Back in 2006, I was one of the few savvy consumers that took advantage of some credit cards 0% APR balance transfer(BT) to make money for myself by doing credit card arbitrage. I didn’t come up with the idea, but I definitely took it to another level by popularizing it on the web through HustlerMoneyBlog. Credit card arbitrage aka App-O-Rama is simply taking a free 0% interest loan from a credit card company via 0% Balance Transfer offer, deposit it in a high-yield savings account, make the minimum payments on the card each month, pay off the card at the end of the term offer, and pocket the difference with the interest money.
The game was dead by 2008 due to the financial meltdown with many credit card companies non-existent 0% BT offers and the declining interest rate that is around 1% today. It makes no sense to play the game since most cards has a 3% BT fee with no cap for doing balance transfer. However, with the introduction last month of the Chase Slate 15 Months 0% APR no Balance Transfer Fee and the Discover More 12 Months No BT Fee, it’s NOW possible to make some money by playing App-O-Rama by depositing money into a Rewards Checking account.
*Warning: this method is not for the weak-minded or financially undisciplined*
- Open up a Consumers CU Rewards checking account– 4.09% up to $10K(rate guarantee til 6/30/2012)
- Apply for Chase Slate 15 Months and Discover More 12 Months 0% Balance Transfer with No BT Fee.
- Do a Balance Transfer by writing a BT check to yourself or ask them to deposit straight into your rewards checking account. If not, balance transfer to a Citi card with $0 balance and ask for a refund check.
- Make the minimum payment each month for the above two cards and do all the monthly requirements(make 12 debit card purchases + one billpay per month) to maintain the 4.09% interest rate for your rewards checking account.
- Pay off the balance at the end of the 12/15 months of your credit cards with the money in your checking account. Pocket the difference with the interest you make. Estimate Profit – $511.(12/15 months of $10K at 4.09% APR). Possibly another $50 referral bonus from Consumers CU.
Even though credit card arbitrage is NOT a wealth building tactic, it’s a simple path to extra side money for the financially disciplined.
Here are some more tips:
- Consumers CU has a $10K limit, but there are many local Rewards checking accounts with $25K limit at 3.00% APY. You can search them at DepositAccounts.
- Consumers CU also has a $50/$50 referral promotion. You may request/give referral info on HMB facebook page only.
- Wait for the credit cards to come in to ask for the highest credit limit before you do balance transfers.
- Set up a spreadsheet to monitor the monthly payments, terms, due dates, payoff, etc to upkeep your profit.
- Couple the credit card arbitrage with App-O-Rama Bonuses.
- Make all of the minimum monthly payments throughout the term of the offer, preferably via direct payment from a checking account so that you never risk late fees.
- Pay off the remaining credit card balance one or two weeks before the offer ends and keep the remaining interest in the savings account.
Some negatives about doing credit card arbitrage:
- Being late on a single payment will reduce your profit or even void the offer.
- You must park the money in FDIC-insured accounts, and resist to invest in the stock market.
- Maxing out credit limits will lower your credit score. Do not do App-O-Rama if you are planning a major purchase such as a home or vehicle in the next year.
For people with credit card debt, the credit cards above are best use for the actual balance transfers itself. By doing balance transfer, all your money applied directly into cutting down your principal instead of having it go towards interest. But if you are a little financial savvy, you can play this game at no risk as long as you follow all the above guidelines. Good luck and feel free to comment for any questions.