Credit Cards with Low Introductory Interest Rates
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Post subject: low introductory rates on credit cards
Paul Taylor
Date: 2/13/2001 11:01 pm CDT
I receive low introductory rate offers all of the time. It occurred to me that if I could put borrow money at these low rates and put this money to work elsewhere I could earn the spread. My thought is that I could continue to roll over the one introductory rate when it expires into another card with a new introductory rate. I cannot be the first person who has thought of this, so what is the catch? Will the credit card companies catch on?
Thanks,
Paul
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Ira Stoller
Date: 2/13/2001 11:09 pm CDT
The short answer is that the credit card companies couldn't care less what you use the $$$ for. Many people have figured out ways to make money using credit cards. One of the oldest methods is to buy everything on credit cards. But every time you make a purchase, deposit the amount of the purchase in an interest bearing account. Leave the money there until a few days before your payment is due. Then, of course, withdraw the $$$, make the payment, avoid finance charges, and leave the interest in the bank. If you use a cash-back card, you're a double winner. The flaw? None that I've ever been able to determine, except that you really have to stay on top of your payment dates. The last thing hyou want to do is get stuck with a finance charge.
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dave
Date: 2/14/2001 2:10 am CDT
This is a cool idea. It probably wouldn't be worth it to put the money in a CD or money market account because the spread wouldn't be adequate to justify the hassle. The investment would have to be more aggressive to make it work. If the stock market picks up, you could reasonably make a 15-20% annual return on investments during the same period you are paying let's say in the range of 2.9 to 9.9 on credit cards. Of course, this kind of return is not guaranteed but it is not unrealistic either. On top of that, you could get a higher dollar return if you buy on margin. Even with a margin rate of 10%, you would still be ahead.
It takes some audacity to jump into the market right now but I'm persuaded by people who know alot more than I do that this is the best time to do it. The herd is overselling and the stock prices of high growth companies with record profit margins have gotten so cheap that they can only go up. Of course, the downside of this strategy is that you could lose your *****.
Paul Taylor wrote:
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I receive low introductory rate offers all of the time. It occurred to me that if I could put borrow money at these low rates and put this money to work elsewhere I could earn the spread. My thought is that I could continue to roll over the one introductory rate when it expires into another card with a new introductory rate. I cannot be the first person who has thought of this, so what is the catch? Will the credit card companies catch on?
Thanks,
Paul
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Eugene
Date: 2/14/2001 4:20 am CDT
It probably wouldn't be worth it to put the money in a CD or money market account because the spread wouldn't be adequate to justify the hassle. The investment would have to be more aggressive to make it work. If the stock market picks up, you could reasonably make a 15-20% annual return on investments during the same period you are paying let's say in the range of 2.9 to 9.9 on credit cards.
Dave, I have one word for you: fahgetaboudit. Over the long run, the stock market does outperform cash or anything else, but those introductory credit card rates typically last 9 months at the most. It's insane to invest in stock market if you are going to need the money in less than three years. If you hope for 15-20% returns and base your calculations on that, you grossly overestimate the historic averages of pre-teen returns. Moreover, since you will need to sell the stocks before 12 months, your real return will be even lower after broker commissions and taxes. I'd say there is a good chance you will loose everything: your stock money, your peace of mind, a lot of your time. Because you might not be able to repay the credit card debt, you will also risk your credit and financial freedom. Add margin trading to that, and you will further multiply your risk by the amount of margin. Even a chance of succeeding (which DOES exist) is not worth the risk.
Putting the money on CD or MMA can guarantee positive return but as you said, it might not justify the time, the trouble, and I can add, often throw your credit rating in an unpredictable direction.
I played this game, still have a balance transfer left. In fact, right now I have a very enticing new offer for promo 1.7% APR. I am inclined to pass on it because the simplicity of my life is worth more to me. For now, I'll just settle down with a cash back card and let my current promo APRs expire on me.
Of course, the downside of this strategy is that you could lose your *****.
You bet!
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Paul Taylor
Date: 2/14/2001 10:22 am CDT
I can lend the money out at 12-15% on what I consider to be a safe, longer term investment. So, I am not looking to play the market, but rather take the spread between my cost of funds and what I can put the money out at. My initial question was more aimed at the feasibility of rolling these cards over at the end of their introductory period. How feasibility is this? It would seem to me that after a while the credit card company would see a pattern on your credit report of paying off large balances after 6-9 months and opening new accounts, however they may not catch on?
I have a second question that I did not post last night. I have heard stories of people building up very large balances on their credit cards to finance their businesses. If it were possible to do this on low interest rate credit cards this would seem to me to be another viable alternative if you could not continue to roll the introductory offers over. I have good credit, income and a net worth, how does one qualify for these credit cards with high credit limits, say $50-100K? Is this primarily based upon payment history on the credit card or your personal earnings? How high of balances are common for people to get? How difficult is it to find low interest rate credit cards in the range of 8-10%?
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Ira Stoller
Date: 2/14/2001 10:47 am CDT
"It would seem to me that after a while the credit card company would see a pattern on your credit report of paying off large balances after 6-9 months and opening new accounts, however they may not catch on?"
Pattern? What pattern? You'd be opening accounts with different cards. I did this for years in order to pay off a $40,000.00 credit card debt. I recently counted up the unmber of cards I opened and closed over a 7 year period. It amounted to 38 cards. If you pay your bills they want your business and couldn't care less what you do with the $$$.
"I have a second question that I did not post last night. I have heard stories of people building up very large balances on their credit cards to finance their businesses. If it were possible to do this on low interest rate credit cards this would seem to me to be another viable alternative if you could not continue to roll the introductory offers over. I have good credit, income and a net worth, how...."
Yes, of course people have financed businesses with credit cards. I know of one now fairly substantial business which existed on credit cards for 3 years. It's now very viable and all the credit card debt has been paid off. Once again, if you can make the payments, the banks couldn't care less what you do with the $$$.
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Board Monitor- NK
Date: 2/14/2001 6:36 pm CDT
:::Once again, if you can make the payments, the banks couldn't care less what you do with the $$$.:::
I have to disagree with this. Banks watch accounts. If someone keeps flipping over promo rates, eventually, the promos will stop being offered on the account.
As Ira describes, you'd have to have a large number of accounts to keep riding the promos at that level for an extended period of time. You also need to keep very close watch on your payment and promo deadlines. Most banks now utilize risk pricing models which will cause a late paying account to lose the promo rate entirely.
Kat
creditexpert.tripod.com/home.htm
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Ira Stoller
Date: 2/14/2001 10:34 pm CDT
Kat, we've had this discussion before about walking on water using promo rate cards as stepping stones. If you re-read the rest of my last message on this thread, you'll see that in an approximate four period between 1996 and 2000 I applied for and received some 38 promo rate cards. I would transfer balances from high rate cards to promo rate cards. As soon as a promo rate would expire, I moved the funds to another promo rate card, and close out the account who would no longer offer me a low rate. Some of the banks actually matched their competitors' rates in order to keep my business. I had no objection to that one at all! Low rates and attention to details helped me to pay off a $40,000.00+ credit card debt several years earlier than I would have had I continued with the high priced spread.
Kat, you're closer to this than I can ever hope to be since you're in the business. Here's my simple question: could someone follow the plan that I outlined above TODAY, or have the times and the banks changed to the point where they no longer offer the real low promo rates and will report everything to the bureaus?
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Paul Taylor
Date: 2/15/2001 9:34 am CDT
I guess what I am essentially trying to find out is the answer to your
question.
In getting started I was thinking about doing two loans totaling $30K.
However, my strategy is to get the financing lined up prior to pulling the
trigger on either loan because I do not want the first $15K loan balance to
scare away any prospective credit card companies. However, my question is
when it is time to start rolling these things over, is the company going to
underwrite my income or my past payment history on my outstanding balances?
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posted by CardRatings.com at 9:58 AM
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