Here's a comment left on my post titled $10k Challenge: Make Money with Credit Cards about how to make money on 0% credit card transfers:
Another way to earn a bit of cash by way of credit cards is via 0% balance transfers.
Most credit card companies will transfer the money to your personal bank account when you provide the account and routing numbers. The best case scenario is no transfer fees. This usually comes with new cards only. Right now I do not want to open new accounts so I use my current accounts and I have gotten 0% from cards I already have. I have even gotten .99% and 1.0% APR balance transfers from old accounts. Some have fees like 3% for the transfer fee. This is where you must be diligent. If there is a decent cap like $29, $75 or even $99 and the math works in your favor I say, "Go for it!" It all works out when the math is right.
Have the money deposited into a high yield interest rate account like Emigrant Direct (5.05%) or ING Direct (4.50%). The other thing you can do to take things a step further is to take most of the money, all that is not needed to pay the monthly minimum, and put that cash into a CD account. Timing is everything. You must be aware of when the 0% transfer rate ends and make sure your CD maturity date ends before that. Indymac has great CD rates. ING Direct now has interest bearing internet checking that offers free bill pay. I used it to pay the monthly credit card minimums in a timely, efficient manner. It's very easy. The interest rate is 4% to 5.30% depending on the balance.
All this money is taxable. I say if you have all that credit available to you, you may as well earn a bit of extra cash towards your goal if you are so inclined. I added over $700 net to my goal last year beginning in June and ending in December. I am doing it again this year and hope to add at least $950 net to the goal.
It may seem a bit complicated, but for those of you who like a bit of a challenge and like seeing the money come in rather effortlessly once things are set up, I say, "Welcome to the club and good luck."
I've seen numerous articles talking about how to do this. Personally, it's not something I'm up for. Here's why:
1. The earning potential isn't that much. You're making a few percentage points and that's it. Let's say you borrow $25,000 and earn 3% after costs. That's $750. Now $750 isn't that bad but...
2. ...it takes a ton of time, attention, and management. For me, it's simply a ratio of time to earning potential. Too much effort for too little return.
3. I don't like messing with debt to make money. It's just a personal preference, but I don't like debt of any kind -- especially $25,000 on a credit card!!!
4. I use credit cards to make money in other ways -- doing something I'd do anyway (like shop, eat, etc.) Last year I earned almost $500 doing this with no additional time commitment or debt incurred at all!
Additionally, it can ding your credit rating if you over utilize your lines of credit.
Posted by: Duane Gran | May 18, 2007 at 09:21 AM
I think it is important to focus on debt reduction at the same time focus on income generation. Just like the secret says, focus on the debt... it expands. Focus on income... it expands. In my experience, this is very true.
Posted by: Steve | May 18, 2007 at 09:24 AM
On top of the time and effort, there is also a certain amount of risks involved with this scheme. If things ever not go the way you thought it should, even with a screw up from the bank or credit card company, you have no one to blame but yourself. It's the risk you were taking when you sign up for this scheme.
Of course opening too many credit card accounts will also hurt your credit score. How much is *THAT* worth?
Why not spend this time and effort on educating yourself? It probably pays off more in the long run.
I don't think it's worth it.
Posted by: Edmund | May 18, 2007 at 10:11 AM
FMF,
1) Earning potential is limited, yes, but an extra $1500 per year is a nice bonus (I will earn ~$1500 pre tax this year on roughly $29,500 borrowed for 12 months, for free, sitting in my savings account at 5.3%). It brings me $1500 closer to meeting my "side-income" goal for the year of $5000.
2) You exaggerate the time and effort it takes to spot and set up these deals. I can easily digest the Terms and Conditions, a 1-2 page document, in less than 5 minutes, and know exactly what I am getting (or, in the case of a bad deal, *not* getting). You just have to read the thing and understand it. Most card companies have automatic billpay, so after it is set up online (maybe 1 hour), I don't need to worry about the account again until the 0% introductory period is over and I pay back the entire balance. The way I figure, I am earning roughly $1500 for at most 3 hours of actual work. Better than my day job.
3) The ding to my credit score is short-lived and small. I wouldn't advise somebody who is on the verge of buying a house to do this. In the same way, I wouldn't advise somebody careless with money or irresponsible to do this, either, as any debt is a liability and must be handled carefully.
In principle I agree with staying out of debt. But "free" debt like this, if handled carefully, can contribute to your bottom line net worth.
Posted by: Jonathan | May 18, 2007 at 12:32 PM
You can get free cash advances off credit cards?
Posted by: Dy | May 18, 2007 at 12:43 PM
Dy: most of the time, no. You can't get free cash advances off credit cards. But many cards offer free balance transfers. So the trick is to balance transfer to another card that has no balance, giving that card a negative balance (credit). You can then request a check from this card.
There are instructions all over the Internet to do this. But this isn't for everybody. You have to know what you're doing, and you can't mess up, or you'll owe the credit card company hundreds of dollars, rather than earning hundreds of dollars.
Posted by: Rick | May 18, 2007 at 01:53 PM
I have to disagree somewhat with points #1 & #2, but I definitely see this as a personal preference thing - some people aren't going to like it and others don't see the big deal.
I am actually venturing into balance transfer territory myself. Plan to make $1k in a year by applying for a card and transferring some balances. To me the time seems very minimal. $1k is a lot of money to me. I guess I Feel opposite of you on #1 & #2. #4 - I agree - I do that too - which means I will make a grand total of $1500 from my cards this year. I think I like the opportunity to triple my usual return. Oh but I'll set up automatic payments, don't expect it to take much time, certainly less time than a job that would pay me $1k.
It most certainly has its risks, but anything to make a quick buck does. I take offense though to the idea that you have to be uneducated or in debt to take such a risk. Quite the contrary. Turning a back on such an opportunity just because of an emotional adversion to debt is not the smartest financial decision. In this case I will give you all a little more leeway because it is a credit card and there are many risks. I wouldn't trust them farther than I could throw them - all your points are well taken. But someone came up to you with a 0% offer and no strings attached, it wouldn't be wise financially to say no. I personally would consider that more uneducated.
I am very careful with my credit score, not too worried about it. In the long-run it actually helps since we take on so little debt to base a score on otherwise. But no 2 people's credit score situation is the same. We have excellent scores and monitor closely. If the outstanding balances hurt our score we would just pay back the card immediately and our score would jump back up, it's not a biggie. I Wouldn't open 20 cards and keep doing this forever, but we decided for 1 years we'd give it a try, and go from there. When we're done we close the cards, with the score in the 800s after closing many cards I Am not too concerned. The assumption that anyone taking a BT has a bad credit score is absurd though. The second it hurt our FICO score it wouldn't be worth it though - that I Would agree with. But having a good score allows you a lot more wiggle room and room for error all the same and that I don't mind experimenting with.
Posted by: Teri | May 18, 2007 at 02:18 PM
I'd have to agree with some of the others here that if planned out properly it could be a great way to make a little extra cash. The best way is probably to make things as automatic as possible. Write down on your calendar or if you use Outlook set a reminder for when the 0% APR is about to expire. Sign up for automatic payments that way you don't have to worry about it and use an online bank with high interest like ING or HSBC with 5-6% on new accounts. I'd also think it's a good idea not to max out the line of credit, maybe $20k out of $25 or something so it doesn't affect your credit score as much? I'm guessing on this part but everything else seems to make sense and not be that hard to do if you're up for it.
Does anyone know where to find these kinds of offers? Maybe I'll do some searching online but if anyone has a particular site or card to look into let me know.
Posted by: Edwin | May 19, 2007 at 02:02 AM
I for one have over $200K in balance transfers and cash advances (yes, many deals allow you to have the money deposited directly into your account, or to write a check). I'm netting over 4%. If you're going to do this, you must chase interest rates (I move the money every few months as on-line promotional bank rates expire), you must set autopayments (because if you miss a payment, it is very bad), and you should be careful that you don't accidentally take an advance from a card that has an uncapped fee--if they take 3% off the top, it is hard to make money.
Posted by: Jack | May 19, 2007 at 06:31 AM
I posted this on the original post, and then I found this one that would actually be a little more appropriate so here it is again.
As MJ said, I think balance transfers are the best way to make a profit with credit cards.
I ended up having about $150,000 in available credit that I was able to transfer interest free for a year. After that I just stuck it in a high interest bank and cleared about $7500 last year.
Posted by: Steven M | December 04, 2007 at 12:11 PM