Credit Card Arbitrage: Making Money from Balance Transfer

Using it wisely, you can make hundreds or even thousands of dollars from credit card arbitrage. Here’s how you can profit from free loans from credit card companies.

A couple of days ago, I received an email from Mike regarding my credit card arbitrage:

I was just wondering how you were able to get 100 K onto your credit cards (cash advances??) … I transfer every $ from my credit card bills (i buy everything i can with credit) to a 0% card then put that cash (that i would have used to pay my credit card bills) into a high yield savings, but that limits me to whatever i can purchase for the month, i would like to quickly utilize all of my 25K worth of credit (on credit cards currently owned), rather than only 1-2K per month which is too slow when 0% APR only lasts for 12 months.

First of all, it’s a misperception that you have to have a balance in order to make the transfer. No, you don’t have to. The money can go to any where that accepts check payment as long as the credit card company can issue you a check. However, it’s important you should be able to get the money you transferred once the check payment is made so you can save it in your bank account and earn interests. That’s the whole purpose of the game.

Before I go ahead with how I play the credit card arbitrage game, here’s a word of caution: Credit card arbitrage is not for everybody. If you can’t resist the temptation to spend thousands of dollars *easy money*, it’s not for you. If you have history of late in making payment, it’s not for you either. You don’t want to get into a deeper trouble by trying to make a small profit.

OK, now the complete process of making money from balance transfer:

1. Get a credit card with 12-month 0% APR balance transfer promotion

If the only purpose of getting a new card is to use the interest free period to make money, then length of the promotion period is the key. There are many cards offer a 12-month period with 0% introductory rate. Any period that’s shorter than 12 months is less desirable, unless you can use the card even without the 0% rate. For existing cards, however, a shorter term such as 9 months or 6 months is acceptable, but you need even larger amount to make up the fees. The shortest term I had was 4 months.

2. Request a convenient check to transfer balance

Not all issuers send out convenient checks right after the card is issued. If the promotion period starts from the time a balance is transferred, you can wait till the condition is right (such as the interest rate of your savings account if you expect it to go up in the coming months). I know Discover Card’s promotion starts when the card is issued. If that’s the case, do the transfer immediately after receiving the card.

To expedite the process, call the issuer when the card arrives and request a convenient check. It’s better to get a blank check, but there are credit card company requires your name and the amount you want to transfer be printed on the check before they can send it to you. Once the check is in, just deposit the money into your bank account.

3. Or make the transfer over the phone

If you feel comfortable, you also initiate the transfer on the phone and have the money sent to your bank account directly (you have to provide your bank’s routing number and your account number). I did that a couple of time with Bank of America and Chase which already have my bank information from the online bill pay.

Things will a lot easier if you transfer the money right to your bank account, but that’s not always the case. For instance, last year Discover insisted I can only use the money to pay balance on another credit card. If this is what’s happening, it’s less desirable but still doable if you have cards that can issue refund for over payment. Check out my previous post on how to use Citi card to transfer balance.

4. Consolidate credit limits to get the most out of the deal

It would be impossible for me to have $100K in balance transfer without some consolidations. If you have multiple accounts with the same issuer, you can get the most out of the deal by consolidating your existing credit limits. All you need to is call the credit card company and tell them to move credit lines from this and that card to the card with 0% offer. Just move the credit lines, but don’t close the accounts as they are likely to be older than the card you just got. When the game is over, you can always move the lines back to those cards if you wish. I have done credit consolidations before and it’s quite easy to do.

5. Don’t spend the money and don’t buy stocks with the money as well

Nobody can predict where the market will be one year from now. If you don’t have other funds to cover the balance when the transfer expires, you will have to sell your stocks which could be losing money at that time. Just save the money in a high yield savings account. There are plenty of online savings accounts offer 5+% interest rate. Keep the money in liquid accounts so you can have an easy access. In case something unexpected happens (like late in making payment), you can pay the money back right away.

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6. Pay more than the minimum on time every month

If you are late in making minimum payment, even once, you are screwed. So make sure you give enough time to let your payment hit the card ahead of the deadline. And paying the bill online instead of mailing a check can reduce the risk of late payment. In addition, adding $10 more to the minimum payment is always a good practice.

7. Confirm the payoff date

Call the issuer one month early to confirm the last day the balance has to be paid off to avoid any financial charge. Don’t just assume the date on the offer letter is the deadline. Also, since transferring money via ACH usually requires at least three business days before the fund settles, give yourself enough time to arrange the money and pay off the entire balance without any delay.

Finally, there are a couple of items that you should be careful when playing the credit card arbitrage:

  • Think twice before getting a new card for balance transfer if the fee depends on the amount transferred (such as the 3% fee that Citi charges). The profit will be eroded even if you can get 5+% return from a savings account.
  • Make sure there’s no balance from purchases on the card before making the transfer. Since any payment you make will be automatically used to pay balance with the lowest interest rate, the charge from your regular purchase will started to accumulate interests until you pay off the entire balance, including that from 0% transfer. Edit: And don’t use the credit card until the balance transfer money is paid off either for the same reason (Thanks Tim :) ).
  • Read carefully the deadline on your offer letter. If it says something like “the billing cycle includes August 31, 2008,” then August 31, 2008 is NOT the deadline to pay off the balance and avoid financial charges. Depending on the date of your billing cycle, you may have to give the money back well ahead of August 31, 2008. Call the issuer to confirm the deadline.

Looking for good credit cards to play the arbitrage game? Check out my coverages on

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34 Responses to “Credit Card Arbitrage: Making Money from Balance Transfer”

  1. sunnyview |  Aug 31, 2007 at 8:19 pm

    I enjoy your blog. However I wonder why u don’t put your home equity as your part of net worth?

  2. rocketc |  Sep 01, 2007 at 12:21 am

    Some banks are great about sending a check for an overpayment – chase and citi especially. Some backs are terrible and will send it back to whereever the payment came from – prudential for one.

  3. MoneyNing |  Sep 01, 2007 at 2:55 pm

    Great tips! I am confused about the 6th point (paying $10 more than minimum is good practice). Why is it good practice?

    The only thing I can think of is if you read the balance wrong or something like that but chances that $10 would cover it is unlikely.

  4. Tim |  Sep 03, 2007 at 2:44 pm

    also, the card you get the BT from, you cannot use for purchases unless it is 0% for both purchases and BT; otherwise, your payment will go to the lower interest (i.e. the 0% BT) rather than the charges that are accruing interest, until you pay both off. Presumably, though, you are going to be transferring your limit so you do not have credit left on the card. my chase card was for both purchases and BT, but after the promo ended, chase sent me a new promo that only included 0% for BT, not purchases. sucks, because it is a chase amazon, and i need to buy more stuff from amazon.

  5. glxpass |  Sep 03, 2007 at 10:14 pm

    MoneyNing, the reason for paying above the minimum is mostly one of perception, esspecially if you’ve a large balance. Paying the minimum amount due makes it appear that you can’t afford to pay any more than that. Also, when using credit card arbitrage, it’s best to “stay under the radar” i.e. not to attract too much attention from the credit card company — after all, you’re an unprofitable customer to them. Paying more than the mininum may make you less visible to them and less subject to the dreaded “adverse action.”

  6. Jeff |  Sep 06, 2007 at 12:38 pm

    Two issues I see.

    a) Even with my A+ credit, initially, most credit card companies only approve you for up to 10k if you’re lucky. I’ve even called immediately after approval and they indicated I must wait a few months to increase the credit line.

    b) When you charge more than 30% of the credit line on any credit card, your credit score will go down. Just try it. Take any card you have, and charge 75% of the entire credit limit to it. You will see your credit score go down within 1-month as soon as the credit agencies know about it. I’ve done a lot of research on this.

  7. Sun |  Sep 06, 2007 at 4:54 pm

    Jeff: Regarding credit limits, I think it’s true that you will need to wait several months before asking for a credit increase. Though I didn’t ask for any increase recently, I had the same experience before when I tried to get an automatic increase for my Citi cards. It sometimes told me something like I had to wait 3 months since last increase to request a new increase. Actually, if you have several cards (for your case, Chase), you don’t have to ask an increase to make a big balance transfer. You can simply move lines from other existing cards to the new card and do the BT with the new card. I did that with Chase and there was no problem at all.

    Charging more than 50% of the limit on a card has a negative impact. But from what I see, credit score calculation takes into account the utilization ratio which is the total balance over total limit. So if the total limit is high, I don’t think charging a little bit more (for example with BT) on one card will necessarily affect credit score significantly negatively. Of course if you have only one card, that’s another story. I have obtained multiple copies of credit score in the past couple of years and some don’t show any downside of high utilization ratio. Plus, any negative impact will be short term. As soon as the high balance is paid off, the credit score bounces back immediately. So I am not too worry about the ratio.

  8. Sun |  Sep 06, 2007 at 4:55 pm

    sunnyview: The reason I didn’t anything related to house (as well as items related to cars) in the net worth calculation is that I don’t know the market value of the house. Thus, including it could artificially inflate the number if I can only guess how much the house is worth. Instead, I choose to focus on the assets and liabilities that I can manage such as investments and credit card bills. Those are that I can control.

  9. Victoria |  Sep 17, 2007 at 11:58 pm

    Its more for Charging the limit on a card has a negative impact. But from what I see, credit score calculation takes into account the utilization ratio which is the total balance over total limit. So if the total limit is high, I don’t think charging a little bit more on one card will necessarily affect credit score significantly negatively.