Credit Card Arbitrage Q&A

Posted by Madison on May 15, 2008

It’s credit card arbitrage turnover time! Wow, that is a mouthful. If you aren’t familiar with my credit card arbitrage here is some background information:

My cards are nearing the end of the promotional periods and I have to find new cards. Complicating the process this year is our refinance that is underway. It might get tricky, so this year won’t be a typical year for the rollover.

Just as I was preparing to tell you about it, I received some questions from a reader, Greg. The questions will help with some of the background before I get into the entire turnover process later this summer.

Do you worry about your HELOC being frozen? Would you be in trouble if that happened? Mine was frozen a couple of months ago and even though I was able to have it unfrozen, it was a royal pain.

As a matter of fact, my husband asked me the same thing recently. In general I don’t worry about it, because I have multiple personal lines of credit that I could use in a pinch if I had to.

We might actually have to close our HELOC to get the loan terms we want. Either way, during this turnover, I’ll be without my HELOC to use to store money. It’s a pain without it, but I think we could pull it off.

I understand how you get such large limits, but how do you get such large advances? I just opened another 0% card and completed a transfer. Since I have other Chase cards, I could easily raise the limit on this new card to $30k just by lowering other limits.

When you do this, are you then able to get them to process another and possibly larger transfer? I’ve come across some cards that have a limit of $10k on the amount they will transfer. You’ve obviously blown right past this.

Hmmmm, I haven’t run into the limit on the balance transfer amount before. One strategy I suggest is to raise the limit first, then do the balance transfer. That way if they are charging a fee, it will only be charged one time, effectively lowering your costs.

Also, I have often called and said that I would transfer more if they raise my limit, this seems to work in a few cases; maybe it would work when they give a limit on the transfer amount.

I’ve found the 0% no fee offers to be exceedingly rare. Most are 0% and a 3% balance transfer fee. Discover maxed the fee out at $50. Do all the 0% no fee offers come to you in the mail or do you search them out? Where?

I agree that many of the no fee offers have dried up. I looked in my notes from last year and found that we got no fees from various American Express, Citi, US Bank and Washington Mutual cards. We consistently found that Discover, Chase, Bank of America, and Bank Atlantic charged fees that usually maxed at $30, $50, $75, and $99.

I usually calculate what the fee is in terms of % rate. For example a $50 fee for a one year transfer on $25,000 works out to be 0.2%. (It’s actually a little off since you make a payment each month.) If the fee makes the interest rate to be more than 0.5%, I’ll pass on it. (This is why making the huge one time transfers help lower the effective interest rate.)

I used to keep all the offers that come in the mail before a big turnover, now I just primarily use online resources. I’ll highlight some of my list of target cards that I am planning on using in 0% balance transfer credit cards.

Are all credit cards in your name, your husbands, combo? All mine are in my name alone. I’ve thought about getting some in my wife’s name also.

Yes, I run both of our cards through arbitrage, but all are individual cards. In addition, every once in awhile I run some of the festivities on my moms cards. Here is why:

  • We can run turnovers at different times during the year.
  • If we find a great card with a good offer, we can use it twice, once for each of us.
  • Individual cards helps out on credit scores by not having us both hit by the same balance.

How staggered are these amounts? A simple average would say you have to refinance ~$20k per month. How much time do you spend tracking down and applying for another 0% card?

I do our applications once per year in our turnover. I pick out a bunch of cards, and apply all in one day. It usually takes about two hours to apply for them. When I complete my husband’s turnover, I use the same list of cards to save time. I pay him $5 per application to sit at the computer and apply for all of them. (Yes, I know we share money, but I don’t think he minds helping me out once in awhile.)

Since I turnover all the cards once per year, I don’t change them each month. To make the payments, I just pay out of the savings account or our HELOC. It’s much simpler that way.

How do you manage the actual arbitrage refinance? When you apply for credit card B to replace credit card A do you simply overpay the payoff amount on A and then ask them to send you the overpayment? Or do you send the money somewhere else and then payoff card A?

I never pay the cards directly. This is where I use HELOCs or personal credit lines. It’s much easier and there is no worry about missing a due date. I also avoid having to call to ask for refunds or to send up any red flags for payments that are too large.

Although, as I pointed out, I’ll be trying to run the turnover this year without my HELOCs because of our refinance. It will definitely be more challenging!

0% Credit Card Offers

To get started, I’m working on a target list of potential cards. Once I find a set of cards, I go in and look at the terms and check for: annual fee, balance transfer fee, 0%, and the number of months.

UPDATE: I’ve posted the list of 0% balance transfer credit cards I am considering.

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Comments to Credit Card Arbitrage Q&A

  1. It sounds like you are paying less than 0.5% per year on the total amount borrowed on 0% interest credit cards. Is this right? I guess I’m asking whether you ever get caught by some unexpected fine print or unpleasant business practice of a credit card company.

    It seems doubtful that many people could run this arbitrage as well as you do.

    What do you use all the low-interest money for? My best guess would be equity in your home and not just accumulating consumer debt.

    Michael James

  2. You pay your husband to help you? I need a new wife/job. 😉


  3. This is a very dangerous scheme full of ways to topple and end up badly. I really don’t see how someeone can sleep well at night with this hanging over them.


  4. I would be extremely cautious in reading the small print this year, as the credit crunch has caused a tremendous fall in the profitability of many financial institutions. They will crack down on this hard and if you are not liquid, it will be a very messy situation to clean up. Either way good luck, but tread carefully.


  5. @ Michael James: Yes, 0.5%, but actually much less, since many of the cards had $0 balance transfer fees. The total is probably less than 0.25%.

    The only time we had a problem was when American Express charged us interest, however, we got it fixed.

    Here’s what we use the money for. It’s mostly for our heloc and to put in the bank to earn interest. We don’t use it to buy any additional items that we wouldn’t otherwise purchase.

    @ David: Maybe offer her a reward she couldn’t resist? I remember telling my husband he could put the money towards some motorcycle junk he wanted!

    @ Paul: I agree, if it is not planned out carefully, it can turn out really bad. It’s not a beginner strategy at all. Luckily, if we were to run into a problem, I would just pay off all the cards immediately.

    @ Craig: Great point on the small print. I’ve been noticing that Chase in particular is getting much more stringent on their rules. Good reminder that when they up their game… I have to up my game!


  6. I have to honestly say I have never heard of anyone doing this before. Do you have a hard time finding credit cards with a 0 intro rate? What happens if you can\\\’t find one to transfer it into?


  7. @ Ideal: I haven’t ever had trouble finding a 0% card. They’re everywhere it seems. I even made a list that I’ll keep updated for readers:


  8. Madison, why do you apply for all the cards in one day? Is this so that your FICO number isn’t affected? I mean, do you think if you applied for one each day, would that be detrimental? So by applying all in one day, all the applications hit at once and that works out better?

    Mrs. Accountability’s last post: Electricity in August 2008

    Mrs. Accountability

  9. @ Mrs. Accountability: Exactly! If you applied for one each day over a few weeks, by time you hit the last application you would have a bunch of recent inquiries bringing down your score temporarily.


  10. Madison – when you sit down and apply all in one afternoon, do you *always* get a message that you are approved or do some of them say they will notify you of their decision within xx number of days? Thanks!

    Mrs. Accountability’s last post: OODA – 1 Year Blogoversary Contest

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  11. Madison, in answer to my question, I got a message from several of the cards I applied for that they would notify me of their decision within xx days. I was approved for all of the cards. Now I have another question. One of the cards, I’ll call it Smith VISA, I just cleared it down to $0.00 with a balance transfer. My Amazon VISA is actually a CHASE card, so they wouldn’t do the balance transfer for me (duh). The Smith VISA card is offering 0% interest for balance transfers now – is it a bad idea to now move money back onto that card that was at $0.00 for a short time? Thanks for your help. This is confusing at times.

    Mrs. Accountability

  12. @ Mrs. Accountability: I get plenty of messages that say they will notify me later. I’m pretty sure my days of instant approvals are over, but I do get some. Usually the companies want to call me and discuss the credit line before approving it.

    As far as moving money back to a card that previously had a 0%, that should be ok, as long as you wait until a new cycle. Sometimes if you double up in one cycle, they might charge you an over the limit fee. I would wait until after you get the bill just to be safe.

    I actually pay down and put money back onto a card all the time. It seems like the minute you “pay off a card” they send you a new check!


  13. Madison, thank you! October 3rd will be the new cycle for this card, so I will move the money over then. Thank you so much for your help with this! I just spread the word about you to another blogger who just did a balance transfer but had to pay $240 to move the money over, and to another blogger that has a card that went from 0% to 11%. I really appreciate the good information you have here. I would rather have no debt, but it can’t be helped at the moment, so better to stay at 0% interest in the meantime! Thanks again!

    Mrs. Accountability

  14. Been using credit cards and arbitrage for 25 years.Although modest comopared to you dont remember having paid interest or fees other than annual fees on my gold card used to pay travel and car rentals insurance free which has also saved me thousands of dollars over the years.

    Jean Villeneuve

  15. Given your level of arbitrage income (1K/month) you would seem to be the one to ask, could you make an average living at this? I’d say triple what you make on it now would pay my basic bills. What limits you from tripling your arbitrage? Is it the amount of 0% credit cards out there with capped fees? Are you only using 20% of your credit limits soley for credit score reasons or are there other things that limit this (separate cash advance limits?). I just wonder why you don’t use 60% and make 3 times as much when you are not about to refi a mortgage, etc. (you can always pay back the other 40% on the spot, right?)


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