Credit card debt is a common thing for a majority of people in the United States. According to a recent study, the average credit card debt for individuals in the country is $6,194. While credit card debt can be daunting, given the tendency of financial institutions to charge high credit card interest rates, it can be used to make financial profits through credit arbitrage. Read on to learn more about balance transfer arbitrage and how to make profits using free money from bankers.
What is Credit Card Arbitrage?
Credit card arbitrage, also known as balance transfer arbitrage, is borrowing money from a credit card with a low interest rate, usually 0 apr for a promotional period, and then investing it into an account with a higher interest rate to make profits. Common accounts with higher interest rates include a certificate of deposit, money market account and savings account. A customer needs to have a clean credit report to qualify for a cash advance from a credit card company.
Who Can Do Credit Card Arbitrage?
Arbitrage is a safe investment method that anyone above 18 years can conduct, provided they have a credit card. Moreover, the borrower must have a good credit score to qualify for a cash advance from a specific credit card company.
Real Life Credit Card Arbitrage Example
Suppose you borrow a cash advance of $5,000 from a credit card company with 0 apr for 15 months, then invest it in a Nasa Federal Credit Union’s certificate of deposit, which offers a 4% interest rate per annum. At the end of 15 months, you will have about $6,803. If you pay the credit company its $5,000 and deduct all minimum payments, you will remain with a profit of more than $700.
Best Credit Card Offers
Credit card companies always provide promotional rate deals on their credit options to lure customers. To do balance transfer arbitrage, borrowers look for companies offering credit with low interest rates and annual fees. The following are the best credit offer deals provided by credit card companies.
1. Blue Cash Preferred Card from American Express: This card has a $0 introductory annual fee and a low apr of 0% for 12 months from the date of account opening.
2. Chase Freedom Unlimited: This credit card has an annual fee of $0 and 0% apr for 15 months from the date of account opening on any purchases and balance transfer transactions.
3. BankAmericard Credit Card: This gift card has neither an annual fee nor an apr penalty for late payment. It has a 0% introductory apr for the 18 months after account opening and low apr for any bank balances in the first 60 days.
4. Wells Fargo Active Cash Card: This Wells Fargo card has a $0 annual fee and a 0% apr for 15 months from account opening.
5. Citi Custom Cash Card: Citi’s credit card has no annual fee, and the promotional interest rate is 0% for 15 months.
How to Earn Money
There are multiple ways to invest and generate profits using free money from bankers. Nevertheless, the investment opportunities are quite risky, necessitating in-depth insight into the options to make the right investment decision. The following are effective ways to earn money via balance transfer arbitrage.
1. Invest in a Certificate of Deposit
A certificate of deposit (CD) is a safe investment that you can invest in to earn profits using free money from bankers. It is a type of insured savings account regulated by the Federal Reserve. Unlike conventional accounts, money invested in CD is locked for a given period of time to generate returns in the form of monthly interest payments. CDs have higher interest rates, and longer maturity periods pay more interest rates than shorter ones. You can purchase a CD through a bank, credit union and other financial institutions.
2. Purchase Stocks
Buying stocks is an incredible way to make long-term profits using money borrowed from a credit card company. Like buying CDs, purchasing stocks is a safe investment because it is difficult to lose the invested money, and the average stock market rate is about 10% per annum. It allows you to get monetary returns from your investment while increasing your savings and protecting your money from taxes and inflation.
3. Invest in P2P Lending Platforms
P2P lending platforms enable investors to make money from a large pool of borrowers. The P2P platforms allow you to lend people money at a higher interest rate for a specified period of time. The online platforms work as the mediators between you and borrowers to ensure higher returns and the safety of your money.
4. Open a Savings Account
A savings account is a low-risk investment that allows you to make profits on the invested principal. The invested amount is locked for a given period, after which you receive the money plus the accrued interest.
How Much Can Your Make Using Credit Card Arbitrage
The amount you can make using balance transfer arbitrage is dependent on various factors. A higher borrowing results in higher profits. The higher the amount you borrow and invest, the higher your returns, and vice versa. The gains you receive will also depend on your investment’s interest rates. You will earn more money if you invest in an account that offers a higher interest rate. Moreover, the longer the investment duration, the higher the income. Using the same amount, a 15-month investment period will generate more profits than a 12-month investment duration.
Potential Disadvantages of Credit Card Arbitrage
While balance transfer arbitrage is beneficial in making profits using free money from bankers, it has potential disadvantages that make it relatively risky. There is a potential of losing your credit card balance if you fail to make the minimum monthly payments on time. A late or lack of payment automatically results in the loss of the 0% introductory fee, and you will be charged a fine for late payment. The fine will eat into your rewards and also tarnish your credit limit.
Also, you risk losing your investment if you decide to make a withdrawal before the maturity date. Investing in stocks, CDs and savings accounts requires investors to withdraw their money upon maturity. Withdrawal attempts before maturity result in a withdrawal penalty as well as the elimination of any accumulated profits.
Fortunately, there are various ways to avoid these potential downsides. The first solution is to ensure timely reimbursement of the minimum monthly payment to avoid late payment fines. Secondly, avoid withdrawing the invested money before maturity to avoid a withdrawal fine and loss of accumulated interests.
How Many Credit Card Arbitrages Can You Do
There is no limit on the number of balance transfer arbitrages a person can do. You can do as many balance bank arbitrages as the low apr cash advances you receive from different credit card companies.
Earn Money Using Credit Card Arbitrage
Arbitraging credit card loans is an excellent way to make profits using free money from bankers. You can make good extra money with balance transfer arbitrage if you conduct proper research and have financial discipline. Nevertheless, you should be wary of potential pitfalls to avoid losing your investment.
