Making Money With Credit Card Arbitrage

This article is not meant to convince you to try credit card arbitrage. Rather, it’s meant to explain what credit card arbitrage is and start a discussion about it. Ultimately, I would like to hear your thought on credit card arbitrage as a money making strategy.

Credit Cards

Photo by Classyshot via Flickr

First, we start off with a little background information.

What Is Credit Card Arbitrage?

Credit Card Arbitrage is a strategy where the arbitrager borrows money from credit cards that offers 0% APR for a certain amount of time (usually 6 or 18 months). Then use the money borrowed from these credit cards and put it in a bank with high interest rates.

Before the balances are due, the arbitrager withdraw the money from the bank and repay the loan. More experienced arbitrager may even open new credit cards to pay the debt and keep the money in the bank.

How Much Can You Earn From Credit Card Arbitrage?

The answer depends on many variables such as:

  • How much did you pay in fees throughout the process?
  • How much interest is your money earning?
  • How long do you have before you have to repay the credit card debt?

Let’s look at a theoretical example:

With my excellent credit score, I should be able to get enough 0% APR credit cards to borrow $100,000. Next, I would deposit the money into a high yield savings account, which pays about 1% on average (this used to work much better when these accounts were yielding 5%). Let the money sits in the bank for 12 months, and I’ll ended up with $101,000. After I repay all my credit card balances, I ended up with $1,000. That’s not bad for very little effort on my part.

Potential Issues With Credit Card Arbitrage

Now, let’s look at some of the negatives.

  • Credit Card Debt — No matter how you justify it…it is debt
  • Discipline not to spend the money — This depends on the individual and it’s a big IF. If you can’t keep the money in the bank, you’ll end up with a lot of credit card debt in the end.
  • Potential to pay a lot of interest — If you miss any payment, you could end up paying a lot of interest. Most of these offers will retroactively bill you for all interest accrue from the beginning. And any card could raise their interest without notice, not just the one you’re late on.
  • Potential to pay a lot of fees — You’ll have to read the fine prints carefully. Sometimes, credit card companies attach conditions with these 0% APR offers.
  • Damages your credit score — You are definitely toying with your credit score here. If you are not planning any major purchases like a house or a car, then you’re fine; otherwise, your credit score will take a hit.

So, here’s the question

Have you tried credit card arbitrage? And what do you think about this money making strategy?

What others are saying about credit card arbitrage:

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About the Author

By , on Apr 11, 2008
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

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Leave Your Comment (41 Comments)

  1. Al says:

    For those that said you’d rather save instead of risking it, what’s point of saving money if inflation of the US dollar is at an all time high? You are already risking by saving. I’m not saying go spend needlessly but educate yourselves enough to reap great rewards. Risk is only risk if not calculated properly 🙂

  2. eric says:

    I have been doing this for about 3 years or so, making about $3K in the process. Deals I have gotten range from “no fee, 0% interest for 12 months” (very sweet) to “$75 max fee, 0% interest” on a 25K credit limit account (still good) to “3% fee, 0% interest” (worst deal I would consider taking, since 3% is relatively large return today).

    Obviously this strategy is not one the banks expect many people to adopt, since it would cost them a boatload. But I’m happy to take their money 😉

  3. Moneymonk says:

    Citi underwites HD cards

  4. Pinyo says:

    @Jack – May be you’re right. In any case, the Home Depot card is a Citi credit card.

  5. Jack Monty says:

    I would think the Home Depot offer is not the same as normal CC balance transfer deals. It’s an in house financing deal.

    Never heard of back dating interest on a bt deal.

  6. Pinyo says:

    @Shanti – I am not comfortable doing it either. If you aren’t, I wouldn’t recommend it.

    @utkt – Online savings is an example and it was very popular amoung arbitrager because it used to pay 5-6% and very easy to move money around.

    1. That is what happing recently.
    2. That’s one of the risk, but usually as a result of you messing up somewhere — i.e., late payment on one of your card.
    3. Apparently,not that hard. CC industry is very competitive and lucrative. They are giving them away like candy here in the U.S.

    @Jerry – These guys are clever, but they’re also hurting everyone else.

    @Jack – I am looking at my statement now. I have a Home Depot 0% interest no payment offer for 12 months (to pay for my new carpet). There’s a field called “accrued finance charge” with a note saying “to avoid paying accrued finance charges you must pay off your promotion balance by the expiration date shown.” If I miss paying even 1 cent on the expiration date, I could be paying hundreds of dollars in accrued finance charges.

  7. Jack Monty says:

    You mention something about paying ALL the back interest if you miss a payment.

    I never miss payments, but I seriously doubt if that’s true.

    You’d might lose the deal and owe 1 months interest assuming you pay it all off then and there.

  8. Jerry says:

    I had some friends in medical school who did something similar with their loans. They were on full-ride scholarship, but still took out the maximum loans available for each year of the 4 year program. (That leads to a pretty hefty sum – well over $100,000.) They then placed the loan money into a higher interest account until they graduated from medical school, at which time they were able to pay off the loans with no interest. This was because they had the insurance that it was deferred during school, and they kept the accrued interest from the account. I am not sure about the legality or ethics of this, but the thread on credit card arbitrage reminded me of it.

  9. utkt says:

    Interesting, I’ve never considered credit card arbitrage before, but granted, I’m a poor student so I doubt I’d be able to borrow anything about £2000.

    Having said that, I believe that if you manage to get $100,000 out, perhaps your best strategy is to NOT stick it into an online savings account, surely there are other accounts that pay a higher return on average? Fixed deposits, ISAs, etc.

    However, for the sake of argument, I think there are a few things that one has to consider when making this sort of investment.

    1. Will the Feds lower the interest rate and effectively reducing the amount of money you earn as a result?
    2. What if the credit card company inadvertently change their policy?
    3. Given the current economy and credit crunch, even for consumers, how easy will it be to obtain finance?

  10. Shanti says:

    This is really interesting. I’ve never even heard of it, but going into debt to invest just sounds… risky, to say the least. Maybe I’ll try it out with $50 and see how it goes 😉 LOL – it would make a very interesting addition to my blog challenges so far.

  11. @ Dough Roller: Last year our balances averaged about $225,000. We were able to generate $12,000 since interest rates were much higher than they are now (especially with the 6% offer from FNBO).

    We keep our utilization to about 20% so that our scores aren’t affected much. We dropped it to about $170,000 now so that we can refinance our house, but we’ll ramp it back up as soon as the documents are signed.

    @ Pinyo: Hmmm… never thought of being an arbitrage coach… I like it!

  12. Pinyo says:

    @My Dollar Plan – I have to hire you as my arbitrage coach 🙂

  13. I scrolled down to the bottom to leave a comment that was going to say something like, “credit card arbitrage certainly works for some, but it’s just not for me.” On my way to the comment box, however, I took special note of My Dollar Plan’s comment about making 12k last year. I’ll have to run the numbers to see what we could do, but I would definitely do this for 12k. MDP, how much are you borrowing to generate 12k in income???

  14. Mark Krusen says:

    I’m changing my attitude about the “risk factor” in the whole scheme of making money. It does make sense. 12k is a pretty good side income for staying the course and being organized. I just know I’m not that organized. But I’m also not “stupid” In a month our credit cards will be paid in full for the first time in a lot of years. God willing and the creek don’t rise they’ll stay that way.

  15. Sara says:

    This seems like a good way to make some extra money and it would feel great to be getting a little something back from the credit card companies!

  16. Since I’ve been running a credit card arbitrage strategy north of $200k for the last 5 years, of course you know which side I’m going to take. We made about $12k last year from arbitrage and it takes very little time. The key is being organized. I also understand it is not for everyone.

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