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.)
- IN: CHICAGO card from American Express
- Advanta Platinum Business Card with Rewards
- Chase Platinum Business Card
- Miles by Discover Card
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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That is the largest amount at 0% I’ve heard of. Saving over $11k by doing not much of anything is a huge return.
SingleGuyMoneyDecember 9th, 2007 at 9:51 am
This is DEFINITELY ‘not the plan for me’ -
NCNbut 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
December 9th, 2007 at 3:24 pm
@Single Guy Money: It must be a consequence of being a Type A, always having to go over-the-top in everything.
December 9th, 2007 at 8:57 pm
@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.
December 9th, 2007 at 8:58 pm
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!
GarrettDecember 10th, 2007 at 10:55 am
@ 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!
December 10th, 2007 at 4:18 pm
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.
MikeJanuary 7th, 2008 at 1:55 pm
@ 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.
January 7th, 2008 at 3:04 pm
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..
Money Blue Book-Raymond
January 10th, 2008 at 11:17 am
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
MariaJanuary 17th, 2008 at 6:58 pm
@ 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!
January 17th, 2008 at 9:42 pm
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?
RobinJanuary 18th, 2008 at 9:05 am
@ 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.
January 20th, 2008 at 2:50 pm
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.
EdJanuary 26th, 2008 at 8:09 pm
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%.
LaraFebruary 22nd, 2008 at 7:25 am
@ 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.
February 24th, 2008 at 1:24 pm
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 AlfordMarch 19th, 2008 at 8:13 pm
What about the transfer fees?
MITBeta @ Don't Feed The AlligatorsApril 1st, 2008 at 8:51 pm
@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.
April 1st, 2008 at 10:36 pm
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 AlligatorsApril 2nd, 2008 at 7:35 am
@ 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.
April 2nd, 2008 at 10:10 pm
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.
GregMay 13th, 2008 at 8:54 am
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.
RickterAugust 7th, 2008 at 10:41 pm
@ 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 AlligatorsAugust 8th, 2008 at 8:23 am