In When Does the 0% Credit Card Really Expire? I stated that we had $58,980 on my American Express card. If that’s just one card, how much do we have total? And why?

$223,270. Yes, you read that correctly. However, it’s all at 0% and accounted for. It is actually making and saving us money! It is spread over 6 credit card companies with staggered ending dates for the introductory rates. If I actually had to pay interest, we wouldn’t have any.

Here’s a breakdown of what the money is from:

Category

Amount

Heloc/House $ 84,270
High Yield Savings $ 63,500
Budget Busters $ 36,000
Tax & Investment Holdings $ 21,500
Vehicles $ 18,000

Heloc/House

This is money that I didn’t put into our mortgage. Our mortgage is at 5.625%. If we carried it on our Heloc, it would be prime – .5%. This strategy is saving us about $4740 annually.

High Yield Savings

This money is parked in a savings account, currently earning 5.05%. This is what some people refer to as credit card arbitrage. At the current rate, this earns us about $3200 annually.

Budget Busters

This is a category I created to track money that we spend on items not in our budget. I prefer not to use money in our savings and rather earn the money to pay it off. The reason it is so large is because I dreamt it up to motivate us to work toward a very strict budget. Crazy? Yes, but it saves about $1800 annually by leaving the savings untouched.

Tax & Investment Holdings

Here’s another one I dreamt up. I like to fund our retirement accounts as soon as possible, then pay ourselves back over time. It’s similar to the concept of a Flexible Spending Account where you can spend the money before it is deposited. Think of it as a reverse escrow. It gives the investments about six months extra on average to accumulate, earning roughly $1,000 extra per year.

Vehicles

Finally, is the vehicle category. When we buy our cars I like to give myself a loan for the money and pay it back over time. Had we financed it with a company the going rate at the time was 4.75%, saving us about $850 per year.

Total

The total amount of money saved and earned is $11,590 annually. I use spreadsheets to keep track of the categories and end dates and Microsoft Money to monitor the bill payments. There is a lot of paperwork but it’s pretty easy once it is set up. The return is worth the effort too.

Cards We Have

Here’s some of the cards we currently use or have used in the past. (Please make sure to verify the terms before applying for any of them as programs frequently change.) 

Mind Games

After reading the descriptions you might say all but the first category are arbitrage and I have just created fictitious categories to trick myself. You are right! So why then do I separate them like that?

  • Knowing what I’m paying for reminds me of how much money I’m spending. I’ve stated previously that cars suck money for us. “Paying myself” each month keeps that thought in the front of my mind.
  • We are more frugal with our spending if we have to “finance” it from ourselves, instead of spend our savings.
  • It motivates me to earn extra money to pay it off, as if it were a true debt.
  • If something happens and I need to pay off all our cards immediately, I know where to take the money from.

While the way that I account for the money may be a bit silly, it is a strategy that I don’t take lightly. It is very profitable, but could be very costly if I made a mistake.

See how much our credit limits are to support this strategy.



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Comments to Our Credit Card Balances: $223,270

  1. That is the largest amount at 0% I’ve heard of. Saving over $11k by doing not much of anything is a huge return.

    SingleGuyMoney

  2. This is DEFINITELY ‘not the plan for me’ -
    but I’m super impressed that you are able to pull this off…
    Do you ever worry about a change in the credit card company policy? And, how quickly could you get your hands on all of the money – if you had to? a day, a week, a few months?
    NCN

    NCN

  3. @Single Guy Money: It must be a consequence of being a Type A, always having to go over-the-top in everything.

    Madison

  4. @NCN: Right, I should have put the “don’t do this at home” disclaimer on it! I don’t really worry about changes though. If they do something I don’t like, I could have all the money within a day. That makes me much more comfortable. I’d be more worried if something ever happened to me, that Mr. Dupaix would need to sort it all out.

    Madison

  5. Madison: Is this a consistently recurring income stream for you? When the 0% promotional rates expire (typically at the end of one year), do you pay off the balance and go in search of 6 new credit cards? Does the size of your total balance transfer increase each year? I am very interested to know! Thanks!

    Garrett

  6. @ Garrett: Yes, it is consistent for the most part. I started running the 0% balances about five years ago. I’ve paid them down close to zero twice, when we bought and built a new house. Usually about a month or two before a chunk will expire I search out 10-15 new cards to apply for. The sizes of transfers are increasing, as I usually reallocate old credit limits to the new cards, allowing for a bigger balance transfer each time!

    Madison

  7. Madison,

    So do I understand correctly that you DON’T pay down these balances every month, and instead just launder the money at the end of each intro period? It’s not quite clear from your most recent comment.

    Also, how did you get such high credit limits in the first place? Is that partially a function of the balance trasfers themselves?

    Interesting strategy. Thanks.

    Mike

  8. @ Mike:
    Yes, you are correct. I pay just over the minimum payment on all the 0% cards throughout the intro period. After the intro period is up I do not pay off the card, instead I transfer to a new 0% offer.

    The limits have been increasing over time by 1) asking for credit line increases, 2) reallocating lines of unused cards, and 3) an increasing income.

    Madison

  9. When I saw your balance my eyes widened…I’m starting the balance transfer process soon as well and will document it soon, but I doubt I will hit that high! It would be a tad too nerve racking for me. It’s like walking a tight rope..
    -Raymond

    Money Blue Book

  10. Do you mind if I ask do you have to pay income taxes on your interest from doing this? Also, when you first began this, how small did you start? Thanks, Maria

    Maria

  11. @ Maria: Yes, I do pay income tax on the interest that is earned on the savings accounts.

    If I remember correctly, our first balance transfer was just one card for about $10,000. It just multiplied from there!

    Madison

  12. Love your site! How do you manage the payment process? For example, if the BT is deposited in a high yield savings account, how do you move the money back for payments without being hit up with wire transfer fees, etc?

    Robin

  13. @ Robin:

    Thanks, glad you like it! I pay the credit cards each month with the billpay at my FIA credit card. There’s no fees associated with it. Then when I get that credit card bill (which is our regular card) I pay it from my checking account. I make one withdrawal for the arbitrage payments from the savings account using ACH (no fees). There’s no fees anywhere along the line. I use ING direct for the savings, First Internet Bank and Schwab for the checking.

    Madison

  14. I believe that if the credit card company tried to change the terms on you (without you having missed a payment or some other penalty) you can cancel the card and continue to pay off the balance based on the current conditions.

    Ed

  15. Just a quick thought for you… You may or may not have noticed, but the ING savings rate has dropped significantly to 3.4% (along with the rates at other banks too). It used to be the highest out there, but now it’s one of the lowest online rates. You might want to think about switching over to one like ETrade or SavingsSquare, where the rate is currently over 4%.

    Lara

  16. @ Ed: Great point, so even if the cards change the terms I can keep my 0% through the offered intro period.

    @ Lara: Yes, I’ve been watching the interest rates fall. I’m a member at Etrade, but I had not heard of Savings Square! Thanks for the tip… I’m off to check them out.

    Madison

  17. To the average person, your balances might look a little scary, but explained in detail they look reasonable. And you definitely do have to pay interest on any interest income that you’re earning.

    Jessica Alford

  18. What about the transfer fees?

    MITBeta @ Don’t Feed The Alligators

  19. @MITBeta: I try to use cards with no balance transfer fees. When I need to use one with a fee, I make sure they have a maximum, $30-$75.

    Madison

  20. I get about 5 credit card offers per week, and usually the lowest fee is $99. Many of them don’t have any limits anymore. What’s the most you are willing to pay?

    MITBeta @ Don’t Feed the Alligators

  21. @ MITBeta: I usually try not to pay more than 0.4%. For a $99 fee, that would require a $25,000 balance transfer. However, I prefer much lower fees, or much bigger transfers to maximize it.

    Madison

  22. A couple of questions …
    1) How staggered are these amounts? A simple average would say you have to refi ~$20k per month. How much time do you spend tracking down and applying for another 0% card.

    2) How to you manage the actual arbitrage refi? 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?

    3) Do you worry about your HELOC being frozen? Would you be hosed 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.

    love your site – I’m having fun browsing through it.

    Greg

  23. I’ve been arbitraging credit cards for several years and currently have abt $23k of free money earning interest for me.

    My favorite arb is a card to which I transferred $11k three years ago with no balance transfer fee. When the 0% rate period was up, after a year, the card company offered to extend the 0% rate as long as I make two purchases a month – which I do (typically $1 each) and pay the interest on the purchase balance — still less than the minimum finance charge of fifty cents / mo.

    At present I’m drawing 3.55% on the money (now less than $5k) that I’ve ‘borrowed’ for nothing, and am still netting about $14 / mo. before taxes, at a cost of fifty cents/ mo. Of course eventually I’ll have paid down the balance transfer amount and racked up such a high purchase balance that I’ll no longer make any money on the arbitrage. At that time I’ll pay off the remaining balance. But this will take many years under the card’s current terms and at the current interest rates I receive.

    Consider too that credit cards that offer 0% rates on PURCHASES can also be arbitraged, simply by charging all ordinary expenses to them, making the minimum monthly payments , banking the money you would’ve spent on those ordinary purchases, paying off the entire balance at the end of the 0% period and keeping the interest earned for yourself.

    Rickter

  24. @ Rickter:

    “Consider too that credit cards that offer 0% rates on PURCHASES can also be arbitraged, simply by charging all ordinary expenses to them, making the minimum monthly payments , banking the money you would’ve spent on those ordinary purchases, paying off the entire balance at the end of the 0% period and keeping the interest earned for yourself.”

    This is exactly the scheme I have been following. I have documented this process in this article.

    MITBeta @ Don’t Feed the Alligators

  25. Where were you getting 5.05% in savings?

    Tom Steele

  26. I remember going to high school with one really crazy guy who would do anything!! For example, once he surfed on the hood of a car moving about 50 MPH down a highway.

    This blog post illustrates what happens when that crazy guy grows up and becomes educated.

    Very interesting. :)

    Jason Crowe’s last post: Marketing for Professional Services

    Jason Crowe

  27. What does your credit score look like after trying to open so many cards?

    Dom

  28. Madison,

    How does your credit score look?

    When did you buy your house, before building up all the cards or after you got yoru house?

    Geni.

    Geni

  29. This seems way risky to me.

    What happens when the credit market dries up and you can’t get a new credit card or low interest loan to transfer that huge balance into? Hopefully you can quickly liquidate your “investments” to pay down that balance before the high, non-introductory rates kick in. If not, you’ll be left holding the bag on any remaining credit balance.

    Suddenly, instead of earning interest on credit “wealth” that you didn’t really have, you’ll be paying through the nose for high non-introductory credit card interest rates on the remaining balance.

    How quickly could you liquidate your investments? In a down economy, it might take a lot of time to sell your house. Stocks might be down far below what they are really normally worth. Retirement accounts will probably ding you hefty taxes if you take your money out early before retirement age. I don’t know what the heck “Budget Busters” is, but it sounds like big expensive stuff that you might not be able to easily sell off in a down economy. Vehicles depreciate quickly, so even if you can sell them, they likely won’t be worth the balance you owed on the credit card.

    Ugh.. I’m glad I have zero debt and plenty of savings, just thinking about this gives me a headache. Go back to work and start earning money like a normal person until you’ve generated genuine savings to live off of. This is a tragedy waiting to happen and I hope nobody else reading about it decides to do what you’re doing.

    wingnut

  30. That’s freaking nutz. I wouldn’t even know how to get my balance up that high. What the hell are you buying? If I could charge up my stocks I would!

    Matthew

  31. I’d love to see an update on this. Are you still getting a good enough interest rate for this to be profitable?

    And what do you do with the cards after the 0% rate period is over? Cancelling them would ding your credit (right?) but you don’t need them anymore…

    Velma


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