Paid Off $11,500 of Credit Card Debt Today
Ok, it sounds bigger than it is. Perhaps you recall back in July when Citibank told me to use their money to make more money? I took out $12,500 in a 0% balance transfer for 7 months, with a $75 fee. I stuck it in my savings account earning about 3.5% (now down to under 2%).
Over that 7 months, I’ve earned roughly $175, which gives me an easy profit of about $100. Had interest rates not dropped precipitously, and had the term been longer (a year), I would have made a pretty nice profit, but as it is, $100 for a 10 minute phone call and a couple internet transactions wasn’t bad.
Oddly, the transfer wasn’t due until March 1, but my new statement was due Feb 27, so I decided to get the money out early so I don’t test the bank transfer gods. Today I sent out a payment for about $11,500, which was the balance remaining after paying the minimum monthly payments since August.
With the current economy, “credit card arbitration”, or using low rate, low fee transfers to make money, is pretty much dead. There’s a few opportunities for those with perfect credit, but the card companies have caught on and have removed the maximum fees on all their transfers. Other than using a transfer to pay off our car loan in 2007, this was the only other time I’ve used a balance transfer for something other than transferring balances between cards.
And you all thought I was stupid for doing this. Actually, some of you will still say I was stupid to take the risk, but I knew what I was doing, understood and mitigated the risks as much as I could, and was successful. But now that we’re looking at a home refinance, I won’t be trying anything like this soon.
I got a balance transfer offer from one of my credit cards at 0% as well. It comes with a 3% fee but since none of my accounts offer at least a 3% interest rate it is not worth it for me now.
You have to pay taxes on your earnings($175) from the savings account..so profit will be < $100
The dreaded taxes… good point.
Congrats anyways Clever Dude!
I also just got $125 today for filling out a health survey in my workplace. So we both spent about 10 minutes and got a good return 🙂
Congratulations, Clever Dude. I’ve heard about balance transfer plans and the possible interest you can get from them before, but they always seemed too risky for my generally unorganized life. I’m glad to see you profit from it, though.
Just a quick question: why didn’t you put the money into a 6-month CD? You could have locked in your rates and probably made a bit more in interest, to boot.
@Roger, it was more of the timing issue (worried about getting my money out in time to pay it back) as well as a poor guess at what rates would do.
$175… Don’t worry to pay taxes on that. Now instead of $175 it’s probably $120 or so. Subtract the $75 fee, and now you’ve made about $45.
How much is your time worth again?
I meant to say “Don’t forget to pay taxes on that.”
Oops.
Yeah, the whole taxes thing, not sure where you’re getting your numbers, but I expect to really only pay about $20 on that $175, thanks to tax cuts and deductions.
Is the 30 minutes I spent (max) worth even $45? Yes. Some of you people spend an hour to make $5 on a survey.
For a while, I was thinking about doing a similar thing. I decided that the risk/reward wasn’t really worth it in the end for me. One of those things I was worried about was that the credit card companies were catching on and I didn’t want to get caught up in fees.
Congrats though…a buck earned is a buck earned!
Stupidly Yours,
Matt
Congrats Clever Dude
I complained to some of my credit cards about their balance transfers not having a maximum finance charge amount and that I would not use my card anymore due to this.
One card did change their terms eventually. I don’t do credit card arbitration. It makes me a bit angry to know that credit card companies might have removed this upper limit due to people like you that do it!
I have been using the good balance transfer rates with a maximum fee to help dig myself out of debt faster, so I guess as long as I can always find a company that doesn’t do this… I can’t complain too much 😉
Good work boss. I don’t have the balls to risk it for $100 in profit, but it’s def. worth it if you stay on top of it and all like you did.
now you should try $50k 😉
I did this quite a bit before the credit card companies pretty much dried up this option. I’ve never really understood people’s aversion to doing it. If you set yourself a reminder to send the money back a few weeks ahead of time, then there’s nothing to worry about. In 2006, I think I made about $250 total profit off of two rounds of arbitrage, and that’s subtracting fees and taxes. The taxes weren’t as high as some of you are predicting, either. Although, I did stick my money in a CD rather than a savings because I wanted to lock in the rate.
In any event, nice job on the profit! Hopefully things will get better in the credit markets soon and this will once again be an option available to those of us who don’t carry balances. If credit card companies can make money off of us, I see no reason they shouldn’t be able to return the favor.
With all the companies on to auto-pay these days, the risk pretty much comes down to zero. Stick everything in a separate savings account, set it through autopay with the credit card company. If it doesn’t go through on time, since its with them, they are to blame.