( Or how to turn the tables on the credit card guys who bank on you not reading the fine print! ) Become a Complete Fool
For more than two years I have happily been making money by utilizing the credit card issuers "game" against them. Now, before you read any further, this strategy is NOT for everyone...in fact, it's not for most people. However, if you have a decent credit score, are free of revolving credit card debt (you pay 100% of your credit card charges every month), are generally debt free and you have been receiving those ubiquitous "0% fixed APR" credit card checks that you can use to write yourself an instant loan...and, if you have financial discipline...then you might want to listen up. (If you are not in that camp, then read some of the great articles about credit card debt by Selena Maranjian and begin to make the journey that will get you there.)
Will this strategy generate big bucks? Not really, but for the small amount of time it takes, you can make some money...and get a GREAT amount of satisfaction in knowing that you reversed the infamous P. T. Barnum adage about a sucker being born every minute on the very guys who count on it to make them money.
Here's how it works, using the two last two examples that showed up in my mailbox this:
1.Received two 0% fixed APR offers from two credit cards I have ( up to $23K on one and up to $25K on the second ). Their offer was almost identical�cash the check and write yourself an instant 0% loan. The only apparent catch ( in the fine print, of course ) is that I would pay a 3% fee on the loan, but no more than $50 ( the second card was a maximum of $75 ).
2.The length of the loan appeared to be almost six months...until one read the fine print very closely. Specifically, I could deposit the two checks on November 15 and the 0% rate would hold "until the first day of your billing cycle that includes May 1, 2006". Translation-if my normal billing cycle begins the 20th of the month, then the 0% disappears on April 20, NOT May 1 ( as they hope you will misread/misunderstand ). So, the loan turned out to be about five effective months in length. If you read it wrong and pay late, you get a huge interest penalty-They win!
3.Cashed the two checks for a total loan of $47,000 and immediately sent the money to an account at Emigrant Direct which earns 4% interest. Now, you will note that I left a bit of room on each card ($47K loan versus $48K possible ). Why? Well, don't forget the $125's in fees they tacked on ($50 + $75 ). Another of their "gotcha's" is that if you write the check for the full loan amount, the fee will put you over your limit, which triggers a reversion to your "normal" interest rate (6%-19%+, depending upon your credit rating, etc ). They win!
4.Put the credit cards in question in a drawer immediately and lock them up until the deal is over. Once again, the key is not charging anything to the card, which might trigger additional or penalty charges, cause if you do, they win!
5.Went online and set up the ability to pay online in order to avoid another potential pitfall--lost or late mail, which will trigger interest penalties. They win! While it is possible in many cases to set up automatic minimum payments to each card loan, I chose to do it manually each month, just to be sure (hey, garbage in, garbage out) and to monitor the situation for both my payments and any erroneous interest charges. So far, no glitches have happened, but better safe than sorry.
6.Still another "hook" some of these guys can get you with is the "Universal Default Clause", a practice that I find almost unethical and one that should be made illegal. This nifty little gizmo may trigger interest penalties for a change in your credit score (when, for example, your debt to available credit suddenly skyrockets, possibly caused by this strategy, or even when you are late with a bill to another lender). Now, neither of these things has happened to me in the past two years, however, read your fine print, and when in doubt, call the card companies 800 number and get clarification on these issues...being sure to note down the name/date/time of the info...'cause if this clause is there and it triggers, they win!
Footnote: If this were to happen, the first order of response would be to call/complain loudly and say that if no relief is given, you will pay off the loan and cancel your card. They hate to lose card customers!
7.Other caveats include being sure that the amount you can get a 0% loan for is large enough to offset any upfront fees and is worth the time you expend and be sure that online funds transfers/payments are free.
Gross interest earned on $47,000 at 4% for five months will be about +$783;
Less interest lost due to paying the monthly minimum payment (about 2% of balance) for 4 months ( you pay the remaining balance at the end of the fifth month )...-$31
Less the upfront fees and the interest they could have earned at 4% for 5 months...-$127
Net profit: $625
Initial reading/setup time (not necessary again after you have set this up for a given card)* 1.00 hour
Monthly online maintenance/payment for these two accounts( � hour X 5 )1.25hour
Total Time- 2.25 hours
*Initially your time on this setup/learning curve may be higher, but once you've done it for one card, the learning curve kicks in and setup time tends to decrease.
Hourly wage rate ($625/2.25hrs ): $277.77
Average annual earnings from this strategy the past two years: $3900
Now you would think that these guys at the credit card companies would wise up and stop sending me these offers?! Nope! In fact, these latest 2 offers came from companies where I just paid off my balance on their previous 5-month, 0% loan deal! The good news is that I will continue to take all the "free" money they will send me and continue playing "banker" to the bankers ( in one case I took $67,000 at 0% and then put it in a CD at the same bank!).
The bad news is that if they are still sending these offers out after more than two years, then they must be working (i.e. there are enough folks triggering the special interest penalties to offset the losses to guys like me). My advice....if your circumstances allow it.....outfox the bankers at their own game! Sure, you won't get rich doing it, but where else can you earn $277/hour and get such great psychological rewards as well?! You win!!
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( Or how to turn the tables on the credit card guys who bank on you not reading the fine print! )
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