Madison over at My Dollar Plan runs an interesting credit card arbitrage scheme (described here). She basically flips a large number of credit cards from one 0% interest introductory period to another.
As of December last year, she owed $223,000 on her credit cards, but she pays less than $1000 per year in transfer fees. She once got hit with an interest charge, but it turned out to be a mistake that she got fixed.
She puts most of this money against her mortgage and into high-yield savings. After factoring in the balance transfer fees, she comes out ahead about $11,000 per year!
One of the many questions that come to mind when thinking about this scheme is where do you find so many credit cards with 0% introductory rates that put up with your game? Well, here is Madison’s list.
Before reading about this scheme, I would never have thought it was possible. Surely the credit card companies protect themselves against this sort of thing, right? Well, my guess is that almost everyone who tries credit card arbitrage would slip up. From what I can tell, Madison belongs to a very small group of people who could pull this off without mistakes.
It’s not hard to come up with ways that this scheme could go wrong. The most serious of them boil down to some change in the rules set by the credit card companies making it impossible to continue getting 0% interest. If this happens, Madison would have to come up with a large sum of money quickly.
Madison is well prepared for this with large cash savings and room on her home equity line of credit (HELOC). But how many people could resist the temptation to spend at least some of the money? Even if the money is invested in the stocks, a stock market drop could make it impossible to cover the entire credit card debt.
Suddenly having to pay 20% interest on a 6-figure sum would be devastating for most people. So, I can’t recommend that anyone try credit card arbitrage. But, I’m impressed that Madison makes it work.