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September 23, 2008


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I've done this in the past and would possibly consider it again. It will ding your credit score (maxed out card) but if you're not planning on a mortgage or car loan in the future, it shouldn't matter.

However, I wouldn't tie the money up in a CD. The card company could change the terms anytime they want so I wouldn't feel comfortable not actually having all the cash on-hand (i.e. savings account) pay them.

I borrowed about $40,000 last year when interest rates at my bank were over 5%, and made quite a lot of free cash. As long as you're sure you'll make the payments on time, then go right ahead. It worked fine for me.

Using all of your credit could hurt your credit score -- which might only matter if you're trying to get a home/car loan in the next while.

ING money transfers always take 2-3 days, if you time it just wrong you might need to come up with $29,000 to pay back the CC company just a few weeks before your CD matures.

A couple questions to ask... Is there a requirement to use the card a specified number of times per month? Is the 0% rate limited to the balance transfer/cash advance? Are payments applied to the balance transfer amount before any outstanding new balance? If the answer is yes to all three, then you won't benefit as much as you think. If you charge $100/month to meet the minimum activity requirement you may end up building a balance that is exempt from the 0% rate and all your minimum payments would go to pay off the $29K cash advance. If the rate for new purchases is 15-20%, the finance charges on the $100/month could be non-trivial. I suspect you'd still come out ahead, but I don't have time to do the math.

This is something I've seen some blog writers doing. Try a google search for "credit card arbitrage" to find more about it. Theres some folks out there that do it a lot and make a decent side income off it.

One potential negative is that it would cause your credit score to go down. You'll show a large credit card balance and that is not good for your credit score. This could have potential side consequences like higher insurance rates, higher rates on loans, etc. But if your credit score is pretty healthy to begin with then it might not make enough difference to hurt. I don't know how much it would matter.

People used to do it with student loans too if they didn't really need the money. For student loans it worked cause the interest was defered till after graduation. So you could take a loan out and make interest on it during college then pay off the loan principal after school and pocket the interest.


I don't see where they subtracted the Min payment from the total gained. Wouldn't that be a pretty large Min payment?

Not sure about the timing, but WaMu has a 12-mo CD at 5% interest. Might want to check into that. If not, check WaMu savings... it's at 4% right now and you have immediate-ish access to your cash.

All I can say is read the fine print. Often, the 0% goes away if you miss a single payment or, like others above said, there are a myriad of other conditions. So just make sure you know all the details and are comfortable with them and the risks they imply. My usual rule of thumb is that these credit card companies are smart enough to not float people huge amounts of money for free. So I'd be on the lookout for gotchas.

Yes, I have heard of these offers, and yes, I take advantage of them all the time. As others have stated, make sure to read the fine print, and be sure that you always make your payments on time. But I think this is an excellent way to make some extra (free) money. After all, this is "free" money finance!

To Chad: yes, the minimum payment will be pretty large. However, as long as you're under the 0% offer, the entire payment will go towards paying off the principal, rather than interest. In other words, even though you do have a large payment, you're not losing any money to the bank.

The only thing to watch out for, if you choose to put this money in a CD, is that you are still able to make the minimum payments. Perhaps you make enough money anyway that you can afford the payments. Or perhaps, just leave some money in a regular high-yield savings account, rather than locked in a CD. Different banks charge different amounts for minimum payments. Chase, I believe, charges 2%. So if you take out $29,000, expect your minimum payment to be $580 per month.

One other note, it's usually best not to take out the full amount of your credit line. It's usually best to take out a max of 80-90% of your credit line. So I might only take out $25,000 of your available $29,000 credit line.

To Rick: Why is it not good to take out the full amount?

Is this just for your credit score? Is there a rule of thumb on how much you can take out without making your credit score go down?

Watch out for the over the limit gotcha some credit cards are clever with (happen to me before. I complained and they removed the charge, but I guess they didn't have to). It works like this - you borrow the $29K, which they let you do because you have that much of a limit. The next day they apply the $199 fee and, voila, you have a balance of $29,199 and are over the limit, so get hit with a fee. So just make sure to give yourself a little bit of room for that.

You might want to take a look Jonathan's write-up on this game over at the MyMoneyBlog. He has detailed how he does this at the links below:

It might be worth a read if you want some more details about playing this game.

The one question that my financial advisor always asks is, "How will this fit into your portfolio?" In other words, what is the real purpose of this balance transfer in your personal financial strategy. What you are essentially asking it sounds like is if you should "leverage" outstanding debts with this open-end credit although how much might be the better question. Several people have stressed "reading that fine print" and cannot be stressed enough. Another option might be simply using this card as a "holding account" and using your existing card for purchases as you mentioned. It all comes down to what YOUR strategy is rather than anyone else's. You might also want to ask individuals who personally know you, who YOU know care about you, and who YOU know have YOUR best interest(s) in mind.

First of all, as you make payments throughout the year the balance will go down, so you will not earn the full $1100 interest (at 4% APY) that you are expecting. Also, don't forget that you will be paying income taxes on the interest you do earn!

I also would be nervous about tying up those funds in a CD... a high-yield savings account would be much better, but then the interest rate you earn can be lower, or at the very least is not guaranteed over the life of your BT like CD rates are.

I've done several "Credit card arbitrage" deals with Citi and Bank of America, netting about $1000 in interest in the past year on $28,000 borrowed. It's not for everyone. But if you pay attention to the fine print, and don't miss a payment, you'll be all right.

I have used credit card arbitrage to put in high yield savings accounts and short term CDs. I have "borrowed" over $140k from various credit cards and put it all in on-line savings and CDs.

Funny part is that I took $66k from Bank of America and put it in a Countrywide CD. As you know Countrywide is bought out by BofA. Robbing Peter to pay Paul :-).

If they want to give me free money I will take it.

The only thing to remember is be diligent and never forget to make the minimum payment. With tools like Quicken and on-line banking it's a lot easier than it seems. Also be prepared to send out $1k+ just in minimum payments monthly if you start to play credit card arbitrage in big.

I estimate to have made over $5k in interest on credit card arbitrage.

I am the reader who sent in the question. Thanks for the great feedback.

@Bill - no, yes, yes. So I won't be using the card for any other purchases to avoid additional fees.

@chad - I can make the min payments from my income.

@Tom - good point, I didn't even look into other interest rates. A little worried about putting anything at WAMU at the moment, but will look to other high apr options.

@strick - thanks. based on the reco to only access 80-90%, I'll leave room to not get an over-the-limit fee.

@jay - great links, thanks.

I wouldn't lock into a 1 year CD. You'll need to repay the loan BEFORE the one year is up in order to avoid interest. Since you can't open the CD until you get the loan, your CD will mature at LEAST one or two days after the loan does - in which case you couldn't pay off the loan until after it matured. Be safe and get a 10 month CD or even a 6 month one, or just hold the money freely in a money market fund.

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