Listen alla yall its an arbitrage
November 4, 2008 2:54 PM   Subscribe

You know those exploitative 0% APR offers from the credit card companies? With careful work, some brave souls cash them out as interest free loans and invest it in high yield accounts -- but its not for the faint of heart, especially with the economic downturn.
posted by thandal (32 comments total) 21 users marked this as a favorite
 
In the search space of bad ideas, this sits just out past "starting a land war in Asia" and "going against a Sicilian when death is on the line" in terms of badness.
posted by GuyZero at 3:02 PM on November 4, 2008 [13 favorites]


This word 'brave'. And 'careful'. They do not mean what you think they mean.
posted by xmutex at 3:09 PM on November 4, 2008 [2 favorites]


I would rather take a shotgun to the nuts than take out two hundred grand in credit card debt.
posted by dunkadunc at 3:10 PM on November 4, 2008


I would rather take a shotgun to the nuts than take out two hundred grand in credit card debt.

Whoa what really?
posted by xmutex at 3:14 PM on November 4, 2008


I would rather take a shotgun to the nuts than take out two hundred grand in credit card debt.

Woah! Military recruiters finally hit metafilter. Took you long enough to show up!
posted by srboisvert at 3:18 PM on November 4, 2008 [3 favorites]


Or at least slam them in a car door repeatedly. The people who would think this is a good idea are the ones who can't get themselves out of trouble when things go seriously wrong.
posted by dunkadunc at 3:22 PM on November 4, 2008


See...this is why we'll be right back here in the same (or worse) mess in no time. Because people+the potential for large piles of money=indefinite suspension of common sense.
posted by Thorzdad at 3:25 PM on November 4, 2008


this actually isn't all that new. I saw a lot of threads in the fatwallet forums where people doing this discussed different offers they got all the time. the key seemed to be to apply to as many cards as possible within a 30-day period before the credit scores got updated. one guy on there claimed to have made $27,000 in four months using this method.

the new story however is that of credit card companies slashing credit limits pretty rigorously. npr's marketplace had a story on one guy today whose credit line in spite of perfect payment history and zero balance was slashed from $19,500 to $500. this was amex.

I think the story is one of a scheme that used to work really well during the hausse we enjoyed until recently. it is not a story about something that still works on the same scale.
posted by krautland at 3:25 PM on November 4, 2008


Funny, I just bought cocaine with mine...you mean I could have MADE money off of them? Seriously, though - the way that credit cards change their payment cycles/process payments, you're almost certain to get screwed somewhere in there. If you have more than 1 or 2 credit cards, it's almost a full time job keeping them out of the red.
posted by The Light Fantastic at 3:35 PM on November 4, 2008 [1 favorite]


I'll never turn down a $99 for 0% or 3% fee for 3%-for-life (ie 6% for the first year and 3% thereafter) offer.

I still owe Citibank $4000 from a $9000 3%-for-life I took out in 2004. I paid off my 5% car loan with that money so it's like I'm paying $10/mo interest on my car. No biggie.

I just took out a 3%-for-life offer -- $15K of my $20K REI line -- from USBank. I paid $450 fee for this money and will owe ~$37.50/mo on it in interest. The $15K is currently in HSBC earning 3.0% right now so it's a wash but working capital is working capital.

I also have a 0% balance transfer from Discover good through next August going. Cost $100 to borrow $8000 for 9 months. Thanks for the free money.
posted by troy at 3:53 PM on November 4, 2008 [1 favorite]


Worth it just for the ‘sedan getting air’ title.
*pastes on cheesy ‘70s cop mustache*
*shotguns nuts*
posted by Smedleyman at 3:59 PM on November 4, 2008 [2 favorites]


Honestly, these are not the people you need to worry about. If someone opens up ten accounts and transfers the money into savings with the goal of earning interest, they have two things going for them: a decent credit score to start with, and a plan for their money. This is nothing at all like having 200k in purchases on your cards. If anything happens that you don't like, you have liquid capital to pay off the cards immediately. Sure, it is possible that it could go wrong, but the risk is not high.

The people you need to worry about are the ones who put daily expenses on credit cards because they cannot otherwise afford them. For them, there is no way out.
posted by Nothing at 4:05 PM on November 4, 2008 [1 favorite]


I saved $500 a month for a year. At the end of the year I had $6000. Free money! I bought a $6000 car and now my car payments are $0 per month at 0%.
posted by nonmyopicdave at 4:06 PM on November 4, 2008 [14 favorites]


Man, my bank actually sent me checks I could have used to take out loans up to the max of my credit limit for 1% interest for the life of the loan. I could have put the money in a 3.3% APY savings account, but I was worried about having my rates hiked.

I would rather take a shotgun to the nuts than take out two hundred grand in credit card debt.

That seems really bizarre. If anything happened, you would still have the cash to pay them down to zero almost instantly. Obviously it would be a problem if you didn't have the money...
posted by delmoi at 4:29 PM on November 4, 2008


If you had taken out 50k at 0% interest, put it in a 3.5% savings account, and paid 500 a month in minimums, you would have a $6000 car and $1,775 in cash left over, with no debt.
posted by Nothing at 4:30 PM on November 4, 2008 [2 favorites]


I don't think there are actually any new issues in the latter two links. It's ARBITRAGE -- so you're not taking on any new risk. Any medical or economic risks that would bankrupt you with the aribitrage on would have bankrupted you without it.

Yes, it's harder to do nowadays, but that doesn't mean there are new risks to it.
posted by FuManchu at 4:32 PM on November 4, 2008


2 to 3 years ago this was crazy easy money. I used to read, double-read, triple-read these offers. "You're really going to give me $18,000 zero percent, no cost, fee-free and interest-free loan *and* a free DVD player?"

They did and I took it. Good times, good times.
posted by Rafaelloello at 4:43 PM on November 4, 2008


El Condor Nutsack

I'd rather take a shotgun to the nuts
Yes I would
If I could
I surely would

I'd rather take some shrapnel to my putz
Yes I would
If I only could
I surely would

You see, I'd rather sit to pee.
Like a chick. Without a dick.
Oh boy, I'd rather have no joy
It's a fact. An empty sack.

I'd rather have them slammed in the car door
Yes I would
If I could
I surely would

I'd rather have them nailed right to the floor
Yes I would
If I only could
I surely would

(apoligies to mr. simon)
posted by stubby phillips at 4:46 PM on November 4, 2008 [5 favorites]


I've heard this called stoozing in the UK. There's an eponymous website detailing the best techniques, which I have not read in detail, but I guess would be in general applicable elsewhere even if the specific deals are not.
posted by Jakey at 4:47 PM on November 4, 2008


It's ARBITRAGE -- so you're not taking on any new risk.

I don't know if there's a formal name for it, but there's contract risk in that you may not really understand the contract and/or the CC company may have the ability to change the contract on you at any time. It only takes one slip up to get a large interest charge and suddenly lose all your profit. Arbitrage, while low-risk, is not risk-free and generally requires some form of liquid starting capital (which in this case is the credit rating of the people doing this).
posted by GuyZero at 5:39 PM on November 4, 2008


If anything happened, you would still have the cash to pay them down to zero almost instantly.

Yes, probably. If you choose your cards poorly then you'll lose a few per cent of the money in balance transfer fees, but apparently that's avoidable.

The wonderful concept of universal default, however, will bite you if you screw up on one of your numerous accounts - not only all of the arbitrage-scheme cards, but every other account you have too. Miss a payment or bounce a cheque, and not only can the account on which you made the mistake instantly hop to an APR of 25% or whatever, but all of your other cards will do it too, simultaneously. You won't necessarily notice that this has happened until substantial interest payments have built up. And even if you pay all of the cards off immediately after making the mistake, the best case scenario is that you've thrown all of the time you put into the arbitrage scheme down the toilet.

It's possible to stay on top of all this, but don't get the idea that you won't be working for a living. And the hourly rate is lousy.
posted by dansdata at 5:44 PM on November 4, 2008


I'm not a huge fan of the process, and I don't do it myself. I just thought the comments about preferring gunshot wounds and calling the people who do this idiots were off track. You don't do this if you can't manage money. But that is a given: if you can't manage money, it is almost impossible to even get started with something like this.

Yes, if you miss a payment somewhere, and if you don't notice that your rates jump, and if you have two cycle billing, you might even lose a bit of money. Universal default can get you, but if you have things in order it is not especially likely to.

As for the hourly, well, if you do this with 10k as per that article, you are pretty much wasting your time. But 200k (which seems to be a popular target in the circles who do this) at 3.5% is over $50 an hour at 3 hours a week, and even to manage 15 cards that should be more than enough.
posted by Nothing at 6:14 PM on November 4, 2008 [1 favorite]


I would rather take a shotgun to the nuts than take out two hundred grand in credit card debt.

That can be aranged.
You'll still owe, tho...
posted by Balisong at 6:43 PM on November 4, 2008


Discover offered me $XX,XXX.XX no fees zero percent interest for the life of it. One purchase per month required. Done.

Citibank offered me 4.9% no fees up to the credit limit -- $XX,XXX.XX -- and no purchases required. Done.

I was in trouble, had good credit and good holdings but no cash, and I'd lost my gig, then some big-time health problems, blah blah blah. I needed the bread. They offered the bread, free or almost free. I'd have been a fool not to take it, especially the zero percent with Discover.

But you'd best believe that I made those payments. I was in touch with them, not constantly but enough, making sure no games got played.

Amazingly, Discover did NOT hold to the party line when I missed a payment, and not just on the account with the freebie money but on another account also -- I'd changed banks and hadn't updated it on the automated payment page of Discover. I updated everything else, and thought I'd updated Discover. But I hadn't. I got an email telling me that I'm screwed screwed screwed, I have a friggin heart attack, call them, offer them my life, offered to marry the gal, whatever -- not only did she lower all the interest rates back down on both cards, they kept the zero percent thing going, they gave back all but one of my returned check dings, they didn't report it to anyone that I know of. So always remember that you are dealing with a human being, always call and at least try to get things your way, yeah, the contract is against you but the people at the switches are mostly just slobs like the rest of us and can sometimes help us out.

If you decide to do this: Be careful. Do not fuck up. I had unreal luck. I've been with Discover for several thousand years and been a very good citizen in all that time, and that is what the woman told me as she cheerfully set it all right.

These sites linked call it 'a game.' Yeah, it's a game, but it's a dangerous game. Russian roulette is 'a game.' Don't do this if you aren't willing to be absolutely on top of 'the game' every minute you're 'playing' it.

These businesses do this for a very good reason; it's like Vegas, the odds are stacked against you, in favor of the house. They know human nature and they know numbers better even than life insurance people, they know they'll lose a small piece of the time but it falls their way much more often than not.
posted by dancestoblue at 7:24 PM on November 4, 2008 [1 favorite]


If anything happened, you would still have the cash to pay them down to zero almost instantly

I've got some Icesave customers over here who beg to differ.
posted by DreamerFi at 9:50 PM on November 4, 2008


I did it. Took out a $15,000 advance on my credit card at 0% and put it into a brokerage account, traded very carefully, doubled it over the course of a year, and paid off the card completely. It's not an approach for everyone, that's for sure.
posted by dacoit at 10:10 PM on November 4, 2008


And I recently took out a $200 cash advance, played $2/5 No limit holdem at an underground club, quadrupled it over the course of 2 hours, paid off the debt and had $600 left for strippers.

I wouldn't exactly call that an investment strategy, though.
posted by bashos_frog at 6:50 AM on November 5, 2008 [2 favorites]


And, I forgot to say, I played 'very carefully'
posted by bashos_frog at 6:52 AM on November 5, 2008


I was in trouble, had good credit and good holdings but no cash, and I'd lost my gig, then some big-time health problems, blah blah blah. I needed the bread.

This is different though. These people don't need the money. They just want to use the money to make more money.
posted by smackfu at 7:40 AM on November 5, 2008


Didn't out government try this approach?
posted by cjorgensen at 7:58 AM on November 5, 2008


I actually use these fairly often for short-term loans. In fact, I just used a 0% offer to pay for a new PowerBook. The trick is to use a card that has no balance on it. Understand that you are going to pay 3% on the amount you borrow and then never miss a payment and pay it off quickly. I write down the terms on a post-it, stick it on the card I'm using as finding out when the offer expires and reverts to 28% or whatever is sometimes tricky. Now stick the card somewhere and don't use it. Keep the balance nice and clean and pay it off. Easy short term loan for a couple grand that costs me $75. I've done it about half-a-dozen times and it's perfect for things like computers or used cars.
posted by misterpatrick at 9:33 AM on November 5, 2008


A lot of people are in trouble with their mortgages today because they took out home equity loans to invest in the stock market during the "boom years". Now their stocks have plummeted, along with home values, and they are in trouble.

Can't say I've never transferred balances or taken advantage of 0% offers, but I sure wouldn't try it without good financial self control and a sure ability to pay off the card each month. Otherwise things could spiral out of control pretty quickly.
posted by logfurnitureguru at 8:24 PM on November 5, 2008


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