Any experienced gambler knows the house usually wins. The trick is to use your knowledge and skill to try to turn the odds in your favor.
A recent report from the Consumer Financial Protection Bureau (CFPB) may cause you to recalculate those odds when gambling with credit cards. If you pay with a credit card at a casino or online, you might be surprised by how much credit card gambling can stack the odds against you.
Credit card gambling isn’t a level playing field
In a perfect world, placing a bet should be a matter of skill, judgment or just pure luck. The odds of winning shouldn’t be tilted against one side of the bet or the other.
Of course, that’s not how it works in real life. Gambling companies earn billions in revenue by tilting the odds in their favor. The odds they offer on wagers are calculated to allow them to systematically keep a higher percentage of bets placed than they pay out. This is known as the “hold” percentage.
A recent article in The Economist estimated that the average hold percentage for sports betting firms has risen to about 10%. So on any given bet, the house has a 10% better chance of winning than you do.
Those odds get worse if you use a credit card to place that bet. If you lose and don’t pay the credit card balance off out of pocket, you’ll pay interest on that gambling debt. A recent CardRatings’ survey found that the average credit card rate is 24.55%, so the longer you have that debt, the worse your odds of breaking even become.
Still feel lucky? Well, the odds get even worse when you dig into the hidden costs of gambling with credit cards.
The hidden costs of gambling with credit cards
There’s more to the cost of gambling with credit cards than just the potential of paying ordinary credit card interest. Here are some hidden costs of gambling with credit cards:
Cash advance fees
The CFPB reported that most credit card companies that allow their cards to be used for gambling treat those transactions as cash advances rather than purchases.
Credit card cash advances carry higher costs than purchase transactions. One of these costs is a fee when you place the transaction. The CFPB found that the typical cash advance fee is $10 or 5%, whichever is greater. The minimum charge of $10 means cash advance fees represent an especially high percentage of smaller wagers.
Cash advance interest rates
Not only do credit card cash advances carry transaction fees, but any resulting balance is typically charged a higher interest rate than balances from purchases.
The CFPB found that the most common cash advance interest rate was 30%. This could add considerably to the cost of your bet.
Immediate interest accrual
So, you say you’re not concerned about interest charges because you pay your credit card balance off every month. Well, one difference between credit card cash advances and regular purchases is that balances from cash advances start accruing interest immediately, and not at the end of the statement period.
As a result, even if you can afford to pay your balance off in full every month, you won’t be completely immune to interest charges if you use your credit card to gamble.
Minimum interest charges
You might think that an interest charge for a month won’t amount to much, but it could be magnified by the fact that many credit card issuers have minimum interest charges. These can range from $0.50 to over $2.
These minimum interest charges are especially impactful on smaller balances. Suppose you only have a $20 credit card balance from gambling and your credit card has a minimum interest charge of $2. That means you’ll pay 10% in interest – for just one month!
Potential for late fees and credit damage
Beyond the immediate costs of credit card gambling, there are other risks. If your gambling debt gets out of hand and you start missing payments, you’ll be likely to add late fees and damage to your credit score to the cost of your bets.
Calculating the odds of gambling with credit cards
Gambling is all about trying to play the odds shrewdly. To help you recognize what those odds are, CardRatings calculated how gambling with credit cards can affect the odds in two different scenarios.
As a basis for comparison, start with the odds of an average bet with a sportsbook if you use cash instead of a credit card. Because of the typical 10% hold built into the odds those companies offer, all things being equal for every 1,000 bets you placed you’d have to win 524 of them to come out ahead.
Now consider how using a credit card stacks those odds even further against you:
Placing a $100 bet with a credit card
On a $100 bet placed with a credit card, you’d not only have to overcome the house’s 10% hold, but also the costs of using the credit card.
So, the average $100 bet would cost you:
- The $100 wager
- 10% hold to the house = $10
- One month of interest at 30% = $2.50 (this assumes you pay off your balance the first month)
- A cash advance fee of 5% or $10 minimum = $10, because you’d incur the minimum on a $100 transaction
That adds up to a total cost of $122.50 for a typical $100 bet. With that, for every 1,000 bets you place you’d have to win 551 of them to come out ahead.
Placing a $20 bet with a credit card
If a $100 bet is too rich for your blood, you might try to play it safe by limiting your action to an occasional $20 bet. Unfortunately, because of minimum charges on cash advance transactions, this would only steepen the odds against you.
Here’s how the costs add up on a $20 bet on average:
- The $20 wager
- 10% hold to the house = $2
- One month of interest at 30% or $1 minimum interest charge = $1
- A cash advance fee of 5% or $10 minimum = $10
That adds up to a $33 cost for placing the typical $20 wager. As a result, for every 1,000 bets you place you’d have to win 623 of them to come out ahead.
Improving your odds
Face it: the business model of casinos, sportsbooks and other gambling companies is based on taking in more money than they pay out. So, the odds are always going to be tilted against you. Still, there are some things you can do to at least improve those odds:
- Gamble in person, using cash. Because credit cards usually treat gambling transactions as cash advances, they add fees and interest charges to the cost of your wagers.
- Don’t bet more than you can afford to pay off in one month. If you still decide to use a credit card, remember that those transactions start accruing interest immediately. However, you can limit interest charges to the first month by paying your balance off in full at the end of the billing cycle.
- Set aside winnings to offset future losses. If you plan on gambling regularly, don’t spend all the proceeds when you win. Set some aside as a bank you can draw on to pay the bills when you lose, so you won’t incur gambling debts.
Gambling is a choice, but even if you do it just for fun you’ll have better luck if you make it an informed choice. Knowing the costs of gambling with credit cards can help you understand how much they stack the odds against you.
