Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
Zero Pressure

Creative Commons License photo figure credit: Brooke Novak

My credit card balance is $41,654.02.

I charge everything that I can to it.

I make the minimum monthly payments.

This behavior has resulted in at least $600 in profit to me over the last year — just in interest payments alone.

Confused?  Let me start over.  Last year, ScrapperMom and I decided to open a 529 plan for our daughter.  We knew that we would not be able to contribute much to the plan from our monthly spending plan, so we went looking for a rewards credit card that would allow us to earn cash to fund this account.  We decided on the Chase Freedom card which gives us at least 1% cash back for everything that we buy. In addition to the interest earnings, we have earned $750 dollars (and we’re closing in on $1000) from the cash bank bonus on the card.

I applied for the card, and it arrived with a fantastic offer: 0% interest on balance transfers and purchases for one full year.  Perfect, I thought, what better way to make even more money.  We started using the card to buy everything that we could: groceries, fuel for the cars, dog food, insurance payments, DirecTV, Netflix, and anything else that was in our spending plan and accepted credit.  Each month when the bill came due, I would make the minimum payment, and transfer the difference in the balance to our high interest earning money market account with Everbank.

Little by little the balance rose and as it did, the interest payment at the end of the month got larger and larger.  The unfortunate part is that interest rates fell pretty steadily all year, so the larger and larger balance each month ended up netting about the same amount in interest every month.

When we started this arbitrage experiment, I felt that we were ready to get our feet wet on the right side of the Credit Card Continuum.  We had been through the other phases already: in debt up to our eyeballs, swearing off credit cards as evil and unnecessary, slow digging out and becoming disciplined, and now it was time to get a little back from the credit card companies.  So for the past year, each month we have simply borrowed a little more money from the credit card company at no cost, and put that money to work for us collecting interest.

Interestingly, about halfway through the year we were pushing up against our credit limit on the card.  So after having made nothing but minimum payments for 6 months and approaching our credit limit, I simply asked through the webpage for an increase in our credit limit and got one large enough to cover us for the rest of the year.  Aren’t credit card companies great?  On top of that, I got a letter a few weeks ago indicating that Chase is switching our account to one that has no pre-set spending limit.  I’ll talk more about that in a future article…

Next month the free ride comes to an end and we will have to set up the largest online billpay total we have made.  It’s a little disappointing to have to see this balance get wiped out all at once.  I have investigated the possibility of rolling the balance to another 0% offer somewhere to keep the arbitrage going, but I have been unable to cobble together enough credit to do so.  So we’ll reset the counter, and possibly even apply for another Freedom card in ScrapperMom’s name.  We’re rookies at credit card arbitrage, so maybe by next year we’ll be in a better position.

What do you think?  Do you practice credit card arbitrage?  Do you think it’s risky, smart, or does it simply depend on the person?

5 Responses to “Exploiting a 0% Credit Card offer”


  1. Rachel Says:

    Honestly? $600 isn’t enough to be worth playing a game like that, for me. I hate owing money, and a $40K credit card balance would keep me up late at night on general principle. I guess $600 isn’t enough to make me do something I hate anymore. There are other behavior changes I could make to earn or save an extra $600 if I cared that much.


  2. ScrapperMom Says:

    In response to Rachel, I have to admit that I’m not a big fan of credit card arbitrage because it is scary to think of all that money floating around as “debt”. When MITBeta discussed doing this with me with the Chase card I was a lot less apprehensive. In this case, the beauty of it, is that we have all the money to pay the bill any time we choose. So if God forbid, one of us got hit by a bus, we could just transfer the money out of our money market and the debt is gone tomorrow. I think I would have to seriously consider doing arbitrage that would tie up the money in a more long term investment vehicle. But of course credit cards arbitrage, be it little or big, is not for everyone.


  3. E.L. Says:

    Rachel,

    $600/yr is not much but MITBeta is onto something. I did essentially what he did and topped out at ~$400/mo. I stopped because my wife freaked out when she found out that we were carrying over $100K in credit card debt. It’s been almost a year since my last “arbitrage only” account was closed. At the height, I was still getting offers so I think it’s possible to get to $1000/mo.

    This is close to free money as you can get but you do have to be VERY organized and VERY disciplined. I have a simple litmus test to see if this technique will work for you: If you know how much is in your wallet now and if your wallet is organized into large bills from back to front, all the presiden’t heads facing up, you can probably do this no problem. OTOH, if you have crumpled bills in your coat/jeans/shirt pockets, you want to stay FAR, FAR away from this.

    This is not hard, and it is basically zero risk for the right personality type. For the wrong one, this is a disaster waiting to happen.


  4. MITBeta Says:

    EL:

    Mine all face the same way: face up AND pointing the same way. Although I only have one denomination in my wallet right now, usually bills go from smallest on the outside to largest on the inside (on some off chance that someone will think I’ve got a wad of 1s or 5s instead of 20s…)


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