How to increase credit card spend from your couch, (almost) fee-free

UPDATE 8/21/2015: Amex has changed their terms for portal cash back. They now only allow cash back for gift card denominations of $200 and below.  As long as this restriction is in place, the process outlined in this post will not work to save you money.  We will leave this post in place, though, in the hopes that the restrictions will be lifted sometime in the near future.

Yesterday I announced a new promotion: if you sign up for the Plastiq bill payment service via a promotional link, credit card payment fees will be reduced from the usual 2.5% rate to just 1.99% for MasterCard and American Express credit cards.  Full coverage of the promotion, and Plastiq, can be found in these posts:

• Sign up for the 1.99% promo: Pay mortgage, rent, and more by credit card. Plastiq offers 1.99% Amex and MasterCard promo rate.
• Everything you ever wanted to know about Plastiq: The Complete guide to Plastiq credit card payments.

Fee free bill payments via credit card

The approach to fee-free bill payments is fairly simple:

1. Sign up for Plastiq via a promotional link
2. Buy Amex gift cards and get approximately 2% cash back via cash back portals.
3. Use Plastiq to pay bills that can’t normally be paid by credit card (mortgage, rent, car payments,…).  Pay with Amex gift cards and incur a 1.99% fee.

Through this approach, you will earn credit card rewards when buying Amex gift cards, and fees will be (mostly or entirely) offset by portal cash back.  Let’s look at each step, in turn…

Sign up for Plastiq’s promo rate

This only needs to be done once.  If you are new to Plastiq, sign up here: plastiq.com/promos/r/FM-1 (Note: I will receive a $5 referral fee. I had asked Plastiq to pass along savings to readers instead, but they didn’t want to complicate the promotion in that way).  Once you have signed up under a promotional link, you can log in directly to Plastiq.com to pay bills and you will still qualify for the promotional rates.

If you signed up for Plastiq before this promotion started, you can re-register with a different email address in order to get the promotional rates.

Buy Amex gift cards and get cash back

American Express gift cards can be found on a number of cash back portals.  The usual maximum cash back rate is 1.5%, but offers for 2% and 2.25% cash back appear frequently as one-day promotions.  The key is to subscribe to Frequent Miler’s Quick Deals so that you’ll be alerted each time cash back rates increase.

Please see these posts for details:

• The complete guide to Amex gift cards
• Improved Amex gift card deal predictions

You may also find this post interesting:

• My Amex Gift Card Strategy (written prior to the Plastiq promotion)

Use Amex gift cards to pay bills via Plastiq

To use an Amex gift card, simply log into your Plastiq account and add the gift card as a new credit card.  Then, select the gift card as your payment source when paying a bill.  Since the payment and fee are charged together, make sure that the payment is less than the gift card’s total value.

Plastiq understands that gift cards may be added and removed from the system frequently. It is possible, though, that their risk team will contact you for information about what you’re doing. As long as you answer honestly it shouldn’t be a problem.  For example, it is fine to say that you earned cash back for buying Amex gift cards through a portal.

Unlike some other services, Plastiq does not put a $1 hold on your gift card when you add it to the system, so it is easy to use up the entire value of a gift card at once.

The gift card payment formula

Plastiq always charges the bill payment amount and their fee to the same payment source.  So, you can’t pay a $2000 bill with a $2000 gift card.  Instead, you can figure out how much can be paid by dividing by 1.0199, like this:

$2,000 / 1.0199 = $1960.98

So, you can pay up to $1960.98 with a single $2,000 Amex gift card.  With the 1.99% fee, the total charged to the gift card will be exactly $2,000.

Paying more than $1960.98

If you have a bill that exceeds the amount that can be paid from a single gift card, you’ll have to make two (or more) separate payments to that payee.  Most billers will accept multiple separate payments without issue.

The Math

How can I say that this method is fee free when there are fees associated both with buying Amex gift cards and making payments through Plastiq?  Let’s walk through an example:

Each Amex gift card has a $3.95 fee.  As a result, you’re best off buying the largest denomination possible.  In this way, the fee is minimized as a percent of the total.  While Amex allows people to buy cards with $3000 denominations, you can’t earn cash back from portals for any denominations higher than $2,000.  So, the ideal denomination to buy is $2,000 per card (but it’s fine to buy multiple cards in one order)

Amex also charges for shipping: $8.95 for expedited 2 day shipping, regardless of the number of cards you buy at once.  You can minimize this shipping fee as a percent of total by buying multiple $2,000 cards at once.  They also offer an unlimited shipping plan for $99 per year.  If you enroll in that plan (or the 3 month free trial of the plan), then shipping is free with each order.

Let’s assume that you are not enrolled in the shipping plan and that you place an order for three $2,000 gift cards.  And, let’s assume that you clicked through from a portal that offered 2.25% cash back at the time:

• Credit card charge: $6,000 + $11.85 (card fees) + $8.95 (shipping) = $6020.80.  You will earn credit card rewards based on this total amount.
• Portal rebate: 2.25% of $6,000 = $135

Now, let’s assume you make three bill payments of $1960.98 each and you pay with the Amex gift cards.  After 1.99% in fees, your Amex gift cards will be completely depleted.

• Final out of pocket cost after portal rebate: $6020.80 – $135 = $5885.80
• Amount paid to payees: $1960.98 x 3 = $5882.94
• Net bill payment fee: $5885.80 – $5882.94 = $2.86
• This process results in a tiny net fee (not including credit card rewards) of $2.86.  As a percent of total paid to billers, this net fee is incredibly close to zero: .05% (that is, one twentieth of 1%)

Breaking even with a 2.25% portal rebate:

• Without the free shipping plan, the break even point hits when you buy 5 $2,000 cards at once and earn 2.25% cash back.
• With the free shipping plan, you’ll break even with just one $2,000 card.  In fact, you’ll make a $2 profit per card.

Net fee with a 2% portal rebate:

• With free shipping, the final net fee will amount to .15% (about 1/7th of 1 percent)
• With $8.95 shipping, the net fees for buying $2,000 cards are:
  • 1 $2k card: .6%
  • 2 $2k cards: .4%
  • 3 $2k cards: .3%
  • 4 $2k cards: .27%

Why not Bluebird, REDbird, or Serve?

There are ways to use Bluebird, REDbird, or Serve to increase credit card spend at a lower cost than Plastiq.  It is usually possible, for example, to buy Visa gift cards with a fee of around 1%, and those gift cards can then be liquidated for free with any of the “bird” cards (see: Beginner’s guide to buying & liquidating Visa & Mastercard gift cards).  And, if you start with Amex gift cards at 2% to 2.25% cash back, then use those to buy Visa gift cards, then liquidate with a “bird” card, you can earn a profit on top of earning rewards from credit card spend.  Isn’t that better than Plastiq?…

Many people don’t use Bluebird, REDbird, or Serve

There are many reasons why people may not use Bluebird, REDbird, or Serve to increase credit card spend, such as:

1. It is (or seems to be) too complicated
2. An individual may not know of a good source for buying Visa/MC gift cards with a credit card, let alone an Amex gift card
3. The idea of making several visits to Walmart/Target/etc. each month may be unappealing.
4. The local Walmart/Target/whatever may have policies against accepting gift cards as debit cards.

Those who do use Bluebird, REDbird, or Serve can still benefit

Personally, I plan to continue to use REDbird to pay bills that cannot be paid with Plastiq (e.g. credit card bills), but I will also use Plastiq, as outlined above, to pay other bills.  In this way, I can easily increase credit card spend above the $5,000 per month (per card) allowed by Bluebird, REDbird, and Serve.

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