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Thinking of Getting Back Into Credit Card Arbitrage

Published 10/18/07 (Modified 3/9/11)
By MoneyBlueBook

After spending some time on the sidelines, I think it's time for me to get back into the whole 0% balance transfer game, also known in some circles as the App-O-Rama (insert ominous lightning and thunder crack). 8O

The App-O-Rama Game - What Is It?

For those of you unfamiliar with the concept, the App-O-Rama (more formally known as credit card arbitrage or balance transfer arbitrage) is a way to generate money through the calculated use of interest free credit card balance transfers. The process operates by you opening numerous credit cards that offer special introductory 0% APR balance transfer rates. The introductory period is often up to a year long, during which time you deposit the balance transfer funds into a high yield savings bank account. Essentially you are making money from borrowed money for an extended period of time. At the end of the introductory period, you promptly pay everything back in full and you pocket the savings interest as profit.

The process requires prior preparation and may be difficult for some people to automate and pull off without a hitch. Participation is certain to negatively affect your credit score in the short term and there are also many hidden dangers as well so it's certainly not suitable for some people. It is definitely not recommended for those people who need to maintain excellent credit because they are planning on buying a new house or car in the next 12 months. It is also not recommended for those who are disorganized or are unable to handle the responsibility of using and paying off credit cards.

But for others, if you do your research and plan everything carefully and thoroughly, credit card arbitrage can be a great way to earn remarkable and relatively effortless profit. The more credit you are willing to take on and transfer, the more you''ll earn in interest.

Preliminary Steps Before Beginning the Credit Card Arbitrage Process

I am still in the initial preparation stage. Before I start the App-O-Rama, I need to first complete several preliminary steps:

  1. Request and examine my free credit report - Before I begin I need to know my current credit status. By requesting and examining my 3 credit reports and free credit score, I can determine how much of my existing credit I am using and my current credit worthiness. This will also allow me to more accurately track the extent of the temporary credit score hit that is bound to occur when I start the process.
  2. Examine and carefully evaluate all future credit-dependent plans for the next 12 months - Participating in the App-O-Rama is certain to ding your credit score at least for the short term. If you plan on applying for a loan to buy a house or a new car in the next year or so, then credit card arbitrage probably isn't right for you. In that case, you're better off keeping your credit score as high as possible.
  3. Research banks and narrow down the savings accounts that will provide you the highest interest rates possible - I'm sort of bummed that interest rates have dropped recently due to the Fed's recent decision since this will decrease my App-O-Rama returns, but all is not lost. There are still banks offering 5% APY interest or more.

I know some people will say there's no free lunch and will think that I'm nuts, but the process really works. I've done it before, although on a much smaller scale. Once I have taken care of this preparation stage, I will write about my experience.

My FICO credit score is currently 750 and due to the terrible housing market, I don't plan on buying a new house in the next few years. How much 0% credit card loans do you think would be reasonable for me to take on?

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19 Responses to “Thinking of Getting Back Into Credit Card Arbitrage” 

  1. David says:

    Your FICO score is 175? I don't know how you are going to get any companies to loan you money! You might want to work on getting that back up to a reasonable level.

  2. Raymond says:

    Haha...I am so sorry. I made a big typo. I meant to put 750. It must have been during my afternoon coma when I wrote it.

  3. raymond says:

    that is true. App-O-Rama could really help those people that are having trouble with their credit cards

  4. sharkman says:

    Q1: Wondering how you have been scoring with your investment so far?

    Q2: If you're doing a balance transfer, I thought you had to have another debt to transfer to the card? Are you doing a 'cash advance' on the card to get your funds without fees? I'm just not clear where exactly these funds you're depositing are really coming from.

  5. Raymond says:


    If you're referring to my balance transfer funds, the bulk are residing in my high yield savings account earning interest. Yes, interest rates have dropped, but they are still earning something.

    As for cash advance and balance transfer, their difference lies primarily in the fees and interest. Cash advances are what you would refer to those convenience checks that your credit card company keeps sending you. Cash advances also refer to the instant cash that you receive when using your credit card to withdraw money at an ATM machine. Because of this instant gratification type access to money, cash advances impose extremely high transaction fees and interest rates.

    Balance transfers are a newer breed way to access your credit limit. They are designed to permit cardholders to transfer higher interest debt from another card onto the lower promotional interest balance transfer card.

    To demonstrate: Let's say you have two credit cards - Card #1 has the new 0% balance transfer offer, and Card #2 is just a regular credit card that you own.

    If you attempt to transfer the balance of Credit Card #2 that already has a zero credit balance onto Card #1 (balance transfer), what happens is that Card #2 now will have a positive credit amount because Card #1's credit limit has been used to essentially pay Card #2. The amount of this positive balance can be withdrawn by asking Card #2 issuer to send you a check for the credit balance. Meanwhile, the balance transfer amount will be carried on Card #1 for the duration of the promotional period.

    Citibank credit cards make things even more convenient by allowing cardholders to simply request a balance transfer check made out to the cardholder without needing a separate credit card debt to transfer from. Thus in the above case, all you would need is a Citibank Card #1.

  6. Denise says:

    I'm not a stupid person, but I don't get it. Let's say I have a card with a $5,000 balance on it. How do I get a 0% balance transfer card and make money off of it. The balance will be applied to the new card and I have to start making payments on it. Where does this free money come from to deposit into a high yield savings? I'm seemingly not the only one confused here.

  7. Raymond says:

    Okay..I might have to talk about this in more detail in a future post...but here's a quick explanation. Let's say you have a card with a $5000 balance on it. You apply for a 0% balance transfer credit card with a total credit limit of $10,000 for 12 months. You shift the $5000 balance onto the 0% card and now you have $5000 at 0% APR. However, at the same time, you shift yet another positive credit balance from your first card onto the 0% card since the 0% card can handle a total of $10,000 credit limit. This creates a $5000 positive balance on the first card, that you can have mailed to you as a check. You take the check and place it into a bank account to earn interest for the 12 month duration of the balance transfer promotion.

    Yes, every month you'll have to pay the minimum balance off of your 0% card, but money will still be left over than can be earning bank interest. At the end of the promo period, you take the money from the bank, pay back the balance transfer card, and pocket the rest. That's how you make money from balance transfer arbitrage in a nut shell.

    The money you can make is obviously a lot better when interest rates are higher.

  8. Timothy says:

    Raymond, most credit card companies won't give you a $10,000 limit if you have other outstanding revolving credit though, right? I get the idea of paying off Card #1 with the $10,000 balance transfer card. But if I am understanding you correctly, you are saying that you can take the $5,000 from the card that was paid off, and ask that credit card company to send you a check for $5,000? Won't you be in the same position before the balance transfer?

  9. Raymond says:


    No, because when you take the hypothetical $10,000 credit limit from the newly applied for 0% APR balance transfer credit card and use it to pay off the high interest APR $5,000 owed on another credit card, this $10,000 creates a positive credit balance of $5,000 on the high interest card. This positive balance can be withdrawn as a check and deposited into a high interest bank account to earn money. Of course, this creates a $10,000 owed balance on the 0% APR balance transfer credit card that must be paid back by the end of the promotional period.

    Some card issuers like Citibank have a maximum total credit limit you can have with them. If you want to apply for additional promotional rate cards through them, usually they will require you reduce the credit limits on your other cards so that sufficient credit limit space can be freed up for a new introductory offer credit card.

  10. Timothy says:

    Raymond, thank you. I guess I am still a little confused because even if you take that extra $5,000 from the 0% APR balance transfer credit card and deposit it into a high APR savings account, you still won't have $10,000 to pay off the balance transfer card. Sorry for my ignorance. I guess it would be easier to visualize this in paper rather than in an e-mail.

  11. Raymond says:


    I think I see where the confusion is.... let me know if I'm not getting it right.

    Here's the thing about balance transfer cards...all they offer you is a temporary period to borrow interest free money for a certain period of time..usually 6-12 months. You can utilize the balance transfer funds to pay off your debts and not drown under the burden of high interest charges for the duration of your promotional period. Some people even try to make money for balance transfer by depositing the funds into a high interest savings account to earn free interest.
    Once your promo period ends, you may be able to apply for yet another balance transfer card and keep rolling over the balance onto yet another 0% credit card.

    But at the very end, while the balance transfer card has paid off all the other balances on your other cards for you, the balance transfer card itself still needs to be paid off after all the promotional periods end. If you temporarily shifted funds into a high interest account to earn some free interest, even that money must be withdrawn eventually to help pay off the balance transfer card. Of course the free interest you earned during the entire promotional rate period helps to reduce the final balance owed.

    In the above example, let's say you deposit the $5000 into a high interest account for 1 year for the length of the introductory rate. You've paid off your other card with funds from the balance transfer card. So now you have $5000 positive savings in your savings account and a $10000 owed liability in your $10000 credit limit 0% balance transfer card. The balance transfer card will give you breathing room to slowly pay the liability off over time, but eventually you still owe $5000 (the amount used to pay off that other old credit card you used to have. Of course, let's say your $5000 bank account earns a lot of interest and increases to $5500. Now, at the end of the promo period, you only owe $4,500 on the balance transfer card.

  12. dubbya says:

    Hi Raymond. This App-O-Rama game seems to have some serious pitfalls that haven't been mentioned. I'm not exactly a business expert but I don't think that the math has been well thought out. In your example above if someone has a %0 transfer balance on a $10000 account and can somehow miraculously invest it in a %5 APR savings account for 12 months, they would make $500 profit after paying back the credit card company after the promotional period is over right? But don't forget that credit card companies usually have balance transfer fees (up to 3%) and therefore your fees on a $10000 "%0 balance transfer" would be $300. So a $500 "profit" minus a $300 balance transfer fee means that someone would make only $200 on a very dangerous $10,000 gamble. I would really advise people to reconsider given the risk. In addition, I have not found any cards that have BOTH a 0% balance transfer for 12 months AND zero balance transfer fee (the only one close is ESPN card with no balance transfer fee and 6months 0% interest). Perhaps this game would work better with a high interest short term Certificate of Deposit (CD) account. Still, it would be a big gamble, kinda like Vegas odds.

  13. Mary says:

    Wow, this is really interesting. It took me awhile to understand the concept. I didn't think credit card companies would let you do that ! Thanks for the detailed explanation. So I am looking for a 0% balance transfer offer now to transfer from a Sears credit card a $1900 purchase I just made. So when I go to make the transfer, I can for example, tranfer $6900, which would leave me a $5000 credit on my Sears card. Then have Sears send me a check for $5000, that I then deposit into a high yield savings account. At the end of the 0% promotional period, I pay off (or balance transfer again) the $6900 (minus the required monthly payments), and I've earned x amount of dollars on the $5000. I got it, right?

  14. and says:

    App-O-Rama is more commonly known as stoozing, pop that into google and you'll find a lot more info.

  15. Bullstool says:

    Any fees are not tax deductable, and all interest earned is taxable. This is a low margin game.

  16. Doug says:

    I am the master of all balance transferring and making a ton of money at it. If you have any questions, just ask !!!!!

  17. Doug says:

    I disagree with Bullstool, just claim your credit carding as a business and deduct the balance transfer fees. Who knows if you get audited by the I.R.S. they might disallow the deduction. Oh well you may have to pay it back. But nothing ventured nothing gained !!!!!!!!$$$$$$$$

  18. Tom says:

    I utilized this balance transfer idea a little different. I applied $15,000 to my 5.25% mortgage using a credit card transfer offer with 0% transfer fee, 0% interest for 12 months. I continually roll the decreasing credit card balance every 12 months with a new balance transfer offer. I pay about $400 per month on the credit card balance (the required monthly payment is less but I choose to pay the $400 toward my debt free goals). I save 5.25% on the decreasing $15,000 credit card balance (first year = apx $800 savings) and in addition pay down my mortgage earlier. I refuse to do any balance transfer that requires a fee. I guess the budget would have to allow for the additional monthly payment. The problem I am seeing is that there are less and less balance transfer offers.

  19. Avi says:

    If you have over $100,000 available on your Credit Cards, contact me and I will explain the proper approach to using this so called "FREE MONEY". I also know of other liquid investments where one can place their funds without the lockup restrictions found by using CD"s.

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