How to Make Money with Credit Cards

I wanted to learn how to make money with credit cards because I realized I had this credit limit just sitting in my account, un-used, most of the time. It seemed like a waste. And I love finding ways to earn passive income wherever I can.


I also learned that wealthy individuals look at debt differently than most people. In fact, they sometimes view debt as a means to build wealth, fast. I, too, liked the idea of "creating money out of thin air," then using that money to make real money.


When it came to earning money with credit cards, I wasn't going to settle with answers like "find cards with good cash back rewards."


I mean, sure. If you have to spend money, you might as well get some cash back.


But I wanted to find out if I could use debt like the wealthy folks do and actually make money with that debt.


So, I started experimenting with how to use a credit card for passive income generation a while ago, and it’s really been paying off. So much so, that I just got another credit card to amplify my earnings.


This approach requires no significant time commitments.


This approach is very low risk.


This approach doesn't even require any money in the bank to get started.


But it does require a specific kind of credit card.


Getting Started


Let's lay the foundation.


This method of making money using credit cards requires you to be comfortable with delving into the world of cryptocurrencies. Let's dispel a couple myths, first.

  1. We are not, what I would call, investing in cryptocurrencies. You may have heard of Bitcoin or Ethereum. And there are a ton of other cryptocurrencies out there. This is not about these kinds of cryptocurrencies. These coins are volatile. And while they may make good investment options (this article is not about that!), they may move in value too much to make use of this method of making money with credit cards.

  2. This method is low-risk. We will use large cryptocurrency exchanges with a history and track record. (Crypto.com just bought the naming rights for the Staples Center.)

You may want to get comfortable with the idea, first. Perhaps play around with small amounts of money to get a feel for this process. That's totally fine.


But first.


Using Credit Cards for Passive Income


In a nutshell, you can use credit cards for passive income generation by leveraging short-term DeFi staking rewards on stablecoins and repaying the credit card debt each month before interest accrues.


Let’s break that down.


Credit card debt


No if, ands, or buts about it. Credit card debt is debt.


And most advice you hear about credit cards is true.

  • Don’t keep a balance - the interest rates are exorbitant.

  • Don’t use it too much - the high credit utilization will hurt your credit score.

But in my technique, we don’t just use any credit card debt.


Credit Card Loans


There are a few banks, primarily Chase and Citi, that offer what they call credit card loans.


These credit card loans are different debt options that take advantage of the credit limit you are allotted with your credit card. However, the loan works by depositing the cash into your bank account, which is important for avoiding certain platform fees I’ll get into later.


The loan works differently than how you'd usually use your credit card.


Usually, you swipe (or insert...or hold near the wireless receiver...), and your credit limit goes down by the price of the item and the item goes in your pocket.


You pay the credit card debt back at the end of the month, and all is fine.


But the credit card loan is slightly different.


With the credit card loan, you pull that same credit limit out as cash and deposited into your bank account.


Now, you can use an ACH transfer to deposit this money into your crypto wallet for earning passive income.


This is an important distinction.


The usual way of paying with your card on these exchanges would incur a 2.99% fee.


That may not sound like much, but that 2.99% fee makes this technique impossible. You'd lose money every month.


But the ACH transfer, is free.


The reason this is so critical is because you will repeat this process every month. Here's why.


If you left your money in the bank, you'd have to pay the interest on the credit card or the loan. Both of which are high. You might be able to squeak by with a 7 or 8% credit card loan APR, netting 2-4% in passive income return. Not bad. But if this was a credit card at, say, 17% interest, you'd be losing money the longer you hold it on the platform.


Instead, we'll repay the loan every month. This essentially renders this form of debt as free money.


A key step in this process is to pull your money out of the crypto exchange before the end of the month, stash your earnings, repay your loan, and close it out interest-free. Then, come Monday, you repeat!


Passive Income Generation


This is about using your credit debt to make you money. While this technique requires some regular attention (in the form of some mouse clicks every month), I personally still regard this as passive income. I suppose passive is subjective. But if the math comes out to over something like $10,000/hour - that’s good enough for me.



The few mouse clicks are for moving money around once a month. Let's review how this money is being earned.


DeFi Staking Rewards


DeFi is short for decentralized finance, and it is driven largely by blockchain-related technologies. DeFi is a major part of the cryptocurrency revolution.


Staking is used to help maintain certain kinds of blockchains. For our purposes, it is similar to a Certificate of Deposit (CD). I think of it like a CD because you generally need to lock your funds for a period of time (stake them) in order to receive staking rewards. Staking rewards are typically paid out in the currency with which was staked. My DeFi way to early retirement heavily employs staking rewards.


Stablecoins


Among the world of cryptocurrencies, stablecoins fall somewhere been crypto and fiat. They are digital assets that work on blockchain frameworks, much like cryptocurrencies, but they are designed to be pegged to a fiat currency's value at all times. Being in the USA, I use stablecoins pegged to the US Dollar, like USD Coin (USDC), USD Tether (USDT), and DAI. Primarily, I use USDC.


Monthly Cycles


As with all credit cards, if you repay the balance before the month's end, you pay no interest.


Again, that is important for making the most out of this method of earning money with credit cards.


It also ensures you do not significantly hurt your credit worthiness, because you do not hold a credit card balance using the loan-based approach.


Credit Card Passive Income Example


Okay, with definitions out of the way, here’s a play by play for how this works.


1. Open a credit card account with Chase or Citi.


I personally only have experience with Chase credit cards, but Citi also offers the same ability to take a loan against your credit.



2. Take out a credit card loan


Why do you use a loan against your credit card?


As I mentioned earlier, it is due to the fees.


Most crypto exchanges (like my personal favorite Crypto.com) charge a credit card fee that is typically on the order of 2.99% when transferring your fiat currency (USD) to crypto (USDC).


You’d have two options.


First would be to pay the credit card fee and leave the balance in your exchange account for staking rewards. If your credit card is anything like mine, charging somewhere on the order of 13.99%, you will lose money every month that your dollars are staking at 12% rewards.


Your second option would be to pull out your rewards before the end of the month, pay off the balance, and repeat.


But again, you’d quickly realize you’ll be losing money every month.


For example, if I used $10,000 in credit card purchases to buy USDC, I’d be charged 2.99% upon purchase, totaling $299. Now, if I stake those coins on a flexible schedule (allowing me to take them out anytime), I will earn 8% APR on that $10,000. After 3 weeks, I’ll have earned $46.14. On an annualized basis, that will earn me 553.68, which comes to around 5.5%. Not bad for passive income I created out of thin air! But if I returned that money to pay it off by the end of the month, I’ll be at a net loss ($46.15 - $299). That's a quick way to lose a lot of money!


But now, the big secret.


There is a third way. And it involves credit card loans.


Imagine if I could transfer the credit card allocation into and out of the crypto exchange account without incurring the 2.99% fee? Then, I could pocket that 5.5% APR credit card based passive income all for myself!


That is exactly where the credit card loan comes into play.


The credit card loan uses the same credit line as your credit card. But instead of paying it out as you need it, as is typically done when you swipe your card, you use that credit to take out a loan in the form of cash deposited into your bank account. Now, you can use an ACH transfer to the exchange for a cost of - wait for it - zero!


3. Transfer loan to a cryptocurrency exchange


The ACH transfer usually takes 1-2 days, depending on your bank.


But first, you must set up the bank account connection between your bank account and the crypto exchange. That one-time setup event will also take about a week. Not to mention setting up your crypto account may be another week.


But once you transfer it over, you now have cash in your fiat wallet. There is no fee incurred.


4. Buy stablecoins


Once you transfer your loan into your exchange wallet, you can convert your USD to a stablecoin like USDC. There is no fee incurred.


5. Immediately stake your coins


On an exchange like Crypto.com, you can choose different staking times for different reward APRs. For this technique, you want "Flexible." This allows you to pull the money back out at any time. It is not locked in. If you're not using Crypto.com, and are instead using another platform like Celsius, you just need to make sure you can withdraw your funds any time and that they pay out rewards on at least a weekly basis.


The big downfall to this approach, is timing.


A credit card purchase is instant. An ACH transfer is not.


So you’ll have to suffice with the shorter-term staking rewards. With Crypto.com, the staking on Flexible terms means you can get an 8% return (with $4k CRO Staked). So, to give yourself a bit of wiggle room to receive the loan deposit (1-2 days), and transfer between your bank and the exchange (1-2 days on either side), you’ll generally only get about 3 weeks per month of staking rewards. Nevertheless, that is still where the 5.5% estimate above came from.


And for me, a low-risk 5.5% return on money you created out of thin air is not a bad way to increase your passive income!



6. Convert back to USD after 3 weeks


After 3 weeks, you should convert your stablecoins (USDC in this example) back into USD. There is no fee incurred.


7. Transfer your USD back to your bank account and repay your credit card loan


After 1-2 days, your funds are back in your bank. You can now repay your credit card loan before any interest accrues!


8. Repeat as often as you'd like


Repeating this cycle every month allows you to create money out of thin air, without much more than a few clicks of your mouse.


The reasons to repeat this every month are threefold.

  1. Paying off the loan in full each month means you never accrue loan interest. It essentially renders this form of debt as “free money.”

  2. Paying off the loan in full each month also prevents significant damage to your creditworthiness. Depending on when monthly credit checks are pulled, your credit utilization can remain low if you are not carrying a balance. Not to mention, you can always stop this process at any time.

  3. The loan goes to your bank account and can be transferred to your crypto account without incurring a fee, making this whole trick possible!

Final thoughts on using a credit card for passive income


Is $550 a year worth the hassle?


A few thoughts.


First, I personally don't see having to move money around as that much of hassle.


Second, that's $550 for every $10,000 in credit limit. Should you have a few credit cards totaling, say, $30,000. Well, now you're up to $1,650. If you really want to quit the rat race immediately, then you can use that money, no questions asked. But if you are still working up your reserves, it's certainly a way to add a nice bonus to your annual income, too.


The choice to pursue these ways of using credit cards to make money is a personal decision. As an advocate of FIRE, I find joy out of minimizing wasteful expenses that don’t contribute to my overall wellbeing. I also am an engineer at heart, and I enjoy efficiency, including life expenditures. For me, this amount of money covers a month’s worth of my expenses (including sky-high LA rent).


When it comes to financial independence, that just knocked out 1/12 of the equation using money I didn't technically even have. Pretty cool.


New Credit Card Trick

I verified a new way to earn money with credit cards this year, using similar tactics but significantly bumping up my earnings.


First, find a credit card with a 0% introductory APR, and find one with the longest promo period. It'll usually be on the order of 12-15 months.


Also, as a bonus find one with an intro cash-back bonus and higher cash-back percentages. If you find one with cash back on grocery stores, for example, that's a great perk (I'll share more on why, below).


The trick is to convert this credit to cash in your bank so that you can transfer it to CDC and perform our tried-and-true staking process. Here is where gift cards come into the fold.


I discovered you can buy gift cards with your credit card, essentially turning your credit into cash. This serves a few additional bonuses, as well.

  1. If you buy more than the intro promo threshold (which you will), you will earn the cashback intro promo. Mine was $200.

  2. If you buy them from a grocery store, you may earn additional cashback. For example, my card earns 5% back from grocery stores. This nearly eliminates the credit card fee upon purchase.

Once you buy the credit cards, load them into Venmo. Then, you will send that cash to a spouse or friend, who will immediately send this back to you. Now, you can transfer that balance to your bank! (Note, I recommend trying all of this with a small gift card, first. Simply to make sure the kind of gift card you are buying (i.e. Visa or Mastercard gift cards) and Venmo process are all working as they should).


Now, you transfer from your bank to CDC, and stake as usual. Now, you are earning in the 11-12% range for at least a year.


Keep a small amount of your cash in the flexible staking period. Why? You will need to make minimum monthly credit card payments to keep your 0% intro APR promo going. You can always re-stake them in the same way, but you don't want to get stuck with an expensive credit card interest payment prematurely and ruin your ROI.


PayPal Credit Trick

Similar to the New Credit Card Trick, you can use PayPal Credit in the same way. PayPal Credit provides you with a line of credit you can use to buy gift cards and stake that cash like in the previous section. The key to PayPal Credit is that they offer no interest payments on items over $99 for 6 months if you pay in full. This allows you to earn the 12% 3-month staking rewards.


With all of these methods, the key is finding sources of debt that are free (i.e., 0% interest). The longer the timescale, the better. If not 0, then find anything lower than the 12% rate of return you will be getting, and you will still be in the positive.


If you're interested in getting some bonuses during sign-up...

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