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October 6, 2005 at 11:14 pm
· Filed under Light Fare, Yuna, Nerdy Stuff
The next time when you see those credit card offers or balance transfer offers in your mailbox, don’t throw them away. You can really make some money with them.
The concept of “Using Other People’s Money”
It’s all about “using other people’s money”. In this case, I am using bankers’ money to invest and make money.
I have been using this trick for years. If you are willing to spend some time dealing with the paper work, you can make a few hundreds or even couple thousand easy dollars.
Here is how it works:
I get quite a few balance transfer offers with 0% introduction rate every now and then. I pick the ones with lowest transaction fees (no more than $50) and a longer introduction rate period (usually 9 to 12 months).
I take maximum amount out of the credit cards (leave enough space for the $50 balance transfer fee), and deposit the money into high interest paying accounts such as ING Direct Orange saving or a CD.
I just took out $25000 this week from two of my MBNA credit cards. Currently, ING is paying 3.4% interest, which is $850 annual payment. So, minus $90 balance transfer fees, I can make $760 with just 15 minutes of work.
The 0% rate is good till next Nov. Since the principle is sitting in my bank, I can pay off the credit cards right before 0% expires. I usually transfer the balances again to another 0% credit card and keep the interests rolling in my saving accounts.
Other benefits
Another benefit of doing this is that I am forced to save by making minimum credit card payments every month. Then, the money becomes part of my savings over time.
It may not seem that much, but it adds up after playing with quite a few cards after quite a few years.
I have used the same trick to buy new cars since I can really lowball the dealers with cash payment. I also used the trick to come up with down payments for the real estate properties I bought. Again, it’s all about “using other people’s money” to make money for you.
What’s the catch?
Here are a few things to keep in mind if you want to try this:
- You need to have quite a few cards. Credit card companies normally won’t offer you good deals unless you keep zero balances on the cards for a while. So I usually occupy a few cards and leave many of them with zero balances for a year or two. I like Citi cards becasue they usually waive the fees. MBNA is another good one. They usually offer me zero percent deals again within 2 months after my previous balances are paid off. I have 8 MBNA cards and for a few years I didn’t even have to go outside of the MBNA family to seek for free funds.
Many people think owning a lot of credit cards is a bad thing. My personal experience has proved to me that having a lot of available credit helps me to gain a better credit score simply because my debt/credit ratio is much lower. So I usually grab the 0% credit card application when I see one.
- I have tried to use this “borrowed funds” to play with the stock market once and I lost a few bucks. I guess since it was the borrowed fund with a dead line, I couldn’t follow my usual investment principle and tried to make bets. So, if my Dad told me, “Never gamble with borrowed money”, I better listen to him.
- You have to be very rigid on making on time credit card payments. If you are late even once, the penalties incurred will offset any gains. So schedule auto payments on all of the cards except the ones you use for daily purchases.
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Kris said,
October 8, 2005 @ 9:02 am
Were ($25000) those cash payments or credit? A balance transfer check? It’s funny how you mentioned this trick, I just applied (and got approved) for 3 lofty credit cards with wonderful balance transfer terms. What about taxes? Any gotchas for that?
I also have an investment account with ING (Roth IRA) and I absolutely love my advisor. I’ll have to check out those savings and CDs.
Thanks for the info - keep it coming. I love easy money.
Kris said,
October 8, 2005 @ 9:03 am
And don’t worry, I take responsibilty for my actions and waive my right to sue if all my money goes down the drain.
Kris said,
October 8, 2005 @ 9:04 am
Ok. Ignore my question - I just reread the article. Duh.
Yuna said,
October 8, 2005 @ 11:09 am
I am using balance transfer checks..
Great question on tax.. well.. same old rule applies… you need to pay tax on the interest earnings.. and if you use the funds to buy mutual funds.. you need to pay tax on capital gain.. So do your math before you take the plunge… It works like a charm if you have large pool of credit to play with… and Do not ever ever take more than 40% out of your total available credit. You will be denied for future loans if you do… and that’s a no no for your credit score..
Cyco Miko said,
October 13, 2005 @ 2:38 pm
There is one catch you need to watch out for in some of these 0% Balance Transfer deals. If you are going to use the the balance transfer option from one of these cards, make sure that’s all you will do with this credit card. Because when you make payments to cards where you had balance transfers, your monthly payments will always go towards paying off the transferred balance first until it’s completely paid off. So if you continue to make purchases on that card, the balance of the purchases will not be reduced until the transferred balance is all paid up. Of course the balance of your purchases, unlike the balance transferred, will be subjected to high APR’s if they are not paid off in one payment cycle. I knew someone who was burned on this, I can’t say this is the case for all of these offers, but I’m sure it’s the most. So just make sure you read the fine prints.
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