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Credit Card Arbitrage
Old 11-15-2008, 02:29 PM   #1
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Credit Card Arbitrage

Is this worth it?

(1) I can borrow $17,500 from a credit card company (cash advance) for 6 months--the interest rate is 0.99% (fixed) + a $75.00 transaction fee. Total cost for 6 months by my calculation: $161.63.
(2) I can put the $17,500 in an online savings account and earn 3.7% (variable). Assuming the rate stays fixed, I would earn (w/o compounding): $323.75
(3) Profit: $162.12 (after paying back credit card company)

I have read about folks doing this before, and it always seemed to be more hassel than what it was worth, but never did the math to see how much I could come out ahead. I have no other credit card balances, good credit. Will this impact my credit score? I have sufficient cash flow to make the minimum monthly payments to the credit card company---which are probably minimal.

Thanks.
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Old 11-15-2008, 02:36 PM   #2
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Credit card companies have so many "gotcha" fees and little traps that I wouldn't bother. One inadvertent late pay or a mix-up on another bill, triggering the universal default clause, and the interest rate goes out the roof.
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Old 11-15-2008, 02:43 PM   #3
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I've done a couple of these when I could get 0% for a year - this one isn't worth the trouble.
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Old 11-15-2008, 02:59 PM   #4
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Don't forget that you will pay income taxes on your interest which further reduces your profit.

I wouldn't do this either. With some patience you should be able to find a 0%-rate with a no-fee, no-charge deal. Here's a deal i would do and did do: $25,000 for 1-year, 0% interest, no fees. Put it in a muni bond for 5%. Gives me $1250 after one year.
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Old 11-15-2008, 03:53 PM   #5
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Seems like a lot of hassle with only a little bit of return AND, as mentioned, you may fall into one of the many, many landmines that CC companies have planted for you even though they advise you about it in that micro-printed piece of paper that they slide into for monthly statements.
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Old 11-15-2008, 04:06 PM   #6
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Your debt ratio will definitely go up. I'm not sure how often FICO updates scores however.
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Old 11-15-2008, 04:47 PM   #7
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Use that HELOC. Borrow $100,000 put it in something that gets 5.5% get $5,500 ($4,675 after taxes). HELOC interest 3% $3,000 ($2,650 after taxes). Profit $2,025. Just be ready to pay the HELOC if interest reaches, or exceeds, 5.5%.
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Old 11-16-2008, 11:50 AM   #8
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When you dance with the devil(CC company) you always lose.
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