks that work for me, and my rationale for using them. You can certainly pick and choose which works best for yourself–what you choose will depend upon your spending habits, travel needs, or personal needs. This is what worked for me:
- Make money paying your taxes using Bank of America credit cards
- Combination travel and cash points using Chase ecosystem
- Combination travel and cash points using the American Express ecosystem
Each strategy has its nuances, perks, and headaches. What I’ve found is that once the systems are in place, there is essentially no upkeep. Set the bill payments to autopay, and then keep track of which card to use to maximize benefits.
Head over to our credit card master list for details on the best ones to use. If you have questions, sound out in the comments below!
Note that none of the content discussed in this article construes medical or legal advice. The content is only to be used for entertainment purposes only. If you have medical or legal questions pertaining to your job, please consult a licensed professional in the topic of concern.