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.
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.
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 ONIG Financial Blog 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!
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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