$200 Visa cards. Are they worth it?

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Now that Office Depot no longer sells $500 loadable Visa or Amex cards (at least, for now), a number of people have asked me about $200 Visa cards. All three of the big office supply stores (Staples, OfficeMax, and Office Depot) sell $200 Visa gift cards with a $6.95 fee. And, there are credit cards that offer 5X points or 5% back at office supply stores (see “Best Category Bonuses“). If you were to use one of these credit cards to buy a Visa gift card, is it a good deal?  To answer that question, let’s look at two scenarios: the first is where you plan to use the $200 Visa cards for day to day spend; and the second is where you plan to liquidate the gift cards.

Day to day spend

Even if you ignore the fact that gift cards are a pain to deal with, the answer to whether they are a good deal is still complicated. It’s easy to look at the number of points earned and compare to the cost of the gift card, but that’s not the whole story. It’s equally important to look at the points or cash back not earned when using the gift card.

For example, suppose I buy a $200 Visa gift card for $206.95 and I pay with a  card that offers 5 points per dollar at office supply stores.  In that case, I would earn 206.95 X 5 = 1035 points. So, you could argue that I bought 1035 points for $6.95. That sounds like a good deal since $6.95 divided by 1035 points = .67 cents per point (about 2/3 of a penny per point). The problem with that analysis is that when you use the gift card, you do not earn additional points. So, when you use the $200 gift card, you forfeit the points you would have earned with a credit card. At a minimum, you forfeit 200 points, but if you use the gift card in places where your credit card would have earned bonus points, then you are giving up even more. If you commit to using the gift card only where you have no credit card bonuses, then you can estimate that the total points forfeited = 200. Then, your total points earned from buying the gift card are the points earned minus the points forfeited: 1035 – 200 = 835. Given this, the cost per point = $6.95 / 835 = .83 cents per point, or about 4/5 of a penny. Now that you have a calculated cost per point, you can decide whether the effort involved in buying and using gift cards is worth the benefit of being able to buy points for .83 cents each. 

Note that the above analysis assumes that the type of points forfeited are roughly equal in value to the type of points earned.  If you would have used a credit card that earns more valuable points, then its worth redoing the above calculations accordingly.

Buying and liquidating

Another option is not to use Visa gift cards, but to turn them into cash.  If this is your intent, its not necessary to calculate points lost from another credit card (since this is spend you would not have done otherwise), but you do need to calculate the cost of liquidating.

Let’s say that you live or work near a drug store that allows you to pay for reload cards with Visa gift cards.  Typically, reload cards come with a $3.95 fee and can be loaded up to $500.  If you use 5 Visa gift cards to buy two reload cards and load each one to $496.05, then you’ll completely use up the Visa gift cards in exchange for $992.10 which is basically equivalent to cash.  Now we can add up points and costs:

  • 5 Visa cards @ $206.95 = $1034.75
  • Points earned = 1035 X 5 = 5175
  • Cash returned = $992.10
  • Total cost = $1034.75 – $992.10  = $42.65
  • Cost Per Point = $42.65 / 5175 = .824 cents per point

 

Is it worth it?

Its interesting (to me!) to see that the cost of buying points comes out about the same regardless of whether your goal is to use or liquidate $200 Visa cards.  For certain kinds of points (Ultimate Rewards, for example), I would gladly buy points at .83 cents each all day long.  At a minimum, those points can be exchanged for cash at 1 cent each so you’re already ahead by 17%.  If you use the points for valuable redemptions, though, you could easily get 2 cents per point or much more value.

The calculations above do not include the cost for gas, nor do they account for the time and hassle involved.  For me, it’s a bit too much trouble for the gain, but its close!  How about you?  At ~.83 cents per point are you a buyer?

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