Monday, December 3, 2012

Credit Card Cash-Flow Arbitrage

Years ago I noticed that my wife and I have different payment dates on our credit cards. Until recently, I never really thought about the implications of this difference, but it does present an opportunity to “optimize” cash flow.

The following calendars illustrate the differences in our credit card statements.

My next statement will cover purchases from roughly Nov. 16 to Dec. 15, and the payment will be due Jan. 5. I indicated a full week for the payment to illustrate that it is sensible to pay somewhat early to avoid interest charges.

Note that my wife’s credit card dates are shifted forward 19 days. This creates an opportunity that I hadn’t thought much about before, but I’m sure that many people use. For purchases between Dec. 16 and Jan. 3, my wife will have to pay before Jan. 24, but I won’t have to pay until before Feb. 5. Similarly, for purchases between Dec. 4 and Dec. 15, I’ll have to pay sooner.

To optimize cash flow, it’s always better to use one credit card or the other, depending on the date. For us, this is easy to handle because we don’t distinguish between my money and her money. Sometimes I pay her credit card bill and sometimes she pays mine. So, if we happen to be together when making a large purchase, we can optimize cash flow by checking the date and using the right credit card.

As I’ve argued before, the savings that come from paying bills later are modest. So, the main benefit of optimizing which credit card to use is cash flow. Sometimes the financial events going on in your life make it convenient to defer a payment by a couple of weeks.

I tend not to have cash flow issues much because I maintain a cash buffer and save a lot of my income, but I do play little mind games to create artificial scarcity to control my spending. If I’ve shifted cash into long-term savings, I could just take it out again to buy something I want, but usually I treat the money as inaccessible. In this case, credit card cash-flow arbitrage becomes a way to defer a payment until after a pay cheque or dividend payment. Mind games on top of mind games.


  1. Someone could make an Infomercial on this and make a fortune (selling the idea at seminars and such, not actually doing it).

    Playing these kind of games takes: Patience, Forethought and Organization, thus I'm OUT!

  2. Hmm, so I'm not the only one that does these sorts of things :). Yeah it only saves you a few dollars here and there, but for me at least it takes virtually zero effort beyond what I would do anyway. So it's pretty much infinite return on investment.

    By the way, I've found that internet transfers from my bank at one institution to my credit card at another only take 2 business days. I've never had a late payment transferring 2 business days ahead.

  3. @Big Cajun Man: I suppose seminars don't have to make sense: "Get rich quick by spending with your credit card!"

    @Greg: You make a good point that the effort is very low, but my guess is that most people do this to defer payment rather than to save a little interest. I've never had any trouble with credit card payments delayed more than 2 business days either, but I've heard of Americans who claim to have had such problems.