I’m Looking into Credit Card Arbitrage, Am I Crazy? |
29 Comments |
Previously, I asked (mostly rhetorically), I have a plasma TV, am I crazy? Most people agreed no, so now I’m stepping up the craziness a level. In the last week, I’ve been thinking of doing something that I never thought I would - get a credit card with a 0% balance transfer. I had always thought that the risks outweigh the benefits. Lately, I’ve been think that I was wrong.
It started with reading about Get Rich Slick’s Money Farm. On the same day, I came across Blueprint for Financial Prosperity’s Don’t Cancel Old 0% Balance Transfer Cards. I’ve spoken with both of these guys in the past and they are brilliant folks. Because they are doing it, it made me think that I should at least explore it - give it a chance and see what it has to offer.
It didn’t take me long to realize that my HELOC is currently at 8% and that means I could make some big savings with a 0% balance transfer. Since I have a little over $13,000 there, I’d pay over $1,000 a year in interest. Suddenly this is a quick way to save $90 a month. That’s like free cable and Internet for a year. How much “work” would that be worth to you? I think it’s worth a bit to me. However, in looking into these things, it seems like it’s very little work. I would simply set up an automated payment and alerts in my calendar to make sure that they get there. I would make sure that they are there far in advance, perhaps at least 15 days.
In realizing that I want to know more, I decided that I needed to go to the experts. Jonathan of My Money Blog has an excellent guide, How To Make Money From 0% APR Balance Transfers, which is going to be my bible in this endeavor. I’m going to supplement that with 2Million’s Guide to Taking Advantage of 0% Balance Transfer Offers. There’s definitely overlap in the two resources, but between the two I expect to be as prepared as I could be without first-hand experience.
This post deals with: ... and focuses on:Credit Cards
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 Propeller29 Responses to “I’m Looking into Credit Card Arbitrage, Am I Crazy?”
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Previous: Festival of Frugality #62Next: Why Not Prosper?
March 20th, 2008 at 12:14 pm
I am having a bad time with this arbitrage.
I just transferred $25k to a Bank of America credit card - leaving a -$21000 balance. I then transferred $18800 (the max ‘cash advance’ amount) this to a BofA checking account. Bank of America put a hold on that card and left a message on my phone. When I called them up they proceeded to ask a bunch of questions - including why I transferred the money (I just said “arbitrage” - a word she did not understand).
She said if ever “overpayed” again my account would be closed. Nice.
My account still seems to be frozen. Hopefully I can get this resolved quickly.
May 23rd, 2007 at 5:50 pm
Yes, you are crazy to even consider this!
May 22nd, 2007 at 8:15 am
I’ve done this — transferring my HELOC (10%) to a 2.99% fixed balance transfer rate (for the life of the balance. It saves me $1500/year on interest, and only cost $135 to set up.
March 29th, 2007 at 5:59 am
[...] but it’s hard to not believe that something is conspiring against me in trying to do my credit card arbitrage plan. If I can’t get a credit card to begin with, it’s just not going to end up well. The [...]
March 16th, 2007 at 2:03 pm
[...] I’ve been fighting with Discover to get my Credit Card Arbitrage experiment going. It turns out that my company’s phone number doesn’t match their system. To [...]
March 2nd, 2007 at 4:52 pm
i’ve been trying to get in on the action too. however, all my balance transfer deals are at 5-6%.
even though i have good credit, i currently have about 12 mortages on it. last year i was upto about 20!
i think this affects my rate a bit.
February 26th, 2007 at 7:17 am
No, Jonathan, I can’t be sure that I’ll pay it off in 12 months. I’ll make a run at it though. As you say, it’s not a big deal as I can always borrow from the HELOC when the period is over.
The difference between Prosper and credit card arbitrage is that there is no penalty if I don’t make a loan for a few days. Also, there’s really no fine print that could make the whole deal worthless. Lastly many people that I talk to find Prosper fun and not “work.”
February 24th, 2007 at 10:35 pm
“86.66 is the amount of interest that you pay the first month…
But the AVERAGE interest you pay for the entire loan is less than $50 per month… Check out a mortgage calculator and look at the amortization calcualtor. I’m not trying to change your mind (okay, I’m trying to change your mind), but if you run the numbers, the total amount of interest paid in 12 months would be 570.19 with a monthly payment of 1130.85.”
NCN, the idea is that Lazy Man won’t be paying the amount based on a 1-year repayment schedule anymore. He’ll move the $13k to a credit card, and only pay the 2% minimum, but keep putting money away as if he was paying off the HELOC. Instead, the difference (hopefully) will be in a bank earning 5%. Thus, he may not get the full interest benefit, it will be somewhere in between. (Aren’t HELOC amortized over a long term, like 10 years anyways?)
Personally, I think Prosper is more work for the reward than 0% balance transfers, so if you like doing Prosper I think you’ll do fine with this.
Let me know if you have any specific questions. I expect you to teach me about HELOCs later
February 24th, 2007 at 10:20 pm
You’re not crazy, but you can’t be Lazy
Are you for sure going to pay it off in 12 months? The good thing is that if it is on a HELOC, if for some reason something horrible happens then you can just move it back to the HELOC right?
Your credit score may decrease a bit since it’s unsecured debt now vs. secured, but it definitely won’t kill you.