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Okay, so I’ve been giving this whole credit card arbitrage some serious thought. I like Budget Freak‘s explanation of credit card arbitrage, so for anyone not familiar with the term, I’ll just steal his introduction:

“Simply put, credit card arbitrage is borrowing money from a credit card company using a 0% balance transfer offer, putting that money into a high yield savings account for the length of the 0% promotion, then paying off the original loan and pocketing the interest. Taking out $10,000 with 0% interest for a year and putting that into an account earning 4.5% APY, you’ll earn (before taxes) about $450. Now, there are a TON of issues to consider, and this scheme is NOT FOR EVERYBODY.”

Essentially, you have to be really on top of your finances, because if you miss ONE payment, you can kiss the 0%APR good-bye, and you’ll start paying around a 30% APR. As you can imagine, any interest you gain from the balance transfer would be quickly negated by finance fees and/or insanely high APRs. Plus, your credit rating will take a hit from having such high utilization of your credit cards, so you shouldn’t consider playing the balance transfer game if you plan on applying for any loans within the near future. Sadly, I am in no position to apply for a mortgage anytime soon, so I can stand a year of lowered credit.  Also, I’m really anal about keeping track of my finances, and I’ve always paid my bills on time, so I’m not worried about the added pressure of 1-2 more bills. I’ve been reading up on CC arbitrage for over a year now, and I think it would be a fun source of extra income. Haha, fun!! Can you believe I just said that?

Here’s my current CC situation. I have one card giving me 5% on groceries, gas, and drug stores. I get 1% cashback on everything else. I’ve been looking into supplementing this with an mTVu card (for college students), to get 5% back on restaurants, bookstores, movie store rentals, etc. I also wouldn’t mind applying for the REI credit card, so I get a full 10% dividends on all my REI purchases (they only give 8% back if you use a non-REI CC), plus they are giving a $40 REI gift card as a sign-up bonus for a limited time.  I’ve been considering applying for the REI card for a while, but that $40 gift card is really calling my name now.

I figured while I’m dinging my credit score with another hard credit pull or two, I might as well apply for a few more credit cards all in one shot. And that is when I started seriously thinking about credit card arbitrage. Thanks to the wonderful lists compiled by the PFblogging community, I know of a few cards currently offering 0%APR on BT’s with no balance transfer fees. My Money Blog has the Best Pre Screened 0% Offers, Five Cent Nickel keeps an updated 0% balance transfer list, and Blueprint has a nice list of 0% balance transfer cards.  The top two contenders are Citibank and Discover. Since I don’t have a card from either company, I was considering applying to one of each, requesting an insanely high credit limit, and then going from there.

But there are a few kinks in the plan I have yet to work out. First and foremost, is how on earth do I get the balance transfer once they’ve credited it to my account.  Everyone talks about how easy it is to request balance transfer funds from Citibank.  You simply request a check (made out to you) through their website. Easy peasy. However, there is a bit more hassle involved with BT’s through other companies. For the Discover card, and most other credit cards, you would have to transfer the balance to another card with no balance, and then request a refund from that card.  Again, receiving credit refunds seems to be a piece of cake from Citibank — but here’s the catch, I don’t currently have a Citibank card. I have an MBNA-converted-to-BofA card, a really low-limit HSBC card, a Capital One card, a Wells Fargo card, and some other store-specific cards. The only one with a huge limit is the MBNA-converted-BofA, but I’ve heard horror stories about MBNA rejecting large credit refunds associated with balance transfers. I seem to also remember hearing that Capital One isn’t very balance transfer friendly either.

So, I can apply for a BT through Citibank easily enough, by requesting the BT in the form of a self-addressed check. But how do I get the funds if I apply for another card, like Discover? What credit card do I use as a vehicle for receiving the balance transferred?

Hmm. I have a few days to think about it, if I want to hop on that REI offer. I could always just apply for the Citibank card for now. But of course I’d like to maximize my profit and get as many offers as I can feasibly keep track of.   Maybe now that my MBNA card is managed by BofA it won’t be a problem. Or maybe I should look into some of my other cards — I wonder how Wells Fargo would handle a balance transfer request?

One Response to “Tinkering with my credit cards”

  1. Anonymous says:

    Highly Recommend Citibank

    Hi There-

    This is the BudgetFreak. I HIGHLY recommend the Citi Cards. I originally applied for the Citi Platinum Select Card, but a couple days later, they offered my a Citi Professional Card with the same 0% offer, with no additional credit pull. Obviously, your mileage may vary, but at least for me, I got a two-for-one deal. Then, when they sent me the cards, one of them had an additional $1,200 limit on it!

    The biggest advantage for me, was that they would mail me a check. You can even request it through their website, so you don’t even have to talk to anybody.

    I’m normally a huge Discover Card fan, but for balance transfers, I think Citi’s the best.

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