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Continuing Credit Card Arbitrage

I've been doing the credit card arbitrage thing for almost two years and estimate I've made somewhere along the lines of $2,500 in totally free money.

In the beginning I wasn't very aggressive about it and didn't carry large balances. When I got serious — and my credit card balances rose to over $47,000 (!) in February — I also destroyed my credit rating and the new 0% offers dried up. I also got a glimpse of the rotten underbelly of the credit business.

Since that time I've had to pay off credit cards as their introductory periods expired and my balances have fallen to about $13,000. Still somewhat high, but approaching "normal" levels. Correspondingly, my credit score has improved, and the 0% offers have resumed. And now I'm going to dive in again for a second helping.

My original 0% card was a Bank of America Visa with a $16,000 credit limit. I never closed this account even though I haven't used it in almost a year because I expected it to become my primary credit card once I was finished with this arbitrage stuff. (My checking account is with Bank of America, and their online banking integrates everything very nicely — this would be the most convenient arrangement for me.) In my mailbox today I learn they're offering a promotion on this card: 0% on balance transfers and credit card access checks until July '07, with a 4% fee (maximum $90). The letter was nice enough to include several such credit card access checks.

A couple weeks ago I got an offer for a Chase Visa offering 0% on balance transfers and purchases until March '08, with no fees. I didn't bite on that offer immediately because I didn't have large balances to transfer and I already have a 0% purchases card good for a couple more months. (One of my balances is on another Chase card, which could not transfer, so less than $9,000 was available.)

These are two great things that go great together. What am I going to do? Write myself a credit card access check for $15,900 and then apply for the new Chase card, transferring balances from my other credit cards (except the existing Chase one) in order of their 0% expiration dates. I can't predict how high my credit limit might be on the new card, but if it's more than $9,000 I do better by waiting until the Bank of America charge posts to the account so I can include that balance in the transfer, too.

Even if no part of the Bank of America charge can transfer, I estimate I'll still come out about $150 ahead, after taxes, by paying it off in July. If I'm lucky and can transfer some large portion of that to the new card, the extra seven months are pure profit.

If you're trying to figure out how much you might make with credit card arbitrage, there are several things to keep in mind:

  • Fees related to the introductory offer.
  • The precise length of time the introductory period lasts.
  • The interest rate you expect to earn on the money.
  • Taxes you'll pay on interest earned.
  • The effect on your cashflow of paying the large monthly credit card bills.
  • The effect on your credit rating.
Tiny Island