Thread: Free money? It could be

A friend recently shared this idea with me, and it seems like it might be free money. Take a look yourself.


Right now I am holding a letter from AAA offering to sign me up for their credit card.

the offer is:

credit line as high as 100k
Fixed 0% APR for cash advance checks and balance transfers until Nov 2008


So the idea is this:

Sign up, take (hypothetically) 100k and then put it into a CD earning 5% for a year.

In a year, pay off the balance and keep the 5,000 you've made.


Anybody see any holes in this?


edit, for clarification: you get a credit card that offers 0% fixed APR on cash advances for a year, then put that money somewhere where it'll earn %.

Generally there is a minimum payment you have to make every month as well as a transaction fee which is generally around 3%. Is the offer a good offer? I think so. I love convience checks. they are great if you use them responsibly. The downside is if you miss a payment you have 30 days to pay it all in full PLUS all the interest that has accrued.

Doesn't

Fixed 0% APR for cash advance checks and balance transfers

take care of the payments and 3%??

Originally Posted by TheGreatBear

Don't forget the tax on interest income...
There must be a loophole...can't be that easy.... Why would they lend you money at 3% or 0% if they could put it in tbills and earn over 4% instead?

Because they expect a decent number of customers will miss payments or make late payments, which will trigger multi-digit interest rates. This is the gold-mine for credit card companies...

I haven't seen the offer, so don't know the fine print details. So, this is just my opinion based on limited information.

JScott is absolutely right. Most people make minimum payments on their credit cards. In one year, most won't be able to pay the money back and so they make money.

Let me give you another example that's somewhat similar - Everyone is always told that credit cards are bad. My husband and I use our Southwest VISA card for EVERYTHING - the grocery store, we even bought a car once with it. The miles we get from the VISA translate faster into free tickets than any other program we've found and so we get free tickets all the time. There is a secondary market for these tickets in Phoenix and we can sell them. Last year we averaged 4.9% return ON our credit card payments. We pay the balance each month, so there is never any charge.

We make money off of our credit cards. So, I cringe everytime someone says to cut up your credit cards. It's not the credit card that's bad, it's what you do with it!

Originally Posted by Rawr

Doesn't take care of the payments and 3%??

No. ...Granted I haven't seen the fine print, but that's what mine are- and they are similiar offers.

Originally Posted by Diane Kennedy

We make money off of our credit cards. So, I cringe everytime someone says to cut up your credit cards. It's not the credit card that's bad, it's what you do with it!

We use our Amex and Discover for everything and always end up making thousands from them.

Sorry guys I guess I am not getting it. I thought fixed 0% APR means there are not going to be ANY payments whatsoever- no interest, nothing.

And a very cool idea by Diane, making money on credit cards is a part of the American Dream

Originally Posted by Rawr

Sorry guys I guess I am not getting it. I thought fixed 0% APR means there are not going to be ANY payments whatsoever- no interest, nothing.

And a very cool idea by Diane, making money on credit cards is a part of the American Dream

.....? Is that a sick joke? no payments???

0% means you dont pay any intrest on the money borrowed. you are still required to make the minium payment each month which on 100k would be quite spendy. Not to mention you have to get approved for a credit line that high in the first place. So they make money becasue they sednt you bill in an unmarked envelope hoping you will not notice and miss that months payment defaulting you to a 23-30% intrest rate.

The offer for that card is not that rare. Most banks will send numerous offers before hand and that is there last chance offer. Citi and Capital One do it all the time. The down fall is how it affects your credit being a revolving account. If you don't plan to accumulate any additional debt (installment or mortgage loans) in the next year it can be used to make a good return. Figure your payment to be right around $400/mo on $20K. Take the cash advance check they send you and put $15K into a CD and use the other $5K for the payments for the next year. Easy $750 @ 5% in a CD.

I would recommend maybe an ING account that will give you close to 5% but is liquid. Then you can put as much as you want in it and pay the payments. I have been doing this for years with different cards and have never had a problem. Typical rates are a bit lower than CD's but being easily accessible is much more attractive in my opinion.

Also might be helpful to setup automatic payments online with the bank who issued the card. This will help eliminate missed payments and keep the rate at 0%.

Thank you mm2003, rep++

I believe (but should check again) that I have a great credit history. What are the best banks to go with for this sort of thing? Any tips on getting a bigger balance/ 0%?

Cheers

Originally Posted by Rawr

Thank you mm2003, rep++

I believe (but should check again) that I have a great credit history. What are the best banks to go with for this sort of thing? Any tips on getting a bigger balance/ 0%?

Cheers

Thanks Rawr. I have used Citi and Chase recently. Citi also likes to give high revolving limits compared to the other banks I have used. Read the fine print carefully though. I see offers all the time that say 0% but have a transaction fee of 3% or $250, which ever if higher. Some will have a $75 limit as well which isn't as bad depending on the amount of money you want. If you hold out though, you will almost always get the offer you have, 0% and no fee.

I would recommend checking into an ING account. There is no fees for minimum balance and you get a decent interest rate. Best advice I can give on obtaining a higher limit is to go with one of the larger banks. Citi and Chase are able to give so much more because of there size.

I love these ideas.

Note though that nothing is free: You all are investing time for the use of OPM (other peoples money). This is a GREAT example of due diligence and creativity at it's finest! What a great place for young people or people who are starting over to begin.

I think I will use this strategy soon.

Originally Posted by wildambitions

I love these ideas.

Note though that nothing is free: You all are investing time for the use of OPM (other peoples money).

Keep in mind that it is not a like trade. Example, a person works for a paycheck. They trade their time for money. In this case, you trade your time investing in you while you are using OPM.

Is it possible to call Citi or Chase and ask them for this offer and a high limit or do I have to wait for the right letter.

Figure your payment to be right around $400/mo on $20K.

I have a question - how did you arrive at this.

And if the sh*t hits the fan and the rate goes from 0% to whatever, what is the emergency plan?

Did some homework found these cards

problem is it says no cash advances on any of them, is this basically no go then or does a blank check banks send not count as cash advance?

I have called and asked for offers before from Citi and they seem pretty strict on the few that are available to my account at the time. The offer of 0% and no fee doesn't come from the same bank very often. They like to play the waiting game just like we do. As long as you don't act on the 7.99%, 3.99%, etc., they will typically send you the 0%. To answer your question though, it can never hurt to call and ask. Sometimes the offers they give over the phone are different than online, and vise versa.

From my experience they normally charge anywhere from 1.5 - 2.0% of your outstanding card balance per month. I can only assume this will be different depending on what your interest rate is and your total credit line is also.

ING would be my emergency plan. Keep the money easily accessible. Therefore if you need to pay the card off you can or if you need the cash it’s available without restrictions.

They all look like decent offers, just read the fine print and make sure you are aware of the fees if any. The best way I have got around the cash advances are the following. Tell them you want a check made out to yourself to pay off your creditors. Citi will send the check to you in your name and you can deposit it. Other option is to take one of the balance transfer checks they send you and write it out to another banking institution that you have a checking/savings account at and deposit it there. Don't take a Chase balance transfer check and deposit in your Chase checking/savings. I haven't done that yet but the fine print basically states it’s not allowed.

Some checks the banks send out will state directly on them "cash advance". I don't recall ever seeing one with a good offer though.

One more thing. Always make sure you have a zero balance on the card before you act on any of these offers they send you. Credit card companies will always apply your payments to the lowest interest rate balance first.

Example: You have a card with a $10K limit. You have a standard purchase rate of 18%and your current balance is $6000. You get a 0% offer with no fee and decide to use $4000 of it to make your total balance now $10K. Your monthly payment is $200. At the aforementioned rates you are paying approx $90 in interest alone (interest is on the $6000 only). The other $110 is going towards your 0% balance of $4000 not the $6000 balance that all the interest in accruing on. Hope this helps.

Originally Posted by Rawr

Is it possible to call Citi or Chase and ask them for this offer and a high limit or do I have to wait for the right letter.

And if the sh*t hits the fan and the rate goes from 0% to whatever, what is the emergency plan?


problem is it says no cash advances on any of them, is this basically no go then or does a blank check banks send not count as cash advance?

1. You can call a credit card company at any time and ask for a credit increase. You are the customer- and you are doing them a favor. Remember- they are anticipating that you make late payments on balance transfers- so they generally love nothing more than to increase your credit limit! ...I call my credit cards every couple of months and ask for an increase. Currently I have close to $150k available between 4 cards.

2. As for an "emergency plan"- you should know ahead of time when the special rate period is up and plan accordingly. Maybe this means paying it off in full, or maybe it means doing another balance transfer! When I use a balance tranfer, I immediately set up autodrafts out of my account.

3. There is a difference between a balance transfer and a cash advance. The checks that you get in the mail are generally considered cash advances- but it is best to call the CC company and get their definition of which is which so there is no misunderstanding. ...Even if they only offer a special rate for a balance tranfer, you could rack up the other card and then transfer the balance!