How To Do Credit Card Arbitrage

“Credit Card Arbitrage” is when you take out a 0% balance transfer check from your credit card use it to make money. Here’s the basic gist of how to do it, and some of its dangers.

1. Request a balance transfer check from your 0% balance transfer credit card.
2. Put the money in a high-yield savings account or high-yield investment.
3. Pay the minimum balances on the cards (even better, set up the account from step 2 to auto-pay the bill).
4. Before the 0% trial period expires on each one, pay it off in full from invested/banked cash advanced.
5. The remainder is your profit.

DANGER: Don’t do this if you
• Care that that your credit score will take a nose-dive afterwards (if you do app-o-rama where you apply for several of these cards at the same time)
• Are carrying debt or have a bad credit score.
• Have a low-tolerance for poring over and obeying fine-print terms and agreements.
• Can’t stay anally on track of the whole process. Miss a payment or slip up on a rule and your rates can skyrocket.

If you don’t have one, here’s a list of some 0% transfer cards, and a primer.

Personally, though, we don’t think it’s worth the effort or risk. — BEN POPKEN

0% daredevils chase ‘free’ cash [MSN Money]
Making Money With 0% Balance Transfers [Bargaineering]
(Photo: Spidra Webster)


Edit Your Comment

  1. tcp100 says:

    Sounds great, but I’ve got an even better plan. You know how on most coupons, it says “Actual Cash Value: 1/100 cent?”

    (wink) That’s right, kid. We’re gonna be RICH!

  2. Lordstrom says:

    I’ll stick with stocks, thank you. The bulls are back today! w00t!

  3. dohtem says:

    @lorddave: I heard the bears are scheduled to arrive next week tho.

    Disclaimer. I know nothing of stocks! Just that Bull and Bears mean something.

  4. SaveMeJeebus says:

    I’ll stick with driving my soda cans/bottles to Michigan for the 10-cent refund.

  5. skittlbrau says:

    i know it sounds ridiculous to do this, but i made something like 2000 last year doing this after taxes.

  6. foghat81 says:

    crazy? yes. easy money? yes (assuming you follow the rules…..a big assumption for most people out there)

  7. XianZhuXuande says:

    Some people make good money doing this (though they invest the money in riskier measures such as stocks). There can be some serious consequences associated with this action if you do not know what you are doing. In fact, even if you do know what you are doing, there can be consequences.

    1) Universal Default. Some credit issuers will default you for carrying a large balance on their own card, or for carrying too many large balances on other cards. Or they may be uncomfortable with your apparent debt to income ratio. They don’t know you’re taking advantage of 0% APR offers, they will not be happy to hear it from you, and it will not excuse you from their corresponding adverse action. Bank of America, Chase, and many sub-prime cards are well known for doing this. American Express may suspend your cards for a financial review, which, if your income does not please them and justify your present debt, may result in closed cards or massive credit limit decreases.

    2) Note that if your APR is increased on the card on which you are carrying this blanace, you will be forced to balnace transfer to another card or repay them to remain profitable. This could be a problem if your money is tied up in something difficult to pull out of (note that you probably won’t be making much money by simply tossing this into a high yield savings account — 5% or more tends to be about the best you can land without heavy investment).

    3) This apparent ‘debt’ can damage your when applying for a car loan or mortgage. Underwriters will be uncomfortable with your apparent debt (though when applying for a mortgage you may offset some of this concern with a high bank account balance). You may end up being declined, or suffering from a higher APR than you might have otherwise had to pay. On a mortgage this can easily offset any profits you were collecting from the money.

    This is easier to do with established employment and income.

  8. savvy says:

    In the last two-three years I’ve made almost $5k doing this. Credit scores bounce back rather quickly, but I still wouldn’t recommend it for those that are planning on taking out a mortgage in the near future.

  9. Aeroracere says:

    Anyone have any success doing this through stocks or funds, rather than “playing it safe” in a savings account?

  10. SirKeats says:

    why does your credit score take a nose dive by doing this? unless you default of course. or are they referring to a reduction simply because you have a ton of credit lines open?

  11. foghat81 says:

    @SirKeats: the latter. You’ll simply have a lot of credit taken out. As others said, as long as you aren’t going to be applying for major financing within the next 3-8 months, it’s not bad.

  12. savvy says:

    SirKeats – having multiple, new, credit cards at or near the credit limit is reflect poorly on a credit report. It’s usually referred to as high utilization.

  13. AtOurGates says:

    I’m up to 1K 6 months after my first “app-o-rama”. Though if you count the sign-up bonuses I got I’ve earned closer to 2K.

    @XianZhuXuande: Most of your points can be answered simply by putting your 0% money in a high yield savings account where you can easily get to it. Also, American Express doesn’t often offer 0% Balance Transfers, so the financial review is sort of moot. I was subject to an AMEX financial review and besides the inconveniance of having my AMEX cards unavailable for use for a few days, they were quite reasonable.

    Also, I’ve even committed the cardinal sin of Credit Card Arbitage: being a day late on a payment. All it took was a phone call to the credit card company, and I was back on track with no late fees and no APR increases.

    Yes, there are pitfalls, but they all revolve around not paying attention to what’s going on. The ~$200 a month I’m earning from 0% Balance Transfers is well worth the hour I spend mantaining them.

  14. XianZhuXuande says:

    @AtOurGates: Certainly I was not saying this does not work. It does. It is not, however, something a person should jump into without understanding pretty thoroughly. To carry 20,000+ in balances on 0% APR (for ~$200 at 5% APY) you would need some great credit limits for it to slip under the radar.