“Good” Credit Card Debt – How-To Play the 0% APR Game, Part 2

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How To Make Money From 0% APR Balance Transfers

(This entry is continued from Part 1.)

3) Getting your money: Some banks such as MBNA, CitiBank, and Chase will allow you to either transfer your balance directly to a checking account or send you a check in the mail. The former is preferred since you’ll be losing potential interest while the check is in the mail and waits to clear.

Update: Citibank cards are by far the easiest to use to turn a balance transfer into cash, because you can request your balance transfer to be sent to you as a check (click for how)!

Another alternative is to transfer a balance from another credit card. This other credit card does not need to actually have a balance for you to do this! What happens is that you will have a negative balance. You can then call up the credit card company and ask for a refund of your “overpayment”. MBNA does not do this anymore, American Express does, and others do too. The best option again is Citibank, which even lets you request a check for your negative balance online.

Added: Note that I am not getting a cash advance, I am talking about balance transfers. Many credit cards offer balance transfers with no fees and 0% APR.

4) Making money with other people’s money: Now that this money is yours, I recommend placing it in an FDIC or otherwise U.S. Government-insured account that earns the best interest possible. Options include a checking or savings account, money market account, savings bonds, or treasuries. You could also invest it in the stock market, say some shares of QQQQ, but this basically amounts to gambling with borrowed money (which is fine for some people, and what margin accounts are for). For a good list of options, please check out my comparison of high-yielding online savings accounts with no minimum balance requirements

4) Counting your money:Let’s do some quick calculations to see how much money we are actually talking about. Let’s say you get a $15,000 credit limit on a 0% APR Balance Transfer for 12 months. If you put this in a 4% APY account, that gets you $600 of taxable interest. This amounts to $450 net for the 25% marginal tax bracket. Not bad for what will probably take you a couple hours to do! Now, you will have to continue making minimum payments on this account, which is about 2% of the balance and will eat into your profits a bit. This is another reason why a savings account is useful – you can just take out what you need for minimum payments as you go.

Update: Here are more Tips and Tools for doing Balance Transfers.

5) Things to watch out for: To be continued in Part 3.

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  1. This is something I’d like to look into, not to earn interest, but to pay my income tax bill over time rather than droping nearly $10K on 4/15/05.

    Do you have experience with using a 0% offer towards another card with a $0.00 balance? Would I run into any trouble, say, calling up American Express and requesting a $10K check for overpayment of a balance that never really existed? I’d like to hear people’s personal, specific experiences before I jump into something like this. But I got a decent offer in the mail the other day for 0% for 15 months on balance transfers, and I’m itching to give it a shot, especially after finally figuring out exactly what my tax bill is.

  2. Is the offer from Chase or CitiBank? If so, then they will actually just write you a check which you can simply deposit.

    If you are going to transfer the money to another card with a zero balance, for the best results I would recommend one of the banks above, and also use the card regularly for a while, maybe racking up a couple hundred in charges. That way, you can simply “overpay” your account by a lot (I have actually done this for real!) and have them issue the money back as a check. This has worked with me with MBNA (my overpayment was real, but by $5000 or so, so basically the same situation).

    Good luck!

  3. I’m familiar with Citibank’s balance transfers where they offer the option of writing a check to yourself for all or part of the balance transfer amount. Actually, all of my credit card debt at the moment is on a Citi card at 2.99% for the life of the balance, as a result of using one of their transfer options. I don’t have enough credit available on this card to pull off what I’d like to do though.

    The offers I’m considering trying this with are from Bank One and Bank of America. One is 0.0% for 15 months, the other 0.0% for 12 months. I’d apply for one of the cards, ask to transfer $10K to an American Express card with no balance, and then request the overpayment back from American Express. I have another Citi card, as well as a Chase card, both with $0.00 balances. I could also ask for the transfer to be made towards one of these cards, if you feel I’d have better success getting the overpayment from Citi or Chase than from American Express. What do you think? And thanks for the tips!

  4. Update: Presidential Bank Checking is now at 3% APY! I have this and it’s a great account.

  5. I found a great for 0% APR balance transfer credit card. there is no annual fee and no balance transfer, called the Chase Cashbuilder card.

  6. Thanks Jamie! Actually that and other cards with good terms are listed in this later MyMoneyBlog post. But keep on the lookout for others!

  7. “5) Things to watch out for: To be continued in Part 3.”

    So where’s Part 3? That’s the part I was most interested in.

  8. Hi, I’m wondering if you could help me clarify a point in my head.

    So, if I have a current credit card with a $150 balance presently on it… and I open up that CitiBank card… then what I would do is ask for a balance transfer from my current card, of WAY in excess of the $150 that is on my current card? And then, I would have a negative balance of the difference, on my new CitiBank card?

    Please clear me up if I’m missing something… I feel a little fuzzy on the actual practical application of this point. Thanks!

  9. Yep. Say you have a $150 balance for whatever reason on Citi #1 (Old). And then you apply for and do a $5,000 balance transfer TO Citi #2 (New).

    Now, Citi #1 has a negative balance of $4,850 (overpayment)

    Citi #2, has a (regular) balance of $5,000 which is not accruing interest. You owe Citi #2 $5,000.

    Then you go to Citi #1 and click “Refund Credit Balance” online, and they send you a check for $4,850. You deposit the $4,850 into an interest bearing account, and.. wa-la! You’re earning free money!

    Hope that helped. Of course, if you’re using Citi, you can usually just request a check straight up to be written to you. This would work better if you had a Discover card or something that wouldn’t do that.

  10. That definitely helped. Now I just have to figure out if the old card (PayPal Visa, from Providian) would allow me to “refund credit balance”. I suppose the whole thing would be scotched if they wouldn’t, eh?

    Would requesting a check be written to you not be the same as a cash advance? It says the 0% APR doesn’t apply to those.

  11. After looking at the online application for the Citi card, I see under terms and conditions that they will send you a “balance transfer kit” when you want to transfer a balance after receiving your card. I called the 800 number to ask them about this. The CSR said that it will have a check that can be made out to another line of credit (cc, loan, etc), but it cannot be made out to an individual. Is this kit what those of you who have done this used? Can you get around this by saying your bank account number is an account number for another credit card? This doesn’t seem as easy as I had thought.

  12. I think you got a uninformed CSR. Do you have online access? Try going online

    Manage Accout > Balance Transfers > Request a Transfer

    There should be an option to simply “Put money in your bank account”

  13. Anybody know the incentive of the bank to offer those 0% loan
    to consumers except hoping they mess up and then charge them
    high interest?

  14. Well, they aren’t necessarily hoping they’ll mess up. They are also hoping you take longer than the first year to pay off the balance, which is easy considering the minimum payment is only 2% of principal, and then they get to charge you interest anyways.

  15. LongBeachCentaur says

    When my “ex” left me with $15,000 in credit card debt many years ago, I used to play balance hopping with the low interest rate offers. In those days, the credit card companies gave customers no-fee balance transfer checks which made it easier to time the transfer out of a card that was about to end its teaser rate. Unfortunately, the banks caught on and stopped providing the transfer checks.

    As for storing your money in the banks, I have to ask why? Banks are paying 1-4%. You can get 5% short-term rate from U.S Government-backed bonds at http://treasurydirect.gov. The interest is subject to federal taxes but free of California taxes. Which means that 5% is the equivalent of earning 5.5% at a bank. Care to mention any banks paying that rate for a 28-day certificate of deposit?

  16. Jonathon-
    In part 2 of your blog, under “Counting Your Money”, you mention that making those 2% payments will eat into your profits.

    How so? The money you borrowed is at 0%, right? Any payment would come right off the principal, reducing the amount owed by that much each month. How does that eat into profits?


  17. Having pay back that 2% each money means slightly less in the bank to earn interest.

  18. I will endorse this method. Came up with it on my own after countless credit card offers in the mail. I have really good credit (800’s) and have transfered well over $300,000 in 0% no fee offers. Typically put in 6mo high yield CD’s (4.5 to 5%). American express actually loaned me $20,000 at 0% for life. just need to make minimum payments. Great way to get back at the credit card and banking industry for the rip-off high rates and fees associated with credit cards. One word of advice, don’t default on the terms, and cancel that card when 0% period has ended. For a while this will help feed your credit score and you will get more offers, until, like me, you have way too much credit. Think I have close to 1/2 million.

  19. Small problem: racking up balances hurt your credit… Also, watch real close for the expiration date of the plans… The cc company won’t tell you, and you won’t get the bill until you’re already into a subsequent billing cycle.


  20. I am ineligible for federal student aid, and therefore, I tried to play the balance transfer game to get lower interest loans in order to finance my 4 year medical school education. I got burned badly. GM Card (Owned by HSBC) has been holding my transferred balances, displaying absolutely no intention to send me a refund check. This has been going on for two months now. So as it stands now, I am paying interest on loans which i don’t even have in my possession. Furthermore, as a student in a full time study program, I have no time or finances to seek legal recourse against HSBC. Let this be a warning to all: If you play the balance transfer game, make sure you have the time and resources to deal with your credit card if it simply decides to keep your money.

  21. Kirsten has a balance of -$564.93 on credit card. She makes a payment of $50.00 to her credit card and on the way home she buys a new pair of shoes for $99.95. What is her credit card balance?

    can any explain me what is the effect of negative balance in credit card?

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