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Taking Advantage of Credit Cards

I know my shtick is economics, not personal finance, but humor me.

Credit cards. The kings of junk mail and telemarketing. Always a new offer. I'm one of the dwindling people that prefer cash to credit cards, for several reasons: Cash is private. Merchants pay fees on credit card payments. Cash is often faster — no waiting for a signature.

I use credit cards for online purchases and for some automatic billing (e.g. Dish Network) and for almost nothing else. When I get a credit card offer in the mail I usually throw it away very quickly. When I get a telemarketing call I tell them I wouldn't use their card anyway.

It's important to at least glance at the terms.

Sometimes my existing credit card companies will send me checks, so I could (say) make a mortgage payment on my credit card. Sometimes they're treated as cash advances; those are worse than worthless. Sometimes they're treated as purchases; I wouldn't use those either. Sometimes they come with a low fixed rate; those are interesting, but I toss them also. Once in a while they offer 0%, and those are very interesting. Last year I almost played the spread by using one of those checks to open a Certificate of Deposit at the bank. I didn't, because there were fees on the checks that would have consumed the majority of the interest I would have earned in the short (6mo) period the balance would be at 0%. A contributing factor was that I would have had to stop using that credit card during the period, because payments are always applied to the lowest-interest portion of the balance first. (I had some automatic billing on the card I would have had to move.)

I recently got an offer I couldn't find anything wrong with, and I'm taking advantage of it. A shiny new credit card with a one-year 0% rate on balance transfers and purchases, and no balance transfer fees. Now that's a card I can use… for everything, piling right up to the credit limit, for a whole year. And then I'll pay it off all at once and never be out a penny of interest.

It came at a good time; I had just made a large purchase on a credit card but the statement hadn't arrived yet, so I'll take advantage of the free balance transfer. I'll also move all my automatic billing over to it. I don't think I'll use my other credit cards at all, for a whole year. (Except maybe for airline tickets; I'll have to compare the perks on the new card vs. an old one.)

I'll go to the bank soon and set up a one-year CD for the amount of the card's credit limit and earn over 2% on money I'm borrowing at 0%. I'll come out several hundred dollars ahead. The beautiful ironic twist in this is that the company providing the credit card is my bank. They're going to loan me money and pay me for the privilege. ;)


UPDATE 2004-12-19 22:24:22 UTC: Greed is more powerful than irony. I found a different bank paying 2.9% on a one-year CD, so I went with them, as much as I would have enjoyed telling this story to the employees at my bank's branch office.

On the technology side, it's remarkable (… hence this remark) that I opened both accounts — credit card and CD — on the internet, over the weekend, without any need to wait for normal business hours. It's all in the hands of the Post Office now, to deliver the credit card to me and my check to the bank.

Tiny Island