After Discover More rolled out the recent no fee 0% balance transfer a reader, Mark, and I had a great discussion about using the offer to extract money.
Mark is planning to use the balance transfer for arbitrage (he’s considering purchasing CDs or investing in a stable bond fund) but wanted to know how to extract money from the card in order to do this?
I thought it would be helpful for other readers who are planning to do something similar after reading about the Discover More 12 Month 0% No Fee Balance Transfer.
4 Ways to Extract Money From Balance Transfers
Use a line of credit. An easy way to make a balance transfer is to transfer the money to a line of credit. I use a heloc, but a personal line of credit would work too. Then, once the money hits, just write a check from your line of credit to your bank account, or wherever your final destination for the money is.
Deposit the money to your checking account. Many of the credit cards are more than willing to deposit the balance transfer money directly into your checking account. Often times when I call, they suggest this before I can even ask if it’s an option. It doesn’t get any easier than this!
Create a negative balance on another card. This is the method that I was discussing with Mark. Here is an example of how it works: Let’s say you have a Citicard with a $0 balance. Now you get the new Discover card (it also comes with $0 balance). You call Discover and ask for a balance transfer (let’s say $10,000). You ask Discover to transfer the $10k to your Citicard. Now you have a Discover card with a $10k balance and a Citicard with a negative $10k balance. You call (or go online) to Citibank and request a refund of your negative balance. They send a check. I’ve done this sucessfully with Citibank, but others have also suggested using American Express for this strategy.
Make an actual balance transfer. This one is pretty obvious, but I thought I’d include it on the list anyways. If you have another credit card account, loan, or other debt, you can directly transfer the balance to the new card to get the 0%. I often make a direct transfer when the timing lines up perfectly for an old 0% card expiring and a new one starting.
Balance Transfer Tips
Adverse Action. Obviously, some of these strategies aren’t going to win you any bonus points with the credit card companies (like requesting checks for negative balances). I’ve never had any companies take any adverse action for requesting checks for negative balances… however, I would caution you not to get too greedy and overuse this strategy. I usually rotate between the various strategies to keep the credit card companies happy.
It’s Extreme. Floating 0% balance transfers on credit cards isn’t exactly routine personal finance. I always like to throw that out there, just to remind readers I’m a little extreme when it comes to credit card arbitrage. But as always, it is not for everyone!
Available Cards. In addition to the Discover More card at 0%, you can also use the Chase Slate card at 0% to take advantage of the no fee 0% balance transfers right now.
More on Credit Card Arbitrage Balance Transfers
That’s an interesting idea. With interest rates for savings accounts at around 1%, for $10,000, you can earn $100 in interest before having to pay back the balance. But also be mindful that if you max out on a credit card, your credit score will take a hit due to higher utilization rate. You want to keep that at around 30% or less.
How do you reconcile the balance transfer fee which could be upwards of 3-5%? On $10,000, that is between $300-$500, which would offset any money you’d make in a savings account. I was considering doing the arbitrage as a way to get an interest free loan on money for a car. But, it wouldn’t be a totally free loan with the transfer fee. So, i don’t think its worth it. And since we have the money in the bank already, I’ll just take a loan from that and pay ourselves back with interest over the next year.
Yes, if the balance transfer charges a fee, it does offset the savings.
However, right now there are at least 2 balance transfers that charge no fee: The Discover More and the Chase Slate.
Careful of the 4% transfer fee
I think it’s important for people new to the game to know that if they don’t want to pay ANY interest, the BT should be made to a card that has a $0 balance and one should not make additional purchases on that card unless it includes a 0% for purchases as well.