How to Profit from Credit Card Arbitrage

There’s been a lot of talk recently about taking advantage of 0% balance transfer credit card offers. When it comes to getting rid of credit card debt, the utility of these balance transfer offers is pretty obvious — simply tranfer balances from higher-rate cards to a 0% credit card and save a ton on interest while you pay off your debt.

Simple enough. But what if you don’t have any high-interest credit card debt? Can you still take advantage of these offers? As many of you already know, the answer is a resounding YES.

What follows is an outline of the steps involved in accessing the funds from a 0% balance transfer and using them to earn extra money (so-called credit card arbitrage) or savings (e.g., saving on your HELOC), as the case may be. At the very end, I’ve also included a list of some of the best balance transfer credit cards for playing these sorts of games.

Getting Your Hands on the Money

The easiest way to access your 0% credit line is to request a balance transfer check from the credit issuer, and then simply deposit it in the bank. Citi is probably the easiest in this regard. I’ve also heard that you can get balance transfer checks from Chase, though I can’t say for certain that this is the case.

The alternative is a bit more creative, but still doable for pretty much any card issuer. If you can’t get the money straightaway, you’ll need another credit card (let’s call it Card #1). The good news is that this card doesn’t need to have an outstanding balance (in fact, you don’t want it to have a balance). When you apply for you 0% balance transfer credit card (Card #2), simply request a balance transfer from Card #1 to Card #2. This causes the issuer of Card #2 to make a payment against Card #1, creating a negative (credit) balance. The next step is to request a credit balance refund. In some cases (e.g., you used Citi for Card #1), you can do this online. In other cases (e.g., AmEx as Card #1) you may have to call to make your request.

Once you get your balance transfer check or your credit balance refund, you’re ready to roll…

Making (or Saving) Money With Your Balance Transfer Funds

As with getting your hands on the money, there are a couple of ways you can go here… First, you can simply deposit the funds in a high yield savings account, where you can easily pull down up to 5% APY (or more). The earnings from the account (minus taxes) represent your profits — be sure to avoid fees (below) if you want to maximize your return. My personal favorites in the online banking realm are ING Direct which was recently acquired by Capital One 360 and HSBC Direct.

Second, you can use your balance transfer to offset existing debts. Simply transfer high interest credit card balances to your 0% card and they work to pay them off like there’s no tomorrow. If you don’t kill off the debt before the offer expires, apply for a new 0% offer, transfer the balance again, and keep pushing. Alternatively, you can use the money to pay off secured debts — car loans, your HELOC, etc. Simply sock the money into your

In these latter cases, your profit comes in the form of savings on interest that you would have otherwise been paying.

Things to Look Out For

The biggest gotcha when it comes to balance transfers is fees. Many card issuers charge a balance transfer fee (typically in the ballpark of 3% of the amount transferred) whereas others don’t. Obviously, if you’re looking to maximize the value of your balance transfer, you’ll want to avoid fees. The good news is that there are a number of fee-free balance transfer options, as well as others that normally have a fee, but waive it for new applications. Check the list at the end for some great no-fee options.

Maintaining the System

Here’s where you need to be careful… Most, if not all, 0% offers are contingent on you playing by the rules, not the least of which is paying the minimum amount due on time each and every month. Slip up and the interest rates can rebound to their normal levels. So read the terms carefully, and be sure to follow all of the rules.

The Downside

Aside from running the risk that you might mess up and miss a payment, the biggest downside to this scheme is the possible negative impact that it can have on your credit rating (i.e., FICO score). As you may or may not know, credit utilization (the percent of your available credit that is currently tied up) is a major component of your credit score, and maxing out one or more 0% credit lines can pump up your utilization.

As with all ratios, you can reduce your credit utilization in one of two ways. First, you can borrow less. Second, you can increase your available credit. Obviously, the former is somewhat antithetical to the idea of profiting by borrowing a bunch of money at favorable rates. That being said, it’s also important to keep in mind that you likely have other rewards cards lying around that you won’t be using for your 0% games. To the extent that you don’t run up charges on these cards, they’ll help offset the heavy usage of your other cards. This positive effect on utilization is one of the reasons that you shouldn’t cancel old credit card accounts (the other reason is that credit scores are also influence by the average age of your accounts — the older the better).

Your Card Options

Even though interest rates have rebounded from their historic lows, there are still a bunch of 0% introductory APR balance transfer credit card offers out there.

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29 Responses to “How to Profit from Credit Card Arbitrage”

  1. Anonymous

    I have played the interest rate game and have invested the proceeds into the stock market. Over the past 4 years I have made over $300k investing in gold stocks. Borrowing money at 0% is a no brainer.

    Gold was over $800 in the 1980s. How can gold only be $650 now with a mid-sized house going for over $1 million? Ask yourself that question and, if you find the answer, you might be one of the few that survive the next 20 years financially speaking

    Good luck all.

  2. Anonymous

    I do this on occasion and have profited by putting the money in the bank and earning 5%. My credit cards used to cap the 3% fee at around $50 or $75, but with a large enough credit line, this can still be extremely profitable. Unfortunately, many banks took off the fee cap, and you can’t make a profit paying 3% to borrow the money for 6 months.

    It is important to note that before taking advantage of any of these offers, make sure that the card is fully paid off, and don’t use the card for anything else. Otherwise your payments will pay down the 0% interest balance, and the high rate balance will remain until the balance transfer offer expires and everything is paid back in full.

  3. Anonymous

    I just found this site…I’m new at this…we have a 19% auto loan, paid down from 10,000 to 5,777…(Our credit is much better than it once was)…I’m thinking about applying for a 0% card and transferring the 19% loan…what do you think?

    The only thing to make sure is that you can pay off the $5,777 by the time your 0% runs out. Of course the credit card may have a lower rate than 19% anyway.

  4. Anonymous

    Maria: Why not? Saving 19% interest is pretty huge (as long as you’re approved for the card). Just be absolutely sure that you: (1) apply the funds to your car loan, (2) don’t miss (or be late on) any payments, and (3) pay off the balance on your credit card before the 0% period expires. If you can’t be sure of #3, you can always re-transfer the balance when the offer is up — there will *probably* be similar offers at that point, although there are no guarantees.

  5. Anonymous

    I just found this site…I’m new at this…we have a 19% auto loan, paid down from 10,000 to 5,777…(Our credit is much better than it once was)…I’m thinking about applying for a 0% card and transferring the 19% loan…what do you think?

  6. Anonymous

    I tried something like this (low interest, not zero) . . . I’m no expert but I failed to get all the benefits I could have and am not sure it is worth the effort. I leveraged to about $30K and could only make a few hundred dollars in practicality.

  7. Anonymous

    Thanks for the great how to. I’ve been debating whether to give this strategy a shot or not. I’m still on the fence but if I decide to go with it I’ll follow your guide. Thanks again.

  8. Anonymous

    Paco said ” there are people making $25k-50k a year doing this. With online savings rates at 5% and CD rates around 6%, you can earn a nice chunk of change for minimal effort. If you’re organized and disciplined there’s about zero risk involved.”

    he is claming there are people with 420k+ in 0% offers on credit cards. No were did he say you can gamble with 0% offers and make money on the stock market or loose money.

  9. Anonymous

    Keep in mind that not everybody puts their 0% BT money into 5% savings accounts. Some people that don’t mind a bit more risk have been known to put their 0% BT money into the stock market, mutual funds, etc… So I don’t think somebody making $25K-$50K/yr doing this is out of the question.

  10. Anonymous

    Man Paco let me know what your smoking. Your claiming people have $500K to $1 million at 0% on credit assuming they are getting 5%. Lets assume they are getting 6% then it still $420K to $840K in 0% offers.

    People on have been doing it for a long time and I think highest ever reported amount on there is slightly over $200K out at any one time. Still easy $10-12K but far short of your claim of $25-50K a year profit.

  11. Anonymous

    While it’s great that Discover tops all the 0% lists, remember that they recently instituted essentially a 13 month year with shorter billing cycles that most other cards offer. So enjoy the 0%, but you will still be making extra payments and more chances to miss a payment that is not the same day every month. Discover is not as friendly as it appears.

    When I have made a balance transfer with fees, even the $75 transfer fee was cheaper than what I would pay in monthly finance charges so I still came out ahead after the second month.

  12. Anonymous

    “FYI, there are people making $25k-50k a year doing this. With online savings rates at 5% and CD rates around 6%, you can earn a nice chunk of change for minimal effort. If you’re organized and disciplined there’s about zero risk involved.”

    sure there are.. nice how you failed to provide a link to substantiate your claims..

    Also, have you any idea how much money you would have to have out there to make $25,000 – $50,000 A YEAR from INTEREST???

  13. Anonymous

    Also note that most of these offers expire after one year, so you have to keep moving.

    Also, if you charge anything, they pay off the zero balance first, so your purchases will be accruing interest.

    I’ve not done any zero percent, but have done small percent transfers. Just read the fine print.

  14. Anonymous

    While I see that some people make money this way, it seems a waste of my time (and time has value). Keeping everything straight, applying, making sure payments get in on time, isn’t worth the time I would have to spend on it for the amount I would ultimately earn. That certainly needs to be factored in.

  15. Anonymous

    There’s definitely many advantages to using 0% credit cards. Not only can you save alot of money– you can make money too (as described above). Savvy consumers have been taking advantage of these offers for quite some time!

    Although there are some short-term negative impacts to your credit score, these problems are remedied relatively quickly after you’ve payed off your balances and closed these accounts. As long as you don’t plan on taking out a new mortgage, or making any BIG purchases soon– why not take advantage of these offers???

  16. Anonymous

    FYI, there are people making $25k-50k a year doing this. With online savings rates at 5% and CD rates around 6%, you can earn a nice chunk of change for minimal effort. If you’re organized and disciplined there’s about zero risk involved.

  17. Anonymous

    I have thought about doing the transfers, but honestly, I hate, HATE clutter, and that includes financial clutter. I want to minimize my budget line items, not expand. Also, I don’t want to have all those items on my credit report.

    Right now, I’m doing a transfer to get a better rate on my car loan, but I’m paying it off in 6 more months (about $12,000 left on the original $15,000). I did get $3,000 extra and threw it into the HSBC 6% account, just to try to earn back some of the $75 transfer fee.

    This time, my mental hate of something is getting in the way of a logical money-making scheme, but I’m fine with that for now.

  18. Anonymous

    If you are going to play the arbitrage game, be aware that many of them will not go to normal rates if you miss a payment. They’ll go to twice or thrice the “normal” rate if you miss any payment on any account, even a late cable bill (if it is reported).

    Also, don’t forget the minimum payments; you may not be getting the interest rate on the full amount transferred for any but the first month if you have to put more than you are getting in interest back onto the card to avoid defaulting.

    I considered trying some arbitrage a while ago when the online savings rates were at 4%, but the payoff was not really worth the risk. I don’t have any trouble paying my debts on time or early, and I am reasonably sure I would be able to cover the hassle part of everything without any trouble, but I can think of better ways to get a few hundred dollars in a year.