I went to a San Francisco FinTech meetup to hear a founder speak the other week. He said that after he was fired from his hedge fund job in 2009, he needed something to do. He told us how he was inspired to help his friends find the best credit cards. Thus, he spent hours putting together a spreadsheet that compared various credit cards and sent the document around.
I'm not sure about you, but the last thing I was thinking about during the financial crisis was putting a list of credit cards together, with the eventual goal of hocking it to other people for money. That's like pointing a flamethrower on a person who is already burning from a forest fire! Getting into too much debt is what caused the financial crisis, which is why I hardly write any credit card review posts.
Based on the audience's reaction, the founder seemed to successfully sell his story that being a credit card lead generator was his passion. One woman in the audience even gleefully asked the founder what his ideal credit card would be. Was she simply trying to butter him up to get a job? I felt like I was in the Twilight Zone.
THE PROBLEM WITH CREDIT CARDS
We all know that credit cards charge some of the most usurious rates in the lending industry. The average credit card rate is ~14%, or 7X the current 10-year bond yield. That said, I've seen plenty of 20%+ interest rate credit cards being offered to students with no income, and to people who have no business using a credit card.
Not even the illustrious Warren Buffet has been able to match such credit card returns. Let that sink in for a second. If you have revolving credit card debt, you are punching yourself in the face every single month!
Credit card companies are like vultures, waiting for their prey not to pay their bills so they can collect their late fees and charge ridiculously high interest rates. It's a great business, but one that seems highly destructive as well. If you can't pay for something in cash, then you have no business paying for something on credit.
Having a rewards credit card is a good idea if you can pay off your balance in full every month. Credit cards provide insurance against theft, insurance against product defects, a free 30-day line of credit, concierge service, and travel protection. But do we really need more than a couple? Should you really build your main business on providing credit card recommendations? Maybe, if you are Pablo Escobar.
If you watch the Netflix show, Narcos, you learn that Pablo Escobar and his compadres made billions of dollars selling tons of cocaine to addicted Americans. The keys are not to get addicted yourself and to keep selling more product via more distributors (credit card lead generators).
Flood the streets with your product, and people will come.
WOULD YOU SELL YOUR SOUL FOR A BUCK?
Although the founder's company is very profitable, you have to wonder why they raised so much money from venture capitalists this year, if for no other reason than to partly cash out. This is exactly what every founder should do in this crazy private company valuation environment. I'm not sure if the employees were as lucky. They seldom are.
In the past, I've thought about scaling up Financial Samurai into a bigger business, and I still might. However, I have a hard time promoting products that I don't believe in. I've got to actually like, use, or test out the product before I'm willing to highlight it. Products mentioned here are either free or will save you money.
By not promoting credit cards, I'm probably leaving at least $5,000 a month on the table. But I've only got two – a personal credit card and a corporate card. Few people need more than a couple. If being a credit card affiliate was my main business, I might need some Xanax to sleep. But at least I'd be rich!
How To Sell Your Soul For Lots Of Money
- Identify the most lucrative areas to make money e.g payday loans, credit cards, drugs, human trafficking, prostitution, gambling.
- Rationalize the means justify the ends e.g. use the money to help support your family.
- Cash out before your soul gets lost forever and start giving back to society as a reformed person.
So I ask all of you, how do we rationalize making money in grey or black areas such as credit cards, gambling, and addictive drugs? Can we always justify the means to an end? Are you currently doing something that you feel passionate about? Or are you mostly working for the money? How can we find something that pays us well and gives us a sense of purpose? We all got to make money to survive.
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I don’t see a problem with promoting credit cards, it’s good business. And I’m not sure why anyone doing it should feel they are promoting a dark trade. They are very popular and very useful to a lot of people. I don’t see a problem with it.
Funny you should talk about high interest loans. I just wrote an article about no credit check loans. APRs can go over 700%. It’s unbelievable. With the high rates of payday loans and the accessibility of credit cards, it’s no wonder this country is so deep in debt.
Of course, I blame our society as well as the individuals. We Americans are a culture that prides itself on excess. On materialism. On how much we can buy and the best ways to put ourselves in debt to buy even more. I remember early in Obama’s first term all the reforms and regulations on the credit card companies he did in order to get credit flowing again. Why? So we can all go back to drowning in debt and being slaves to the corporate interests that truly run our country. You see the government try to make credit more accessible to the working and middle classes, but not educate them at all about investing.
That said, I don’t think credit cards or no credit check loans are inherently evil. They serve a purpose and they meet the needs of a certain demographic. They have done good for many people. But like anything else, we misuse them and let them get the better of us. I have customers that avoid credit cards because they feel they are dangerous, but credit is only as dangerous as the person using it.
As for selling our souls and doing literally anything for money, isn’t that what we all do whenever we get a job?
Sincerely,
ARB–Angry Retail Banker
Now that loan sharking is legal, what is the mob is doing instead?
<<<"By not promoting credit cards, I’m probably leaving at least $5,000 a month on the table.
That is why I love your blog postings. You are real, objective and actually want to help people. Please keep up the great work!
How do you feel about peer-to-peer lending from a morality standpoint? I know you’re an investor in P2P loans (as am I) and am curious if you think there are any parallels between P2P *lenders* and credit card companies since interest rates on some P2P loans are just as high as credit cards.
Although you could make the point that because they’re term loans and not revolving loans that at least there’s an end in sight.
Thanks!
KJ
Good question. Most people who borrow from P2P lending use the money to consolidate their high interest credit card debts. I also only lend to people who are consolidating their credit card debt to a lower rate. Hence, I’m fine with P2P lending and anything that can help save people money.
The positive of highest interest rates from credit cards is that a huge fintech consumer loan industry has emerged to help people reduce their debt burden. I like that.
Related: Prosper Performance Review
Despite the 14%-20% annual i.r, the banks make very little from the actual credit card interest. Their money is in the late charges every month. This amounts to free money for the banks.
Cards are very psychological. On a $2000 debt, the monthly interest is about $30 which most people don’t see as “too much.” The minimum payment is about $40 which again is easy to handle. Pay down $1000 and the interest and minimum payment halve. Meh, no problem right?
For a lot of people that last $1000-$2000 is a barrier they can’t break. What’s the point in paying off that last $1000 when they could have that $1000 in cash in hand?
It’s the same with dieting. Plan to drop 12 pounds, do the hard slog and get down from 154 pounds to 144 and hey good enough!! Those last 2 pounds I’ll get to after Thanksgiving. Right?
I hear this over and over again from all people who are making money online. I am looking into starting my own websites and such and the first and most important thing is that I myself use the product, if I have never used it why would I give it or reccomend it to others? As Pat Flynn is always saying if you wouldn’t tell your grandmother about it don’t tell anyone else. Now I don’t know about everyone else out there but my grandmother was the bookeeper for all the books in my grandfathers business for around 50 years and if I were to do something dishonest in my business she would never let me hear the end of it.
I am an investor in some vice stocks (tobacco, caffeinated beverages). I used to be against enabling vices until I realized it’s a free world (for the most part) and people are free to choose their poisons and vices. Sure, I’d like to help them to choose better decisions but if they don’t want to hear it then it’s their choice. I used to get mad when I’d smell secondhand smoke. Now I just am reminded that I’m receiving $15 a day in dividends from tobacco companies when I smell that smoke and I just note that it’s likely the dividends will keep rolling in. I also am a shareholder of Visa and love their business model.
I think you’d be better off by selling credit cards and using the proceeds to build out your blog on more articles on how to use credit responsibly. The credit card issuers make a lot of money on the transaction fees as well. You can be a responsible credit card holder and Visa still makes money on your transactions.
-Mike
Thanks for the permission! Let me work on a 12-part credit card review series now. Could be good. Counting my money as we speak.
I want to sell my soul I am in a difficult situation and I need some money it’s make no sense find me 2 Broke and have a soul so I need it to leave my body so let me know what to do confidential
If selling credit cards is your main business, then all you’re focused on is the money, and anything you say about helping people with their finances, or changing the world is absolute horseshit.
The founder just wanted to make lots of money. He’s concocted a stupid story to make himself feel better, and he raised money to cash out to the dumb VCs.
Great post, I personally never thought of pedaling credit cards as a bad thing. I’ve always thought of the sites that consolidate credit card data such as the rewards, bonuses, fees, etc. were great. However, I have never had trouble controlling my spending and maximizing the rewards from credit cards.
I can see why this could be seen as a gray area since it makes finding and applying for credit cards much easier, thereby making it easier for those who have trouble controlling debt to get into more debt. But what he essentially did was collect already available data and make it easier for interested consumers to find and compare cards, a type of service countless companies do. It’s the product and the lack of education about how to effectively use the product that is the problem here.
This makes me start to question how far can we stretch with this? This is an extreme example, but can’t we blame websites that review, compare, and promote smartphones are bad too because consumers can’t control their addiction to their phones even while driving, and therefore these websites contribute to the increase of car accidents?
Although I understand where you’re coming from, it’s hard for me to say that this guy is a vile entrepreneur because his line of business collects data and advertises it. Sure, it’s data about a product that benefits from people hurting themselves financially, but the product also does a lot of good for those who use it responsibly. It’s not really fair to compare credit cards to drugs and this man’s business to a drug cartel since drugs don’t have healthful beneficial uses (unless used responsibly for medical reasons) while credit cards do.
People wouldn’t do so much cocaine if the streets weren’t flooded with supply. I find the comparison analogous to the system being flood with every type of credit card possible online, on TV, everything. We’re talking personal finances after all.
Or maybe, I’m too into the show Narcos since I just finished season one.
I hear your moral dilemma but at the same time, are they going to get it anyway? Some may be getting a new credit card no matter what and want to give you the referral. Maybe you should have some kind of opt in for these people, like a warning/disclaimer landing page they have to accept.
That being said, I find the problem w/ cards is you spend money you may not have otherwise spent. I find this more of an issue than the interest rates you may pay. Kind of like if buying a car at 72 mos 0% apr really makes sense. (My answer is it prob doesn’t)
I have found that by actively making every day purchases w/ debit cards and larger purchases w/ credit cards where I make the payment immediately, I don’t wait for the statement, I’ll make the transfer that night, I’m both spending a lot less (maybe 2k / month) and still getting rewards on major purchases. I don’t feel like I am really buying less either I am just being more conscious about my spending.
I agree w/ you that a credit card propels people to spend more than they otherwise would, and that is a BAD thing.
I can do my part in not constantly promoting credit cards. Once in a while is fine, b/c having a credit card w/ rewards benefits is a no brainer if you pay your bill on time and in full every month.
Because I had a struggle with credit cards early on I don’t think I can consciously suggest people use them. I’ve seen cases were credit cards were not allowed to purchase items on a website, I guess I would ask you what the difference is in selling hour book to someone who uses a cc vs promoting a cc you currently use. Tough decision, but you can always ask yourself if the credit card company was not paying me would I still recommend it?
You are not alone. A LOT of people have struggled w/ credit cards, which has resulted in a lot of financial pain.
Here is a post from Debs about her massive credit card debt.
Great last question. The answer is no.
Given the Pope was just in town…I think greed has gotten into everything in our society. Hedge funds, companies who don’t turn a profit that sell for trillions, insider trading, etc. At a certain point, karma is a b*tch though. It’s just sad that we’ve become so obsessed with money in general. Thoughts?
I think everybody has a price. Just got to figure out what price they are willing to sell. I don’t think there’s a lot of gray area b/c everybody is different.
I like what I do, but I’m not yet entirely convinced that it is what I am passionate about. That said, I do feel good about the work that I do. I know that I am not hurting others, and in fact I think that I am helping others. So, I think that I can be OK with work that I am not passionate about, but I cannot be OK with work that is harmful or exploitative.
In my experience, credit cards are a great way to save a little extra money. Points, rewards, things of that nature are the icing on the cake. I love sites that have done the research of all the cards available and point me in the direction of what is right for my needs. Sometimes these sites even promote better cashback deals for signups than you can find on the card provider’s own site. I’d say promotion of using the cards responsibly is key!
-Mr. RB35
Should I start a retire by 30 website?
LOL
If that is your goal and you would like to blog about your journey towards it, then I would say that’s a great idea!
In all seriousness, I’m just trying to add my 2 cents. One financial decision doesn’t rule them all. Some folks will just as easily bury themselves in debt with credit cards while others can benefit from their rewards.
Have a good one Financial Samurai!
I’m just kidding because joe at retire by 40 commented right before you :)
Good luck with your journey!
I don’t mind promoting credit cards that I use myself. We got 3 free tickets to Costa Rica from Chase and I think that’s a great deal. I’ll make sure to emphasize paying the cards off every month.
If I can make $5k/month promoting high interest cards, then I don’t know if I could turn it down. Luckily, they don’t want to work with me so I don’t that problem right now.
Hah! I guess I should have run a poll then.
Yes, talk about your own cards, and earn a referral income if you want. But if you make your entire business all about getting people to sign up for a bagillion credit cards they don’t need, I think you’ve sold your soul.
Great post, Sam!
This makes me think of investing in ‘vice’ stocks. Does it make sense to invest in tobacco or LMT or BA, companies who profit on the destruction of the species? Sure, they get better than average returns, but is it worth giving up your moral grounding for a few extra dollars. For most that answer is yes.
Ditto.
Personally, I don’t invest in vice companies despite the potential lucrative returns. But I know that leaves money on the table.
As far as selling your soul, most people do that every day to one degree or another. The people who are lucky enough and stubborn enough to earn a living doing what they love are a definite minority in this world. Personally, I do my best to accomplish what’s most important to me – the health and happiness of my immediate family. My personal happiness comes second to that.
Why would you say LMT and BA are vice stocks? Sure they profit more from wars or threats of war, but they produce something necessary for nations to protect themselves in the event of being attacked. They don’t exactly promote war like tobacco companies promote smoking with the knowledge that it causes cancer.
Very good analogy. It’s up to each individual. I don’t invest in tobacco stocks, and I find it funny in the past when tobacco stock CEOs would go to congress and say their products do no harm.
Thanks for the feedback all. We all have our own moral compass So I guess it comes down to whatever one feels comfortable with. Remember that movie thank you for smoking? I found out Elon musk ironically had a role producing that.
What bothers me most is when people boast about their small holdings of vice like companies. I mean it’s one thing if you’re making millions to sell your soul. But for an extra few hundred or grand? So bizzare.
I would love to know the answers to these questions! There are so many jobs in industries that don’t really jive with my beliefs, and they often pay very well. It’s challenging to give up high paying opportunities and hold onto hope that I can find a job that gives me a sense of purpose.
Also, I respect you so much for not advertising credit cards or other things that you don’t believe in. My approach to credit cards was always to not have one until I had plenty of money to pay it off. That resulted in me not having a credit card until I had graduated from law school and started my job at a firm. I think I was 26 at the time I got my first one, and I’ve never let it carry a balance.
Hi Jessica – Hopefully we spend at max 10 years initially paying our dues, and the final decades doing something that aligns with our beliefs.
I really respect you for taking the stance of not promoting credit cards: our culture is more addicted to instant satisfaction than to any drug, and credit cards are mainlined into our mental veins from birth.
I like to say that credit cards are like chainsaws: if you juggle more than a few, you’re going to lose a hand. :-)
Great saying! I agree.
Stock market was my passion and I used to go to stock market library since my Ninth class days. Children use to play outside and I use to go through the stock market magazines available.
So stock market was my passion. However I landed in a cushy job courtesy my education and started stock market website as a passion. Earlier I used to provide free tips and users themselves recommended us to charge for our services.
Thus I left my cushy job and undertook the stock market advisory services as a full time business and built my team. Today we have grown into a global research house and it was courtesy giving full throttle to our passion.
My mom used to have something ridiculous like 20-25 different credit cards. At least she wasn’t actively using them all, but she was leaving herself open to added identity fraud risk and forgetting which ones had balances. I helped her go through all of her various cards (a lot of them were for different retail stores) and she got all of them closed except for 2 or 3. One of the reasons she had kept so many of them open even though she didn’t use them all was because she didn’t want to bother closing them.
Anyway, long story short – I agree with you that a couple credit cards are more than enough and paying off the balance in full should be everyone’s goal. I feel fortunate that I can’t even remember how long ago I actually held a balance over a billing cycle – maybe 13 years ago – and fortunately it was just for 1 extra cycle.
I don’t think I could ever sell drugs or promote gambling. If I really like a particular credit card I was using I do a review about it, but I certainly wouldn’t make pushing credit cards my sole career purpose.
PS – Narcos IS a great show! I can’t wait for season 2.
Your mom’s example is the main reason why it doesn’t feel right promoting credit cards. 20-25 cards is way too much. That is crazy, actually. A time waste, and an activity that could easily cause bad credit, late payments, and high interest rate payments. Glad you’ve helped her out!