In When Does the 0% Credit Card Really Expire? [1] 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.)Â
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 [4] 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 [5] to support this strategy.