Diminishing Value of Sign-Up Bonuses Due to High Spend Requirements

As I plan my next round of credit card applications, I’m always cognizant of how much spend I’m signing myself up for. While there are still some credit cards out there with minimal spend requirements (e.g. the Barclays US Airways Mastercard, which I love), many credit cards require that you spend a certain amount on the credit card before you get the full sign-up bonus.

While the Ink Bold and Ink Plus might offer one of the most attractive sign-up bonuses, they do require $5,000 of spend within three months before receiving the bonus. I value 50,000 Ultimate Rewards points at over $750, so this sounds like a great deal, but it also means that you get 0 bonus points if you don’t hit $5,000 in three months.

If you normally spend over $5,000 on credit cards over 3 months, then this card works great for you, as you can get the sign-up bonus without changing your behavior. But if you normally only spend $500 a month on credit cards, then it’s much harder to reach that $5,000 goal. Of course, there are numerous ways to manufacture spend, but depending on where you live, it’s not trivial to get past $1,000 in manufactured spend per month.

This suggests that people need to take a more holistic look at credit card offers before automatically saying that a certain card offer is the best. At the extreme, consider a hypothetical card that offered 10,000,000 Ultimate Rewards points after spending $100,000 in one month. I theoretically value the 10,000,000 Ultimate Rewards points more than the $100,000 since at the bare minimum you can redeem 10,000,000 at 1.25 cents per point, so I could frivolously buy things that I don’t value and still come out ahead, but it’s not really feasible for me to “spend” $100,000 in one month on a credit card (I’d probably trigger fraud alerts, I can’t afford to float $100,000, etc.). Thus, the actual value of this sign-up bonus would be $0 to me since I would never actually receive it.

A more accurate model of the value of a sign-up bonus should include some sort of exponential decay factor for how much higher the spend requirement is compared to your normal spend. While an extra $1,000 per month is easy, $2,000 per month gets harder, and at $5,000 per month, it’s not worth it for me (I think I possibly could manufacture $5,000 of spend in a month at minimal cost, but it’d take a lot of time, and I’d probably be risking financial reviews or the equivalent).

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