Thinking of Getting Back Into Credit Card Arbitrage
Published 10/18/07 (Modified 3/8/11)
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:
- 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.
- 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.
- 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?