A little casual arbitrage

In My Humble Opinion
1

A respected poster mentioned taking out new credit card debt at 0%, planning to pay it back at the appropriate time to get, in effect, free money for that period. I have excellent credit and a high-interest savings account; could I borrow money from Citibank Visa or whoever in the form of a 0% line of credit, and plunk it into my savings for a while?

As a practical matter I’m wondering how to convert credit card debt into cash. I suppose you could buy spot-price gold and sell it right back, but the point of this exercise has got to be 0 risk and perhaps that would look pretty shady to the gold dealer. How is it done then? Can you buy a cashier’s check with a credit card?

And as an ethical matter, I’m wondering what people think. Is this a cool and OK plan?

I must point out that said Respected Poster from Paragraph 1 above didn’t say or even imply what they’d do with the interest-free credit card loan; I feel sure that taking advantage of 0% loans is morally unimpeachable; I certainly did it when I was younger and had other high-interest credit card debt to transfer around, and very successfully too. But I’m not sure how to feel about the idea of direct reinvestment of such a loan for guaranteed profit. If, of course, it’s even possible.

2

Cash Advance, convenience check. Usually a fee involved, but it might be worth it.

3

A friend’s parents were going to buy a new car with cash. My friend convinced his parents to get an ultra-low interest rate loan instead and loan him the cash and he would give them more than enough to pay off the car. (Or something like that, I don’t remember all of the jiggery-pokery involved.)

4

I might be that poster.

In my case it was a come-on from a furniture store. Apply for our instant-approval store credit card, use it to pay for whatever furniture you buy today, and the promotional deal is:

  1. Zero percent APR for 35 months as long as you make at least the minimum payment on time for each of the 35 months.

  2. Pay the entire remaining balance in full no later than the 36th month on time.

  3. If it any time you fail to do 1 or 2, the entire balance is subject to 35% APR computed retroactively from the day of the purchase.

So their goal is to issue the card to people who buy things they can’t actually afford, then the instant they miss a payment by a day, whether due to inattention or due to cash flow, the trap is sprung and now whatever the furniture cost, the poor folks will be paying ~100% on top of that as interest to the issuing bank. Ka-ching for the bank. Of course some folks will indeed handle the minimum payments just fine but when the balloon is finally due they have no hope of paying that. Same outcome. 35% APR retroactive interest for however many years and now they owe their soul to the company furniture store.

Plus of course once you have the card from ABC furniture, they’ll keep emailing you come-ons about sales for more furniture you didn’t know you needed. At least some of which will trigger purchases the store would not otherwise have captured.

Conversely, for me, who will promptly set up autopay for the minimum payment amount, set it to pay a few days early so I can check their website to ensure they got it with enough time left to the due date to make an alternate payment if needed, and who has no cashflow problem paying off the balance at any time, it’s a not quite one-way bet for free money.

On that day I opened an instant account like that at a furniture store, a separate one at a mattress store with a 12-month 0-percent-then-bear-trap-at-39%, and used an existing card like that I already had at an electronics store for another 0% for 24 months deal.

So I walked out of those stores with orders to completely furnish an otherwise bare 1bedroom apartment with all snazzy stuff having spent $0 out of pocket, expecting about $100/mo in combined monthly payments and then between one and 3 years from now needing to pony up the other $30K to pay off the three cards. And still pay no interest while my $30K is invested the whole time. I’ll probably make $5-7K on this deal. Which is a nice discount on my furniture.

But the critical thing as it applies to the OP’s goals is the zero-percent offer only applies to purchases at the store using the store’s captive card. If you don’t want furniture or a mattress or a TV you’re stuck. There’s no way to just get cash under their deal.


That doesn’t work with a conventional card, even a very low-rate one for people with great credit. The cash advance feature of your card tends to have a 2% or more recently 5% fee attached immediately. And isn’t available at a zero percent rate. Sometimes there are low promotional rates, but the 5% upfront fee is the real killer for any hoped-for investment use of the resulting cash.

There was a time 15+ years ago where folks with superb credit did have deals like that. Cash advances with no upfront fee and 1% APR on the cash advance balance. Hell, you could stroke $10K (or $50K) on your credit card(s), buy US savings bonds with the proceeds, and as long as you never missed a payment have a guaranteed 4% or whatever rate of return on a riskless straddle. I knew folks with $150K or $200K of various banks’ money in flight in schemes like that. All totally legal and totally legit nder the terms of the banks’ agreements. I tried it myself a couple times, but back in the days before reliable autopay, writing and mailing checks was too much admin hassle for the risk. I’d totally do it now if the banks would still offer the deal.

But if you missed one payment on one of these not-quite-kites, you’d negate 3, 4, or maybe even 5 other deals by suddenly being subject to the horrendous normal credit card borrowing interest rate. Of 15, 20, or even 25%. Reckoned retroactively back to when you took out the advance. So even immediately paying off that card from other assets doesn’t undo the damage of any mistake you make.

5

Of course you are! I considered PM’ing you, but I don’t know you that well. :slight_smile:

Furnishing an empty apartment, that’s a perfect use case for this kind of thing (I’m just like you in this regard; I’d beat their nasty game with perfect recordkeeping and punctuality). But no cash, eh? Too bad for me. So, that leaves buying stuff and selling it at a profit, which if I could reliably do, I’d be rich already. Sigh. I suppose I could buy a lifetime supply of, say, toilet paper, and each month for the rest of my life put my unspent TP budget into savings. That’s really more my speed anyway.

6

Just buy “first class forever” postage stamps. Given inflation, it’s one way riskless bet.

The problem is who wants or needs or uses postage stamps anymore? Anyone who mails regularly does so with metered or electronic postage.

7

I do; probably another tiny avenue of savings for me to explore. I’ve bought about 300 stamps in the last 10 years, each time wondering why I don’t buy more while the price is low.

8

You could just pay for day-to-day stuff with the credit card, and transfer the cash that you would have used into the high-yield savings account. Then at the appropriate time withdraw the money from the savings account and pay the credit card bill. You might even get a cash back from the CC in addition to the interest on the savings account.

I can’t see what the issue would be, unless you object to the whole idea of banking and interest payments.

9

There are no ethics involved in it. If a major multibillion dollar financial institution offers to lend you money cheaply, it’s just a business deal. Unless they threaten puppies or something.

10

PM’s are a great way to make new friends.

11

Hey, the idea is to make money however legally possible. I see nothing wrong with your plan unless the process of borrowing money negatively impacts your credit rating. I honestly don’t know because, to me at least, whatever formula they use to calculate a credit rating is some form of quantum mathematics.

12

I’m familiar with these zero-percent deals from furniture and appliance stores and the like, though I’ve never used them. What strikes me as downright predatory is that interest rate, plus the fact of being applied retroactively, unless you just made up that number as a hyperbolic example. That kind of trap at those rates should be illegal, and we all know why it isn’t – for some reason legislators are more kindly inclined to Big Money and Big Business than they are to protecting consumers from victimization.

13

I just looked at the paperwork for the mattress store card. 29.99% APR if not paid in full by the due date. Same for the TV store card and the furniture store card. Those are all same-store-only cards.

I recently got a Macy’s (major US department store chain) branded AmEx card. So usable at their store and also any anywhere else. 31.99% APR.

I have a store card from Target, the major big box discount retailer. 28.15% APR.

My ordinary Visa I’ve had for years and use for about 2/3rds of my ordinary purchases? 21.24% APR, but 29.99% on cash advances. The ordinary Mastercard I use for the other ~1/3rd? 23.24% APR or 29.99% for cash advances.

I know I saw 34.99% on some disclosure somewhere in the last couple of days. I can’t find it right now.

Bottom line, all these credit cards, whether from “subprime lenders” like the store-branded cards or straight Visa / MC issued by mainstream national US banks are usurious. Seriously usurious. Even for folks with excellent credit scores. Which is why I pay in full each month.

Anyone who gets into credit card debt at 25ish percent is going swimming with an anvil in their backpack. Ain’t gonna work; you’re gonna drown.

14

I’m slightly more forgiving (only slightly) of extortionate credit card rates because they’re at least a little lower and are less of a trap – if you’re late with a payment nothing much happens, and the “retroactive” bit is only that interest accrues from the date of last month’s purchases if you had previously paid in full. Unless someone is financially irresponsible and gets in way over their head, credit cards IMHO give you control over how you want to pay and if you want to carry interest for a month or two, and even someone in over their head could probably get a loan at a much lower interest rate and pay off the card.

One thing I can tell you from having done IT consulting for banks is what an incredible cash cow the credit card business is. The money those people spent on IT projects – many of them wasteful and ill-advised – was well-nigh unbelievable. And they still made outrageous profits!

15

How do you report your arbitrage profits as taxable income?

16

You’d pay taxes directly on interest income. The bank sends you a 1099-INT.

17

Wells Fargo 21 month 0% interest minimum interest of 18.24% after the 21 month period.
https://creditcards.wellsfargo.com/cards/reflect-visa-credit-card/?product_code=CC&subproduct_code=VV&FPID=013000IGF80000&vendor_code=LS&sub_channel=AFF&siteID=KLEcYpbTwio-MGa5uugbDTiZR2TdfSfBAg