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?