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Credit card companies are climbing all over themselves trying to entice you with mega bonus offers. They seem to be a good deal because all you need to do is use their credit card for a few months and you will be rewarded with enough bonus points to purchase a round-trip ticket to Europe. It’s not quite as easy as that. Here’s why.
You are typically required to charge a minimum amount to your card during a special introductory offer period. For instance, the Chase Sapphire Reserve Card will reward you with 50,000 bonus points for spending $4,000 within the first three months.
What if there was a way to reach your minimum spending requirement without having to spend a dime? What if doing so would also benefit other people? If you are charitably inclined and willing to take a very small risk to produce a win-win, you may want to make your way over to the Kiva website and start doing some good.
Creating Shared Economic Value While Meeting Spending Requirements
Kiva is an international non-profit organization that facilitates loans for small businesses and entrepreneurs in more than 80 countries. It’s similar to a LendingClub model that matches borrowers with investors who are interested in helping businesses get started or grow. The difference is Kiva focuses on impoverished parts of the world where people need a hand to create better opportunities for themselves. 100 percent of the money Kiva receives from lenders goes to funding loans.
As a lender, you can loan as little as $25 or as much is allowed for a specific borrower. Borrowers are typically not charged interest, so you wouldn’t earn interest on your loan. However, you would get your money back over time. Some loans are for as little as three months while others can be for several years. You can choose the borrower you want to help based on the loan terms (repayment schedule, repay in installments, repaid all at once, etc), the country, and the type of business.
Kiva has funded more than $1 billion in loans through more than 1.7 million lenders. The repayment rate on all loans is 97 percent. So there is a three percent chance you won’t be fully repaid on a loan. But most lenders diversify their loans – loaning smaller amounts to multiple borrowers – which reduces the risk even further.
How to Make Kiva Lending Work for You
When you find a loan you want to make, you pay Kiva the full amount of the loan using your credit card. The payment to Kiva, which is actually a loan to a deserving entrepreneur in another part of the globe, counts as a legitimate purchase which can go towards satisfying your minimum spending requirement.
While you can also meet your minimum spending requirements by using your credit card to donate outright to a charity, you would be parting with your money forever. By making a loan through Kiva, you are helping underprivileged people gain a foothold on their future and eventually getting your money back.
However, it can take some time to receive all of your money back. In many cases you won’t even see repayments start for several months after you make the loan. So unless you have the means to pay off your credit card in a short period of time, it may not make sense. You will be paying interest on the balance which can negate the benefits of the signup bonus and ongoing rewards.
To make this work you would need to consider any money you put towards a Kiva loan as an investment. While you won’t receive a return on your investment in the form of interest, you do pick up a sizable rewards bonus that can be similarly equivalent. Ideally you have funds set aside in savings to pay off the credit card balance to avoid loaning money you don’t have which can create expensive debt.
Author: Jeff Gitlen
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