Monday, August 27, 2007

Credit Card 0% "Loans"; IT REALLY WORKS

In this post, I'll discuss how to use those introductory 0% credit card offers to your advantage. The basic premise is that you apply for a credit card that has a 0% introductory rate and use the credit limit that you are granted to get cash. You take the cash and put it in a higher yield savings account or money market account. Each month, you only pay the minimum due and keep the rest of the money earning interest for you. At the end of the introductory period, simply pay off the balance on your card. With enough of these cards, you can easily earn thousands of dollars a year. This method was discussed on other PF blogs as well: and

Now, there some negatives associated with this practice. You must remember that since your income to debt ratio will be way out of wack, your credit score WILL GO DOWN. This is not really that big of a deal if you don't have any near term needs for credit. Even though you credit SCORE is affected, your credit report will still be showing on-time payments and your history will be increasing. After you're done with this "loan" idea, it will take quite a few months for your credit score to go up. It's very important to forecast when you might need to apply for normal credit (i.e., you really need to buy something like a car or house) so that you can begin to pay your loans off.

Another thing to remember is to stay on top of your payments. Do not be late! If you apply for many offers, you could easily have 5, 10, 15 or more cards to keep track of each month. The method I use is to have paperless statements sent to me each month in the form of an email alert. As soon as I see the alert, I go to that card site and schedule my next payment (I either pay the minimum or I pay off the card if the intro period is about to expire). To do this I use electronic funds transfer (EFT) from/to my savings account to the account I pay my bills out of it. Honestly, each bill pay only takes me about 5 minutes from the time I read the alert, transfer money, update my check registry, and schedule the payment.

Here is a very imporant point. When you are researching for new cards to apply for, of course you want to look for the 0% offers but you absolutely must read the fine print in regards to the fees. The best offers are the ones that have no fees associated with a transfer or cash advance. Others have something like 3% of the transfer amount but cap it off at $50 or $75. The worst offers are the ones that have no maximum fee for the amount trasferred. For example, if you apply for a card that has a 3% transfer fee with no max and you write yourself a check for $10,000, you will be assessed a $300 fee. I DO NOT RECOMMEND THESE CARDS because your margin will be very small. You really have to do the math when it comes to the term of the intro period, the transfer fee, and the max transfer free details. If the margin is very small, I do not apply for the card.

Here are some links for 0% card offers:

Here are some links for savings account with decent yields:

In summary, you can make money using 0% introductory rate credit card offers. However, you should read the fine print to determine the fees involved (hopefully they're none). Additionally, set up a method that works for you so that you can stay on top of all your payments. You definitely don't want to be late with you payments. Finally, be sure to track your expiration dates so that you don't forget to pay your card off when the intro period is up.

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