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Death of the Balance Transfer Arbitrager

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Jim writes about personal finance at Blueprint for Financial Prosperity.

A couple years ago, you couldn't cross the street without being hit with an offer of free money from a credit card. My list of no fee 0% balance transfers was so long I left some cards off simply because I was too Lazy to add them. A housing slump, some credit "concerns," and two years and the spigot of easy credit has slowed to a trickle. Now, 0% APY balance transfers with no fee are extinct along with the animal it created - the Balance Transfer Arbitrager.

I remember when people first started doing them. You had stories of consumers getting dozens of cards (the term App-o-rama referred to the act of applying for a lot of cards in a short period of time, so quickly that the cards never made it onto the report until after the App-o-rama) just to get the balance transfers. I even got in on the game, getting about $15,000 in credit card debt and earning a little interest on the side (made for some interesting blogging fodder). However, as the deals slowly dried up, so did the easy money.

What does this mean for arbitragers? Enjoy whatever terms you have right now because that's the end of it. Like an addict, you could move on to cards offering 0% on purchases but that easy balance transfer is done for at least a little while. You won't find a no fee offer but if you look hard enough you can find ones with a 3% fee and a cap, making it a pretty good deal (relative to the ones with no cap).

That being said, I think balance transfer arbitrage is dead in the long run. Even the best high yield saving accounts are offering 3.50% APY and 3.75% APY interest rates and that leaves you a slim margin of half to three-quarters percent (or more depending on how much credit you get, but it's not going to be much). Is that even worth the effort? No way.

You have to love capitalism though... the arbitrager made his money while he could (most knew this wasn't sustainable). The credit card companies also made their money (they earn plenty on transaction fees and the interest of those who didn't pay off the bill). Everyone is happy (mostly!).

Jim writes about personal finance at Blueprint for Financial Prosperity and is a huge fan of capitalism, even the capitalism that lets Canadians sell tickets to tourists to club baby seals.

Last updated on August 26, 2008.

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14 Responses to “Death of the Balance Transfer Arbitrager”

  1. It doesn’t look like all the 0% offers are gone. This post is causing all your Google ads to be about 0% cards. You could get better than 3.75% on your money by using a high-yield checking deal. That is probably too much work but it is possible.

  2. Lazy Man says:

    Yeah, I recently wrote about high-yield checking accounts – http://www.lazymanandmoney.com/5-interest-from-a-checking-account-yes/. Some of them pay 6% or more, and there are some strategies there to make it minimal work (potentially – didn’t try it myself)

  3. The 0% offers aren’t gone but many have fees, which eat into your return. If you get a 3.75% savings account and the balance transfer has a 3% fee, you’re talking an arbitrage opportunity of 0.75% that is also taxable.

  4. Good riddance to credit card arbitrage. There are so many better things to do with your time and money.

  5. WealthBoy says:

    The ability to perform credit card arbitrage is certainly coming to an end. Until short-term interest rates go back up, it will be very difficult to recover a transfer fee, let alone make money after deducting that expense. Even then, there isn’t anything that would prevent credit card companies from raising transfer fees when short-term rates go back up.

  6. ericabiz says:

    Too bad! I have about $22,000 arbitraged right now — backed up by a 3.75% savings account at WaMu. Looks like the gravy train is about to end, though, as both expire in November and I (unusually) have not received any offers to replace them at less than 3%…which isn’t worth it.

    Well, I had fun while it lasted, and was able to get some good $ off the money in my savings account (about $80/month.)

    -Erica

  7. Eric says:

    What about using Prosper as the other side of the arb? Not riskless, but great potential.

  8. Lazy Man says:

    Using Prosper would be very bad. You have to pay back the balance at some point and it’s usually much earlier than the 3 years that it takes to complete the loan term.

    And as you said, it’s far from riskless – you could get yourself into quite a bit of trouble with such a plan.

  9. Jared says:

    I played the game to rid myself of debt, but I did it in a much safer way. I transferred all my credit debt to one card, called the empty one and requested a better rate (got 10.99% down from 32%) and transferred back to that card. I then proceeded to do the same until all of my cards had low rates and all of my debts were on one card. Then I payed off that card as fast and hard as I could. Overall it saved me a whole lot of time and money. A lot of work and phone calls, but well worth it.

  10. I remember the first time I read about this. I was very impressed but there was no way I was going to get into it.

  11. I did a little bit of it, maybe like $12k on three cards, and it really wasn’t worth the hassle. Now it’s definitely not worth the hassle.

  12. Mrs. Micah says:

    When I looked at it, I decided that it would take a lot of money for it to be worth the stress I’d feel doing it. And that if it were that much money, I wouldn’t want to risk it…plus the whole not have any credit whatsoever until earlier this year thing. ;)

  13. Andy J says:

    This arbitrage play was a bad idea for most people as they didn’t see the impact to their credit scores. Every time they open a new card, their credit score declined. Plus, many people I knew doing this were just playing a shell game. They had no strategy to paying down their balances. Suddenly, they found themselves in the throws of 5 figure balances and needing to constantly play this game.

    This is why most credit counselors do not recommend credit card transfers as a debt reduction strategy

  14. Weakness of Balance Transfer Credit Cards

    Balance transfer credit cards allow you to transfer the balances from your other cards onto your new card. The 0% introductory APR is great because it allows you some time to pay off these debts without being charged interest, but if you’re not careful, you may find yourself paying more than you thought. Offers often charge 0% on transfers but may charge a very high interest rate on any new purchases. In addition, they may not be able to be paid off until your transferred balances are paid in full. This can equate to you paying a lot in interest charges on these new purchases.

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