Credit Card Shutdown
I recently experienced a rather significant credit card shutdown. I hope to write in more detail about my situation in the future once everything is settled. What I can describe now are the previous steps I took to mitigate this future shutdown which eventually, unsurprisingly arrived. Hobbyists are subject to shutdown for a variety of reasons, including some we probably don’t know. In my view, even casual points and miles fans should be prepared for a shutdown surprise. Here’s how I’ve lessened the blow of that inevitable shutdown. I encourage all of you to make similar preparations.
Redeem Early and Often
Let’s start with an easy one. Banks can’t easily take what’s not there. When rewards enthusiasts actively redeem points currencies, there’s little or nothing for banks to lock up. For years, my strategy has been to immediately cash out virtually all bank point currencies once the rewards hit my account. In just a few cases, I quickly redeemed these currencies with travel partners for time-sensitive travel needs.
Speaking of travel loyalty programs, I’m less concerned with my airline, hotel, and rail balances being subject to a shutdown. Those currencies go directly to the travel account each month, and a bank shutdown doesn’t zap what I’ve historically collected. If anything, I may miss out on that last month of rewards if or when that shutdown comes. In an out of the ordinary move, many were hit with American Airlines AAdvantage shutdowns a few years ago. Be even more cognizant of the types of behavior that may bring on such a shutdown.
Diversify
Similar to investing, one can mitigate the shutdown of any one bank by holding as many different card options as possible with other entities. An individual who only holds a credit card with one bank will of course feel the shutdown sting more than an individual doing rewards business with ten banks.
By accruing rewards with more banks, I know I’m not becoming overly dependent on any one entity or rewards structure. As I’ve said before, I know that my favorite rewards currency is my biggest weakness. By not relying too much on any particular currency, I know it’ll be easier to go without it once that shutdown comes.
Pick Your Battles
Be conscious of how hard you’re pushing on any one bank at a given time. Game out the impact of a given shutdown. A shutdown by a smaller bank probably won’t have the same impact as one from the major card issuers. Maybe an individual can be more aggressive in earning those boutique currencies with smaller banks.
Speaking of playing the hobby aggressively, certain occasions periodically arrive where individuals can do very well, very quickly. Is the play worth a shutdown? Crunch the numbers for yourself, and often, the decision is very easy either way.
Get Your Head Right
If you consider a certain course of action risky, ensure you fully understand it before jumping in. Is the risk worth the benefit? Crunch the numbers. Based on your analysis, make your decision and own it.
Move On
With change comes opportunity. With any one method, it’s easy to become comfortable, maybe even sedentary. Being forced to move on from that option can encourage an individual to adapt and overcome. Along the way, you may surprise yourself. That creativity is still there, and teaming up with others to develop new options can lead to collective benefit.
Conclusion
I’m certainly not calling shutdowns fun. But I don’t think they’re as big a deal as others do. I don’t really experience anger with a shutdown. Rather, I’m a bit disappointed, but quickly move to “of course it was going to happen.” And I’m fine with that. I’m going to control what I can, because banks definitely will, also. I played aggressively, and a bank responded. It’s up to me to change the game again. I look forward to the challenge!
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I’ve never been “shut down” in 30+ years of credit cards. It is not inevitable except for those who game the system through MS and cycling.
I would never transfer points to cash at a piddling rate – I get far more value waiting for a high-value redemption at airlines and hotels. But to each his own.
Boraxo,
Based on how some play the game, those individuals may prepare for a shutdown as if it’s inevitable. I definitely agree it’s not inevitable for others. And regarding cashing out/transferring to travel currencies, people have varying philosophies there. Different strokes for different folks.
For clear understanding, your description, “For years, my strategy has been to immediately cash out virtually all bank point currencies once the rewards hit my account. In just a few cases, I quickly redeemed these currencies with travel partners for time-sensitive travel needs.” You are moving URs and MRs into air/hotel accounts? I am fully on board with that strategy, except try to do it only during transfer bonuses. Just want to be sure that’s what you’re saying, given so many others are horrified at a transfer that isn’t for a ready to go redemption.
DjG,
I proactively cash out in most all cases. There are a few exceptions where I’ve instead redeemed for a travel point currency for an immediate need.
Okay, but buy “cash out” you mean, “convert,” correct? Such as, URs to Hyatt. MRs to Delta. Asking b/c of your prior cashback posts. Again, I’m all for it, just being sure given so so so many say never do this – I disagree.
DjG,
No. Cash is money. Hence, I used the term “cash out.”
Travel point currency is not cash.
Okay, thanks; totally misunderstood. Therefore, this is about the timing you use for cashing out your earnings from cash-back cards.
DjG,
These aren’t purely cash back cards. But regardless, I think we’re done here.
Post a vague, cryptic story, when probed for clarity, offer nothing but the same. We offer you respect, you offer little to none back. So helpful.
DJG,
The shutdown is an ongoing situation. I can’t go into more specific detail at this time, but I hope to in the future. Perhaps I could’ve been more clear about that in the intro than I described above.
Now I follow, I’ve read your prior post(s), so much appreciated and understand.
I started a new comprehensive banking relationship earlier this year. Checking, credit card, investments. In spite of banks saying that they are “relationship” bankers, their product lines are silos and operate as if they are separate companies. On the credit card, every single charge was at a legitimate store for a bona fide purpose. $4k clothing purchase, $3k jewelry purchase, etc. Every week or every other week, my card would be locked for suspected fraud. I’d call in and verify the purchase — the call itself often took two hours. After five or six months of this, I resolved to close the credit card . . . it simply wasn’t worth the time it was consuming . . . and, based on my credit card experience, I sensed that I would not be keeping the rest of my banking business there. I then received a phone call to say that — in spite of me validating all of my purchases — my credit card account was now closed due to recurring fraudulent activity and my points would be forfeited. After hanging up, I immediately redeemed my points . . . and dodged a bullet. A week later, I received a letter that the bank had closed my checking account due to perceived fraudulent activities. The bank saved me the effort. Of course, my investment account moved.
The moral of the story is that Benjy is correct. You might be doing nothing wrong — as was my case — and some over-zealous fraud department guy has made up his mind that you are. The banks are entrenched and are not going to change. As Benjy counsels, be diversified and don’t give this jokers a chance. Say what you want about speculative point transfers but you’re less likely to be hosed.
Reno Joe,
Thanks for sharing your story and sorry this happened to you!
Sorry to hear that. Would you consider telling us which bank & credit card specifically?
RD,
I hope to in a future article. Thanks for your patience.
I have a feeling this is a company that Bernard Madoff used to bank at. Merely a guess.
That’s a crazy story there. Those comprehensive umbrellas benefit them not you. Especially on the investment side. I would stick to Fidelity, Schwab, Vanguard per se and not get involved with any bank/brokerage. Whenever you complain about the credit card side of things they will say oh thats a different division. No synergy other then the company trying to upsell you on all the products they offer.