ONE OF OUR FAVORITE THREADS ON THE INTERNET: Even if you don’t like to spend a lot of time engaged in financial pursuits, it’s still entertaining and illuminating to learn what the more extreme personal finance practitioners are up to. One discussion thread that’s worth a read is the infamous “heavy hitters” thread on the Fatwallet Financial forum. There are a lot of great stories there from clever people who exploited various loopholes to make upwards of a thousand dollars per month in additional income.

Some of you may have heard of the 3-6-3 rule, the joke about how banks used to operate. It means borrow (i.e. pay depositors) at 3%, lend at 6%, and hit the golf course by 3 pm. There were many in the middle part of the last decade who figured out how to do this for themselves by getting 0% balance transfers from the bank and then immediately deopsiting the funds in accounts paying 3%, 4%, or more. Here’s one poster:

The perfect storm of awesome 5%-6% savings accounts, maximizing and then consolidating credit lines with no BT fees, and generous credit card offers. My best month was between $1200 – $1600 and I was hitting $1000/month fairly regularly. I remember getting $100 checks (I had 7-8 Citi Cards between my wife, my father and me) from the Citi Credit Protector gas offer. Those came in 2-3 times a month. I still have two 0% for life BT still being paid back slowly, one from Discover and one from Citi.

And another:

In my best AOR [App-O-Rama, the practice of getting a whole bunch of credit cards at once to maximize rewards and/or balance transfers] in 2007 I had $255K of debt earning 12% for just over a year.

And another:

My AOR’s for 2008 netted 20K+ for the year with about 450K in 0% money Averaging $1666/mo
2009, AOR was used to pay off the 4% mortgage thus continued to return 4% on the AOR money and about 2.5% on the rest averaging $600/mo
2010, AOR was used to continue the float on the mortgage thus continued to return 4% on the AOR money averaging ~$300/mo

Recall our recent post where we discussed the folly of the banks offering 5% unlimited cash back?  One of the cards we mentioned was the Citi Cash Returns card. Here’s one poster:

I did $6,500 in one month Cash Back on the Citi Cash Returns deal.

Do the math and you realize this person figured out how to charge $130,000 on a single credit card in one month. (Hint: you can make multiple payments per month, although this practice may get you noticed by your credit card company.)

Another trick mentioned is the Citi ThankYou Point flight redemption trick. A long time ago a certain level of TYPs could get you a flight anywhere up to a limit of $2,700. The trick was to get a refundable flight worth as close as possible to $2,700–and then get a voucher from the airline for that amount. Instead of one flight, you could get several flights.

 Apparently a lot of people made a killing with this trick:

For a while Bing was giving 35% off purchases on eBay, many people bought Gold off eBay then either resold it, or pawned them off. Getting Gold 35% was pretty good, most people just sold it off right away, but if you held on to that gold you would of done very well with that as well.

And then there’s the more mundane:

I also discovered an infinite loop on Duracell batteries at K-Mart: A manufacturer’s coupon was getting me three packs o’ batteries for $3.50 and a K-Mart promo was getting me a $5 K-Mart card for every 3 packs I bought. All it took was an initial $3.50 investment, and the rest was done with K-Mart cards of constantly increasing value. Over two weeks, I cleared out every Duracell battery in every K-Mart between Richmond and Virginia Beach, and I ended up with a K-Mart card worth about $500 and a small mountain of batteries in my garage.

We could go on, but you get the idea. There are a lot of opportunities for this sort of fun all around you. It’s not necessarily easy to find the best opportunities, and we can only guess at what fun stuff is going on right now that we’re not aware of. But like the lottery, you’ll never win if you don’t play. And unlike the lottery, the odds are considerably better, and the only cost is your time. Merry Christmas!

We’ll be doing some Christmas packing, shopping, travelling, etc for a couple of days. Back shortly!

We’re big fans of credit card rewards, which is one reason why we started this blog. But we realize that we’re a minority, that most people aren’t interested in jumping through all the hoops required to maximize credit card rewards. In fact, some people are at the other extreme: they just want to get a card and go about their business. They don’t want to constantly apply for new cards or swap out cards from their wallet for different spending categories and promotions.

And that’s perfectly fine, nothing wrong with that. But even if that’s your preferred way of doing things, you can still give yourself a nice bonus simply by picking the right card to put your spending on.

Here are a few possibilities for you. We don’t have any of these cards, as we pursue a different strategy (more lucrative, but more time-consuming). But for somebody who wants their personal finances to be as automatic as possible, any of these would be respectable.

IF YOU LIKE CASH BACK: If you’re willing to jump through just one hoop, there is a very good no annual fee 2% cashback card: it’s the Fidelity Amex.   To get 2% you have to send your rewards to a Fidelity account, although of course you can then take the money out.

Another good card, one which suffers from terrible marketing but is actually a good deal, is the Priceline Visa. It’s also a 2% no annual fee card, plus you get 5% on “Name Your Own Price” transactions on Priceline.

IF YOU LIKE TO TRAVEL: Consider the American Express Starwood card. You only get one point per dollar, but these points can be very valuable. They’re usually worth somewhere in the neighborhood of three cents each, making this effectively a 3% rewards card, although Starwood experts have been known to get five cents and more per point. Here’s a post from One Mile At A Time showing how he got 8.5 cents per point. We love the Starwood program so far, and once our current stockpile of Starwood points is depleted, there’s a good chance we’ll break down and get this card.

Disclaimer: We do not receive any compensation for applications to these links. We wish we did, but we don’t.

VERY: Crestmont Research’s Ed Easterling has a must-read (reprinted on John Mauldin’s website) on why state finances are about to get a whole lot worse. The reason has to do with pensions. Contributions to pensions are pretty easy to estimate and so are the payouts; the hard part is estimating investment returns. As Ed explains:

The return assumption should reasonably relate to the types of investments that are used by the pension plan. The mix of investments depends upon the risk profile that the pension plan is willing to accept… [but] the pension plan is not accepting the risk. The pension plan is just a conduit, a legal entity that stands between the retirees and the taxpayers. Most states have laws that provide some or complete protection for specified benefits promised to retirees. Therefore, the ultimate risk falls upon the taxpayers—not on retirees or the pension plan itself. It is more accurate to say that the mix of investments depends upon the risk profile that pension plan managers are willing to place on the taxpayers.

So here’s the problem:

The reason that past performance is not a reasonable indicator is that conditions change. For example, as recently as five years ago you could walk into a bank and receive 4% on a certificate of deposit; the U.S. Government paid 5% for investments in its short‐term notes. Today, with the same money, the interest rate is less than 1%. It is not reasonable to assume yesteryear’s rate of return for the future.

Yet that is exactly what the public pension plans are doing. They continue to assume that their investments will average around 8% annually despite the change in conditions.

Bonds held by public pension plans return far less than 8%. Real estate and other non‐traditional investments struggle to achieve 8%. Finally, the largest part of the portfolio for most public pension plans, investments in the stock market, has not been priced to return 8% for more than a decade!

…the blended rate of return will more likely be 3% to 5% instead of the 7.5% to 8% currently assumed by most state pension plans. The result is an ongoing gap of near 4% annually that will cause an ever‐widening shortfall for state pension plans.

Conclusions for you? Since these problems are at the state and local level, expect higher taxes of all sorts in the not-too-distant future: income taxes, property taxes, sales taxes, you name it. And be careful about investing in municipal bonds, as some governments will not turn out to be as financially solvent as they seem. We do recommend you read the whole thing here.

ANGRY: All the Angry Birds apps are on sale for $0.99, down from their usual $2.99. This includes the original, Rio, Space, Seasons, Star Wars, and Bad Piggies. No coupon or code required, just visit the Apple app store. We’ve been resisting Star Wars and Bad Piggies, but this was enough to finally overcome our resolve and get us to sign up for more time-wasting.

EAT: Courtesy of Slickdeals, we learn that Chili’s gift cards are 50% off. This is being offered via Fatwallet and Ebates, and the deal structure is buy one card, get $5 cash back through either one of those portals. The catch is that you have to do it one card at a time, and you will have to clear your cookies and start at the portal each time in order to get your account properly credited. In addition to Chili’s you can use the cards at Maggiano’s, Macaroni Grill, and On The Border.