Is it worth keeping credit card debt if you can "beat" the interest rate?

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Topic Author
myrongains
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Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

As of July I would be able to clear a credit card that's at 0% interest, $20k worth. However, my savings account currently yields 4.2% interest, and I have another credit card I can transfer this $20k to for 18 months with a 3% transfer fee, and 0% interest. Effectively this becomes a 2% interest credit card.

My thought is, I don't have a good emergency fund yet. Monthly expenses once I move in July will be $4000/month.

I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.

Is the smart move here, to pay off the credit card month by month after July, while maintaining that minimum of 1 year savings?

I have six figures in my retirement account and between precious metals/jewelry and stocks I have another $75-$100k, but I don't want to liquidate those things for a job loss.
Last edited by myrongains on Thu Jun 01, 2023 2:28 pm, edited 1 time in total.
Jags4186
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Jags4186 »

Seems like a great way to complicate things. I know some folks like to do the credit card 0% arbitrage thing, it's never been of interest to me.
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ResearchMed
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by ResearchMed »

Just how much do you expext to "gain" overall from this strategy, in actual dollars?
And don't forget, the interest rates aren't necessarily fixed over the next 12+ months.

Also, what's with the 3% transfer fee? How is that fitting in? That's *not* pro-rated at 1/12 per month; that's 3% even if you paid it back the next month. That part should be a hard *no*.

And don't forget what the interest rate would become if you continued it past the "zero" rate... probably something in the 2x% or even 3x%? Also, read the fine print VERY carefully. Is it one of those deals such that if you miss even one payment by even $1, suddenly the entire amount become subject to interest for that full time? (There used to be those "deals", but I don't know if they still have that little catch.)

I'd suggest that ti might be more worth your time to do something else, such as increasing some skills in case you do need to look for a new job, rather than dealing with compllicated strategies that don't actually yield all that much.

RM
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Topic Author
myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

ResearchMed wrote: Thu Jun 01, 2023 1:34 pm Just how much do you expext to "gain" overall from this strategy, in actual dollars?
And don't forget, the interest rates aren't necessarily fixed over the next 12+ months.

Also, what's with the 3% transfer fee? How is that fitting in? That's *not* pro-rated at 1/12 per month; that's 3% even if you paid it back the next month. That part should be a hard *no*.

And don't forget what the interest rate would become if you continued it past the "zero" rate... probably something in the 2x% or even 3x%? Also, read the fine print VERY carefully. Is it one of those deals such that if you miss even one payment by even $1, suddenly the entire amount become subject to interest for that full time? (There used to be those "deals", but I don't know if they still have that little catch.)

I'd suggest that ti might be more worth your time to do something else, such as increasing some skills in case you do need to look for a new job, rather than dealing with compllicated strategies that don't actually yield all that much.

RM
Over 18 months it would be a $240 gain. Not much.

3% transfer fee is paid upfront. If you average out the fee over 18 months and then look at it on a per year basis, it becomes 2% APY.

I never miss payments so not worried about that.

I guess if I were to do this I'd have to hold that debt for the 18 months to get my money's worth.. maybe I'll reconsider.
WhiteMaxima
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by WhiteMaxima »

No no no. You can not beat that 16-19% CC interest. W Buffet can't. P Lynch can't. You can't.
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ResearchMed
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by ResearchMed »

myrongains wrote: Thu Jun 01, 2023 1:39 pm I never miss payments so not worried about that.

I think what you meant to write was:
"I've never *yet* missed any payments."

What if you end up with some sort of emergency (car accident? emergency surgery?) that interferes with just about everything in your life, and at just the wrong time.
Look carefully at what the interest rate would be, and multiply that out, just for curiosity...

I'm not going to respond to this thread again, because it's not worth my time (= $xero) and I don't think it's likely to be worth *your* time, either, when it's all said and done. And that's if there are no glitches.
Nope. Not my idea of a good use of time and energy, including what could end up being a tidy sum of penalty (depending upon terms) if something goes south.

RM
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hudson
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by hudson »

myrongains wrote: Thu Jun 01, 2023 12:48 pm As of July I would be able to clear a credit card that's at 0% interest, $20k worth. However, my savings account currently yields 4.2% interest, and I have another credit card I can transfer this $20k to for 18 months with a 3% transfer fee. Effectively this becomes a 2% interest credit card.

My thought is, I don't have a good emergency fund yet. Monthly expenses once I move in July will be $4000/month.

I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.

Is the smart move here, to pay off the credit card month by month after July, while maintaining that minimum of 1 year savings?

I have six figures in my retirement account and between precious metals/jewelry and stocks I have another $75-$100k, but I don't want to liquidate those things for a job loss.
I don't understand your math...not that I need to.
I'd clear out the balance on the credit card as soon as it's practical and go no-debt...if possible.
Topic Author
myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

hudson wrote: Thu Jun 01, 2023 1:57 pm
myrongains wrote: Thu Jun 01, 2023 12:48 pm As of July I would be able to clear a credit card that's at 0% interest, $20k worth. However, my savings account currently yields 4.2% interest, and I have another credit card I can transfer this $20k to for 18 months with a 3% transfer fee. Effectively this becomes a 2% interest credit card.

My thought is, I don't have a good emergency fund yet. Monthly expenses once I move in July will be $4000/month.

I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.

Is the smart move here, to pay off the credit card month by month after July, while maintaining that minimum of 1 year savings?

I have six figures in my retirement account and between precious metals/jewelry and stocks I have another $75-$100k, but I don't want to liquidate those things for a job loss.
I don't understand your math...not that I need to.
I'd clear out the balance on the credit card as soon as it's practical and go no-debt...if possible.
I guess I should've mentioned that the balance transfer is a 0% interest offer.
bubbly
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by bubbly »

I’ve seen the phrase “picking up pennies in front of a steam roller” mentioned often on this forum. This sounds like one of those situations.
hudson
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by hudson »

myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
Topic Author
myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

hudson wrote: Thu Jun 01, 2023 2:35 pm
myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
Interesting - yea I figured when reading my post everyone understood I was talking about a 0% interest credit card with 3% balance transfer fee. I can understand some of the disagreeable responses, I'm guessing they assumed I was talking about a 16-25% interest credit card.

The math works out like this:

3% balance transfer fee for $20k = $600. $600 over 18 months is $33.33 per month in interest. Over a year that is $400 interest on a $20k balance, which equates to 2% interest rate over the entire 18 months.

4.2% APY on savings for $20k = $840, or $70/month. Over 18 months that equates to $1260.

Essentially I am holding $20k of debt and being paid $1260-$600 = $660 to do so.
Last edited by myrongains on Thu Jun 01, 2023 2:42 pm, edited 1 time in total.
TheOscarGuy
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by TheOscarGuy »

Jags4186 wrote: Thu Jun 01, 2023 12:52 pm Seems like a great way to complicate things. I know some folks like to do the credit card 0% arbitrage thing, it's never been of interest to me.
Agreed.
Pay off the debt.
This idea does not make sense to me.
bubbly
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by bubbly »

myrongains wrote: Thu Jun 01, 2023 2:41 pm
hudson wrote: Thu Jun 01, 2023 2:35 pm
myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
The math works out like this:

3% balance transfer fee for $20k = $600. $600 over 18 months is $33.33 per month in interest. Over a year that is $400 interest on a $20k balance, which equates to 2% interest rate over the entire 18 months.

4.2% APY on savings for $20k = $840, or $70/month. Over 18 months that equates to $1260.

Essentially I am holding $20k of debt and being paid $1260-$600 = $660 to do so.
You will have to pay taxes on that 4.2% APY while using post tax money to pay the balance transfer fee of 600 dollars, making your margins smaller.

Why not just sign up for a credit card and get the 250-500 dollar sign up credit instead?
fullham
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by fullham »

I have been taking advantage of 0% credit card offers this year, for both personal spend and business spend. Max out the cards and instead of paying full balance I put the money in separate brokerage accounts, one for biz and one for personal and either buy t-bills maturing shortly before the 0% offer ends, or just leave in money market fund. All cards on autopay for the minimum payment each month. I would not do this without making sure every penny for the card balances is set aside. My credit score has taken a big hit but will go back to higher levels once the offers expire or if I need to pay off early if I wind up applying for a loan. I've done this on 5 cards total now. 3 were just promo offers for cards I already had, and 2 were Chase Ink cards that I opened for the 90k bonus offers and the 0% for a year was just icing on the cake.

I would not do the 3% transfer fee offer. One of my Citi cards offered me around 2% interest promo offer that I decided against. Not bothering unless it's 0% interest with no fees.
Topic Author
myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

fullham wrote: Thu Jun 01, 2023 2:57 pm I have been taking advantage of 0% credit card offers this year, for both personal spend and business spend. Max out the cards and instead of paying full balance I put the money in separate brokerage accounts, one for biz and one for personal and either buy t-bills maturing shortly before the 0% offer ends, or just leave in money market fund. All cards on autopay for the minimum payment each month. I would not do this without making sure every penny for the card balances is set aside. My credit score has taken a big hit but will go back to higher levels once the offers expire or if I need to pay off early if I wind up applying for a loan. I've done this on 5 cards total now. 3 were just promo offers for cards I already had, and 2 were Chase Ink cards that I opened for the 90k bonus offers and the 0% for a year was just icing on the cake.

I would not do the 3% transfer fee offer. One of my Citi cards offered me around 2% interest promo offer that I decided against. Not bothering unless it's 0% interest with no fees.
It's pretty much impossible to find cards that have 0% interest with no balance transfer fees as well. Don't think I've ever seen one actually. How are you getting those?
You will have to pay taxes on that 4.2% APY while using post tax money to pay the balance transfer fee of 600 dollars, making your margins smaller.

Why not just sign up for a credit card and get the 250-500 dollar sign up credit instead?
That's a good point, was in the back of my mind but you confirmed that taxes would be paid. I've used up most credit card offers, recently opened Capital One Venture X as well as Southwest.. need to take it easy on those.

Still, I'd be coming out ahead. The only way this won't work is if somehow the APY on my savings account starts going down. I might just do a $10k balance transfer and pay off $10k to lessen the burden.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by TheOscarGuy »

myrongains wrote: Thu Jun 01, 2023 12:48 pm
I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.
First time I am hearing such mental accounting.
OP this is high risk.
Sure you can always justify this as emergency fund but in my mind emergency fund is liquid cash (or close to liquid e.g. savings account) that one can access in case of emergency. I have a 100K combined credit card limit but that does not and should not qualify as emergency fund. I don't even know what my employer will pay me for severance, but you want to be in a position that you don't care -- you have enough emergency funds to get you through emergency. It may not always mean a job loss, how will you access your unemployment and severance in that case?
fullham
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by fullham »

myrongains wrote: Thu Jun 01, 2023 3:01 pm
fullham wrote: Thu Jun 01, 2023 2:57 pm I have been taking advantage of 0% credit card offers this year, for both personal spend and business spend. Max out the cards and instead of paying full balance I put the money in separate brokerage accounts, one for biz and one for personal and either buy t-bills maturing shortly before the 0% offer ends, or just leave in money market fund. All cards on autopay for the minimum payment each month. I would not do this without making sure every penny for the card balances is set aside. My credit score has taken a big hit but will go back to higher levels once the offers expire or if I need to pay off early if I wind up applying for a loan. I've done this on 5 cards total now. 3 were just promo offers for cards I already had, and 2 were Chase Ink cards that I opened for the 90k bonus offers and the 0% for a year was just icing on the cake.

I would not do the 3% transfer fee offer. One of my Citi cards offered me around 2% interest promo offer that I decided against. Not bothering unless it's 0% interest with no fees.
It's pretty much impossible to find cards that have 0% interest with no balance transfer fees as well. Don't think I've ever seen one actually. How are you getting those?

Several Chase cards offer 0% interest for 15 months for new accounts. Freedom Flex, Freedom Unlimited and some of the Ink business cards. I also got emails from Citi and my local credit union credit card of 0% interest for differing time frames. About 6-10 months. This was a few months ago maybe they have stopped at this point.
bubbly
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by bubbly »

myrongains wrote: Thu Jun 01, 2023 3:01 pm That's a good point, was in the back of my mind but you confirmed that taxes would be paid.
I'm not a tax expert but I believe the custodian of that savings account will give you a form 1099-INT at the end of the year which you will need to report when you file your return. The threshold to generate one of these 1099-INT forms is 10 dollars in interest income, which you will be well over.
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myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

TheOscarGuy wrote: Thu Jun 01, 2023 3:06 pm
myrongains wrote: Thu Jun 01, 2023 12:48 pm
I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.
First time I am hearing such mental accounting.
OP this is high risk.
Sure you can always justify this as emergency fund but in my mind emergency fund is liquid cash (or close to liquid e.g. savings account) that one can access in case of emergency. I have a 100K combined credit card limit but that does not and should not qualify as emergency fund. I don't even know what my employer will pay me for severance, but you want to be in a position that you don't care -- you have enough emergency funds to get you through emergency. It may not always mean a job loss, how will you access your unemployment and severance in that case?
Hmm.. that is true, I hadn't even considered that. I will be living in a city and have good medical insurance and home insurance so I'm not quite sure what emergency would strike that would require me to have significant cash on hand. Something to think about, for sure.
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JupiterJones
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by JupiterJones »

myrongains wrote: Thu Jun 01, 2023 3:18 pm I will be living in a city and have good medical insurance and home insurance so I'm not quite sure what emergency would strike that would require me to have significant cash on hand. Something to think about, for sure.
Yeah, life has a funny way of coming up with some pretty original plot twists.

It's also a big fan of irony. "I'm not quite sure what emergency would strike that would require me to have significant cash on hand" is the sort of thing people wind up saying just before an emergency requiring significant cash on hand. :D
"Stay on target! Stay on target!"
exodusNH
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by exodusNH »

fullham wrote: Thu Jun 01, 2023 3:09 pm Several Chase cards offer 0% interest for 15 months for new accounts. Freedom Flex, Freedom Unlimited and some of the Ink business cards. I also got emails from Citi and my local credit union credit card of 0% interest for differing time frames. About 6-10 months. This was a few months ago maybe they have stopped at this point.
The interest rate might be 0%, but transferring the balance over incurs a 3%-5% fee.
Longdog
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Longdog »

I think you should do it. Whether it works out well for you or not, it will likely be a worthwhile learning experience for you. This is especially valuable early in your life and career.

Some points to consider:

1) Realize that even a zero percent credit card requires you to make minimum payments (I think typically 3%), so you’re not earning interest on the entire balance for the entire zero percent payback period.
2) Unlike credit card rewards, the interest earned in an online savings account will be taxable at your marginal tax rate, so you should discount it accordingly.
3) Carrying that high balance will adversely affect your credit score, which may affect insurance premiums. This depends on the state in which you reside.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by fullham »

exodusNH wrote: Thu Jun 01, 2023 3:47 pm
fullham wrote: Thu Jun 01, 2023 3:09 pm Several Chase cards offer 0% interest for 15 months for new accounts. Freedom Flex, Freedom Unlimited and some of the Ink business cards. I also got emails from Citi and my local credit union credit card of 0% interest for differing time frames. About 6-10 months. This was a few months ago maybe they have stopped at this point.
The interest rate might be 0%, but transferring the balance over incurs a 3%-5% fee.
I’m referring to new spend, not a balance transfer from another card. Spend would have 0% interest without any fees. It also depends on the card. My local credit union card let me do a balance transfer with 0% interest and no fee a few months ago.
exodusNH
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by exodusNH »

fullham wrote: Thu Jun 01, 2023 4:14 pm
exodusNH wrote: Thu Jun 01, 2023 3:47 pm
fullham wrote: Thu Jun 01, 2023 3:09 pm Several Chase cards offer 0% interest for 15 months for new accounts. Freedom Flex, Freedom Unlimited and some of the Ink business cards. I also got emails from Citi and my local credit union credit card of 0% interest for differing time frames. About 6-10 months. This was a few months ago maybe they have stopped at this point.
The interest rate might be 0%, but transferring the balance over incurs a 3%-5% fee.
I’m referring to new spend, not a balance transfer from another card. Spend would have 0% interest without any fees. It also depends on the card. My local credit union card let me do a balance transfer with 0% interest and no fee a few months ago.
Right, but OP was asking about balance transfers.

I've been getting 0% card offers left and right, but none have had 0% transfer fees. Last time I got those was back in the early 2000s.
muffins14
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by muffins14 »

myrongains wrote: Thu Jun 01, 2023 2:41 pm
hudson wrote: Thu Jun 01, 2023 2:35 pm
myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
Interesting - yea I figured when reading my post everyone understood I was talking about a 0% interest credit card with 3% balance transfer fee. I can understand some of the disagreeable responses, I'm guessing they assumed I was talking about a 16-25% interest credit card.

The math works out like this:

3% balance transfer fee for $20k = $600. $600 over 18 months is $33.33 per month in interest. Over a year that is $400 interest on a $20k balance, which equates to 2% interest rate over the entire 18 months.

4.2% APY on savings for $20k = $840, or $70/month. Over 18 months that equates to $1260.

Essentially I am holding $20k of debt and being paid $1260-$600 = $660 to do so.
You have to pay taxes on the interest you earn. That means you are not getting 4-5%. It may be more like 2.8-3.6% depending on the actual interest and the actual tax bracket you’re in.

Now you’re either losing money or paying 3% up front to earn 3.6% over a year, pocketing less than 0.6% total. Not a great path. I’d rather just save $120 in some other ways
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srt7
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by srt7 »

I keep getting those offers as well and given the savings/CDs interest rates it does seem tempting. I spent a full minute on it and threw the mail in to the shredder. It's wasn't worth my time to play the game.
Taking care of tomorrow while enjoying today.
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myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

muffins14 wrote: Thu Jun 01, 2023 7:06 pm
myrongains wrote: Thu Jun 01, 2023 2:41 pm
hudson wrote: Thu Jun 01, 2023 2:35 pm
myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
Interesting - yea I figured when reading my post everyone understood I was talking about a 0% interest credit card with 3% balance transfer fee. I can understand some of the disagreeable responses, I'm guessing they assumed I was talking about a 16-25% interest credit card.

The math works out like this:

3% balance transfer fee for $20k = $600. $600 over 18 months is $33.33 per month in interest. Over a year that is $400 interest on a $20k balance, which equates to 2% interest rate over the entire 18 months.

4.2% APY on savings for $20k = $840, or $70/month. Over 18 months that equates to $1260.

Essentially I am holding $20k of debt and being paid $1260-$600 = $660 to do so.
You have to pay taxes on the interest you earn. That means you are not getting 4-5%. It may be more like 2.8-3.6% depending on the actual interest and the actual tax bracket you’re in.

Now you’re either losing money or paying 3% up front to earn 3.6% over a year, pocketing less than 0.6% total. Not a great path. I’d rather just save $120 in some other ways
Well.

3% upfront for 18 months is $600 upfront. Over a single year that is 2% APY.

Now for my 4.2% savings yield APY - assume I'm in the 28% tax bracket. That knocks the yield down to 3.024% APY after taxes. Over 18 months that equates to a yield of $907.

So basically I am gaining $907 - $600 = $307 to hold $20,000 of debt for 18 months.

My thinking is, interest rates are still increasing; the fed hasn't pivoted. What if the APY continues to rise higher and higher. I'm using hard cash to pay off low interest debt in a rather inflationary environment, one where we are on the brink of a major recession. Even though the gain isn't incredible, I'm being paid to hold the debt.

Just how I see the situation. Not sure what I will do, but I understand the sentiment here to just pay it off. Just feel like that leaves me rather exposed in the short term.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Longdog »

myrongains wrote: Thu Jun 01, 2023 7:18 pm Well.

3% upfront for 18 months is $600 upfront. Over a single year that is 2% APY.

Now for my 4.2% savings yield APY - assume I'm in the 28% tax bracket. That knocks the yield down to 3.024% APY after taxes. Over 18 months that equates to a yield of $907.

So basically I am gaining $907 - $600 = $307 to hold $20,000 of debt for 18 months.

My thinking is, interest rates are still increasing; the fed hasn't pivoted. What if the APY continues to rise higher and higher. I'm using hard cash to pay off low interest debt in a rather inflationary environment, one where we are on the brink of a major recession. Even though the gain isn't incredible, I'm being paid to hold the debt.

Just how I see the situation. Not sure what I will do, but I understand the sentiment here to just pay it off. Just feel like that leaves me rather exposed in the short term.
I don't think you're holding $20,000 of debt for 18 months. You'd have a minimum payment of probably around $600/month (3% of the balance), so for an accurate calculation that (or whatever the minimum payment is) should be removed from the savings account each month, thus lowering the interest received. If the minimum payment is 3%, then after 18 months you'd have paid $10,800 back already. At that time you’d lump sum the remaining $9200 in.
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myrongains
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by myrongains »

Longdog wrote: Thu Jun 01, 2023 7:51 pm
myrongains wrote: Thu Jun 01, 2023 7:18 pm Well.

3% upfront for 18 months is $600 upfront. Over a single year that is 2% APY.

Now for my 4.2% savings yield APY - assume I'm in the 28% tax bracket. That knocks the yield down to 3.024% APY after taxes. Over 18 months that equates to a yield of $907.

So basically I am gaining $907 - $600 = $307 to hold $20,000 of debt for 18 months.

My thinking is, interest rates are still increasing; the fed hasn't pivoted. What if the APY continues to rise higher and higher. I'm using hard cash to pay off low interest debt in a rather inflationary environment, one where we are on the brink of a major recession. Even though the gain isn't incredible, I'm being paid to hold the debt.

Just how I see the situation. Not sure what I will do, but I understand the sentiment here to just pay it off. Just feel like that leaves me rather exposed in the short term.
I don't think you're holding $20,000 of debt for 18 months. You'd have a minimum payment of probably around $600/month (3% of the balance), so for an accurate calculation that (or whatever the minimum payment is) should be removed from the savings account each month, thus lowering the interest received. If the minimum payment is 3%, then after 18 months you'd have paid $10,800 back already. At that time you’d lump sum the remaining $9200 in.
Ah, yes you're right. Currently my payment on $19,300 is $215/month. So I anticipate a minimum payment of $300/month.

$300/month over 18 months would be $5400.. so to keep things simple if I took out $5400 from my savings, the total yield over 18 months would be (4.2% * $14,600)/12)*18 = $920. If I went with a more accurate calculation I'm guessing I would end up with maybe $1050 or so. So $1050 * 72% (taxes) = $756 yield.

$756 from savings yield - $600 from transfer fee = $156 to hold onto the debt.. which is probably much more realistic.

Hm. Doesn't look attractive anymore lol.
fujiters
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by fujiters »

If you can get a card with no balance transfer fee and a 0% APR rate (https://www.firsttechfed.com/borrow/credit-cards looks like such an option), I think it's worth the minor hassle for the additional time to invest at a 5+% rate, assuming you have a good series of alerts for yourself such that there's little risk that you won't pay it off in full before the 0% rate ends. I think you're likely to get a better bang for your credit card opening buck, though, from just targetting high sign up bonuses though (if you didn't have to pay minimum payments, you'd make $1080 by investing $20k at a 5.4% rate, so you're capped at around $1k in benefit).

I've been using 0% APR cards to pay for my expenses lately (not transferring balances, just using the rate on new purchases), and investing the difference in payments into box spreads, which are taxed at 60/40 long/short-term capital gains rates (I have enough carryover losses from tax loss harvesting to completely negate those taxes), so I'm able to get ~5.4% after tax (I have enough carryover losses that I'd still have a ton left after applying $3k/year against regular income for decades--and I will likely be in the 10% tax bracket, coming down from 22%, in a few years anyway, so this is as good a use for them as any).
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mesaverde
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by mesaverde »

"The borrower is slave to the lender." Proverbs 22:7

Simplify your life and increase your net worth. Free yourself of this debt (ball & chain). Even if it means moving to a tent down by the river. You'll come out clean & a new person.
"Learn from the past, live in the present, plan for the future"
LambertStrether
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by LambertStrether »

I’m very sympathetic to what you’re trying to do: build emergency savings concurrent with credit card debt. It’s a distinctly unpleasant place to be. I’ve tried different permutations of this myself for a period of time, and it never, ever worked the way I planned. It ended up costing me more in the long run.

You’re starting from a desire for a year’s worth of savings. This is laudable, but I don’t think it’s worth the high-wire act of arbitraging credit card balance transfers. If given the choice between
  • 12 months of savings and $20k temporarily 0% credit card debt,
  • 6 months of savings and $10k in temporarily 0% credit card debt, and
  • 3 months of savings and 0 credit card debt

I’d choose the last one every time.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by TomatoTomahto »

LambertStrether wrote: Fri Jun 02, 2023 5:45 am I’m very sympathetic to what you’re trying to do: build emergency savings concurrent with credit card debt. It’s a distinctly unpleasant place to be. I’ve tried different permutations of this myself for a period of time, and it never, ever worked the way I planned. It ended up costing me more in the long run.

You’re starting from a desire for a year’s worth of savings. This is laudable, but I don’t think it’s worth the high-wire act of arbitraging credit card balance transfers. If given the choice between
  • 12 months of savings and $20k temporarily 0% credit card debt,
  • 6 months of savings and $10k in temporarily 0% credit card debt, and
  • 3 months of savings and 0 credit card debt

I’d choose the last one every time.
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CaptainT
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by CaptainT »

This idea is penny wise pound foolish.
sled777
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by sled777 »

I have never met a millionaire who got rich off a credit card strategy. Pay off the the card and save for an emergency fund.

Play with snakes and eventually you will get bitten.
CaptainT
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by CaptainT »

If instead ypu pay off your credit card bill in entirety every month and use it for 20000 in the same time and use a 2% cash back card you would get $400 + using the Wells Fargo 2% cash back would also get $200 sign up bonus
So 600 total and low risk
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Wanderingwheelz »

When I was working I tried to quickly catch myself before I went down a money-related rabbit hole such as this one. I found it was best to instead spend the time that would have been mostly wasted on matters like this one on something productive that would improve my earned income. I was self employed so it was easier to do that than salaried workers, but I think it still applies.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Sandtrap »

myrongains wrote: Thu Jun 01, 2023 12:48 pm As of July I would be able to clear a credit card that's at 0% interest, $20k worth. However, my savings account currently yields 4.2% interest, and I have another credit card I can transfer this $20k to for 18 months with a 3% transfer fee, and 0% interest. Effectively this becomes a 2% interest credit card.

My thought is, I don't have a good emergency fund yet. Monthly expenses once I move in July will be $4000/month.

I'd like to have a year worth of savings. $20k from the balance transfer + $15k existing savings + $12k unemployment benefits over six months would get me there. Not to mention my company offers a 12 week severance policy which is about $24k after taxes, however I'm not going to rely on that.

Is the smart move here, to pay off the credit card month by month after July, while maintaining that minimum of 1 year savings?

I have six figures in my retirement account and between precious metals/jewelry and stocks I have another $75-$100k, but I don't want to liquidate those things for a job loss.
to op:
1 Boglehead basics per wiki.
a) goal: zero debt
b) pay off higher interest debt first
c) no leveraging, hedging, etc.

2 Simplicity without justification.
3 Simplicity in personal finance investing and structure : per wiki.
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Naris
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Naris »

I've done similar arbitrage with other 0% interest rate cards (usually with higher limits and offsetting against higher interest rates -- i.e., paying off 5%+ interest rate debt with 0% interest now). For me, at least, it's a math question, and I think some of the criticisms you're getting here miss that this can be a perfectly fine way to make some money while improving liquidity. You should be mindful that it'll temporarily depress your credit score while you're holding the balances, so you should make sure that you don't intend to open any new lines of credit during that time period (e.g., if you were looking to buy a house or finance a car during the relevant time horizon, then I wouldn't do it).
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by SovereignInvestor »

Yes I'm doing this right now with 0%, intro spending credit cards. Have about 20K in debt that has another 12 months 0% interest. The 20K I have in cash bot paying the debt is getting 5.3% in USFR so I'm making near 100/ month in free carry. Then in 11 months I take the 21K and pay off the 20K debt and pocket 1K.

Balance transfers are a little less lucrative as you have to pay upfront fee so 3% over 18Months is 2% annual...as opposed to 0% cost of capital.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by MathWizard »

The phrase picking up nickels in front of steamrollers come to mind.

Yes, you can make money doing this, but is it worth the risk?
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by FellsGuy »

SovereignInvestor wrote: Sun Jun 04, 2023 10:04 am Yes I'm doing this right now with 0%, intro spending credit cards. Have about 20K in debt that has another 12 months 0% interest. The 20K I have in cash bot paying the debt is getting 5.3% in USFR so I'm making near 100/ month in free carry. Then in 11 months I take the 21K and pay off the 20K debt and pocket 1K.

Balance transfers are a little less lucrative as you have to pay upfront fee so 3% over 18Months is 2% annual...as opposed to 0% cost of capital.
All these sorts of deals require real precision (which isn't me) and the old is the juice worth the squeeze comes to mind. I know there are people who claim to live off credit card arbitrage on this forum but I'm surprised they don't have better ways to spend their time making a real, sustainable living. And if this is so dead simple and easy why not up the ante so you're pocketing 50K or a 100K per transaction why stop at 1K? I'm not judging just asking.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by WestCoastPhan »

I signed up for a FirstTech Fed card last November. No balance transfer fee and 0% interest for 12 months. I paid my property taxes at that time on a different card paying me cash back, and then transferred the balance (and other charges from that time period) to the FirstTech card. I'll net ~$1000 in after-tax interest through this (I kept the equivalent cash in a HYSA) . I don't typically do the card arbitrage thing, but this was pretty easy.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by ClevrChico »

Credit card companies are giving away 0% cards right now, and it's a great opportunity. I'm putting all my expenses on these, and then putting the money into laddered, brokered CD's. It will make me an extra $900/year.

The last time I saw being doing this regularly was in the 1990's.
Naris
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Naris »

FellsGuy wrote: Sun Jun 04, 2023 10:26 am
SovereignInvestor wrote: Sun Jun 04, 2023 10:04 am Yes I'm doing this right now with 0%, intro spending credit cards. Have about 20K in debt that has another 12 months 0% interest. The 20K I have in cash bot paying the debt is getting 5.3% in USFR so I'm making near 100/ month in free carry. Then in 11 months I take the 21K and pay off the 20K debt and pocket 1K.

Balance transfers are a little less lucrative as you have to pay upfront fee so 3% over 18Months is 2% annual...as opposed to 0% cost of capital.
All these sorts of deals require real precision (which isn't me) and the old is the juice worth the squeeze comes to mind. I know there are people who claim to live off credit card arbitrage on this forum but I'm surprised they don't have better ways to spend their time making a real, sustainable living. And if this is so dead simple and easy why not up the ante so you're pocketing 50K or a 100K per transaction why stop at 1K? I'm not judging just asking.
Are you aware of a mechanism by which I, as an individual, can obtain a non-callable, 0% interest loan for 12+ months of >$1,000,000? That's what it would take to pocket 50k or 100k per transaction. Otherwise, the answer is that I'm already maximizing the size of the profit I can by using the largest 0% loans I'm able to find that a bank will give me (via credit card intro offers). That question strikes me as a bit like going into a thread where people are talking about making $500 on credit card signup bonuses and asking why they don't do sign-up bonuses that pay them $25,000 or $50,000 instead. Sure, people would if they could, but that's not an option, so I don't understand the point of the comment.

As for it being picking up pennies in front of a steamroller, the entire process is mechanical, and you can keep the funds liquid to ensure you can pay them off before the 0% intro APR period ends (which you can set a calendar reminder for when you open the card). Fully liquid accounts are paying 4%+ now, so that's quite easy to achieve on a risk-free, fully liquid basis.

With respect to whether the "juice is worth the squeeze," I'm an attorney at a large law firm and make >$300k in salary; I've calculated my effective hourly wage from taking advantage of these sorts of credit card offers, and it's higher than my effective hourly wage for billing an incremental hour at my job (not higher than what my firm makes, but I personally realize <100% of the marginal amount billed).

EDIT: My initial question isn't purely rhetorical. If there were additional ways to take out more noncallable 0% intro APR debt, I would do that to a virtually unlimited degree. If someone offered me $10,000,000 at the same terms as my last 0% intro APR credit card offer from Chase, I'd take that deal in a heartbeat.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by FellsGuy »

Naris wrote: Sun Jun 04, 2023 11:27 am
FellsGuy wrote: Sun Jun 04, 2023 10:26 am
SovereignInvestor wrote: Sun Jun 04, 2023 10:04 am Yes I'm doing this right now with 0%, intro spending credit cards. Have about 20K in debt that has another 12 months 0% interest. The 20K I have in cash bot paying the debt is getting 5.3% in USFR so I'm making near 100/ month in free carry. Then in 11 months I take the 21K and pay off the 20K debt and pocket 1K.

Balance transfers are a little less lucrative as you have to pay upfront fee so 3% over 18Months is 2% annual...as opposed to 0% cost of capital.
All these sorts of deals require real precision (which isn't me) and the old is the juice worth the squeeze comes to mind. I know there are people who claim to live off credit card arbitrage on this forum but I'm surprised they don't have better ways to spend their time making a real, sustainable living. And if this is so dead simple and easy why not up the ante so you're pocketing 50K or a 100K per transaction why stop at 1K? I'm not judging just asking.
Are you aware of a mechanism by which I, as an individual, can obtain a non-callable, 0% interest loan for 12+ months of >$1,000,000? That's what it would take to pocket 50k or 100k per transaction. Otherwise, the answer is that I'm already maximizing the size of the profit I can by using the largest 0% loans I'm able to find that a bank will give me (via credit card intro offers). That question strikes me as a bit like going into a thread where people are talking about making $500 on credit card signup bonuses and asking why they don't do sign-up bonuses that pay them $25,000 or $50,000 instead. Sure, people would if they could, but that's not an option, so I don't understand the point of the comment.

As for it being picking up pennies in front of a steamroller, the entire process is mechanical, and you can keep the funds liquid to ensure you can pay them off before the 0% intro APR period ends (which you can set a calendar reminder for when you open the card). Fully liquid accounts are paying 4%+ now, so that's quite easy to achieve on a risk-free, fully liquid basis.

With respect to whether the "juice is worth the squeeze," I'm an attorney at a large law firm and make >$300k in salary; I've calculated my effective hourly wage from taking advantage of these sorts of credit card offers, and it's higher than my effective hourly wage for billing an incremental hour at my job (not higher than what my firm makes, but I personally realize <100% of the marginal amount billed).
So I'm getting the math right this financial project nets you $83 dollars a month before taxes and the law firm pays $175 dollars an hour, I see your point! In your tax bracket I'd go with municipals for the float to optimize that yield.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness. | Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”
Naris
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by Naris »

FellsGuy wrote: Sun Jun 04, 2023 12:55 pm
Naris wrote: Sun Jun 04, 2023 11:27 am
FellsGuy wrote: Sun Jun 04, 2023 10:26 am
SovereignInvestor wrote: Sun Jun 04, 2023 10:04 am Yes I'm doing this right now with 0%, intro spending credit cards. Have about 20K in debt that has another 12 months 0% interest. The 20K I have in cash bot paying the debt is getting 5.3% in USFR so I'm making near 100/ month in free carry. Then in 11 months I take the 21K and pay off the 20K debt and pocket 1K.

Balance transfers are a little less lucrative as you have to pay upfront fee so 3% over 18Months is 2% annual...as opposed to 0% cost of capital.
All these sorts of deals require real precision (which isn't me) and the old is the juice worth the squeeze comes to mind. I know there are people who claim to live off credit card arbitrage on this forum but I'm surprised they don't have better ways to spend their time making a real, sustainable living. And if this is so dead simple and easy why not up the ante so you're pocketing 50K or a 100K per transaction why stop at 1K? I'm not judging just asking.
Are you aware of a mechanism by which I, as an individual, can obtain a non-callable, 0% interest loan for 12+ months of >$1,000,000? That's what it would take to pocket 50k or 100k per transaction. Otherwise, the answer is that I'm already maximizing the size of the profit I can by using the largest 0% loans I'm able to find that a bank will give me (via credit card intro offers). That question strikes me as a bit like going into a thread where people are talking about making $500 on credit card signup bonuses and asking why they don't do sign-up bonuses that pay them $25,000 or $50,000 instead. Sure, people would if they could, but that's not an option, so I don't understand the point of the comment.

As for it being picking up pennies in front of a steamroller, the entire process is mechanical, and you can keep the funds liquid to ensure you can pay them off before the 0% intro APR period ends (which you can set a calendar reminder for when you open the card). Fully liquid accounts are paying 4%+ now, so that's quite easy to achieve on a risk-free, fully liquid basis.

With respect to whether the "juice is worth the squeeze," I'm an attorney at a large law firm and make >$300k in salary; I've calculated my effective hourly wage from taking advantage of these sorts of credit card offers, and it's higher than my effective hourly wage for billing an incremental hour at my job (not higher than what my firm makes, but I personally realize <100% of the marginal amount billed).
So I'm getting the math right this financial project nets you $83 dollars a month before taxes and the law firm pays $175 dollars an hour, I see your point! In your tax bracket I'd go with municipals for the float to optimize that yield.
FWIW, my total return is even higher because I'm able to obtain more than $20k (one perk of high salary income is that banks are willing to extend frankly silly amounts of credit limit, and Chase lets you conveniently transfer the credit limits between your cards--including to new 0% intro APR cards--with the result that I've been able to float amounts into six figures via Chase cards between my spouse and myself).
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by patrick »

0% APR cards can come out ahead, but not by a whole lot unless the balance involved is quite large.

5.25% is the highest interest rate I could find for 18 month CDs. That is better than a 4.2% savings account (unless you expect its rate to increase significantly) and also matches the term of some of the longer 0% cards such as the originally mentioned one. Assuming a 30% combined state and federal tax bracket (which obviously varies person to person) this is 3.675% annually after taxes and around 5.56% cumulative after taxes.

Using a balance transfer that charges 3%, the net gain is around 2.56% of the transfer amount.

For purchases, you'd have to compare the rewards rates as well. Cards with 0% intro APRs often have lower ongoing rewards. Assuming you would get an average 4% rewards with other cards but only 1% with the 0% APR card, then you lose 3% in rewards. The net gain is the same at 2.56%.

The above assumes that the money goes on the 0% card at the very beginning of the period, you make the CD purchase at the same time, and you pay off the card at the very end. That might not quite be practical due to the transactions taking a while to post, and you might want to pay it off a little before the end of the period to avoid the risk of the payment coming in late or an unexpected payment cycle calculation. That means you wouldn't collect interest for quite as long, but on the bright side you could instead get the 15-month CD from NASA FCU with a superior 5.45% interest rate.

If you want to be really aggressive, you could probably get more from new account bonuses.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by SovereignInvestor »

With all due respect a lot of bitter responses.

It is minimal effort to park all my cash in short term treasurys and then have a reminder like 1 month before the CC into period ends to pay it off or transfer balance new 0%, APR card.

It is a non trivial amount of money 1K...even to the poster with 300K income it likely is worth it.

If someone makes 10M a year and profits 1K off of this it may not even be worth it. But for the rest of us 1K with minimal effort of setting a reminder and using the same CC for all transactions,, isn't that hard.
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Re: Is it worth keeping credit card debt if you can "beat" the interest rate?

Post by EnjoyIt »

myrongains wrote: Thu Jun 01, 2023 2:41 pm
hudson wrote: Thu Jun 01, 2023 2:35 pm
myrongains wrote: Thu Jun 01, 2023 2:28 pm I guess I should've mentioned that the balance transfer is a 0% interest offer.
I understand 0%.
I'd go for the best deal.
I really warm up to interest that gets paid to me. Paying interest gives me great heartburn.
I didn't get the debt-free fever until my 50s.
I don't mind making a few clicks to make a few dollars. (Fidelity Rewards Visa Card and the like.)
Interesting - yea I figured when reading my post everyone understood I was talking about a 0% interest credit card with 3% balance transfer fee. I can understand some of the disagreeable responses, I'm guessing they assumed I was talking about a 16-25% interest credit card.

The math works out like this:

3% balance transfer fee for $20k = $600. $600 over 18 months is $33.33 per month in interest. Over a year that is $400 interest on a $20k balance, which equates to 2% interest rate over the entire 18 months.

4.2% APY on savings for $20k = $840, or $70/month. Over 18 months that equates to $1260.

Essentially I am holding $20k of debt and being paid $1260-$600 = $660 to do so.
4 points:

1) The transfer for 3% is a waste of your time. Don’t do it. If interest rates go down you may find yourself losing money especially considering taxes paid.

2) If your going to play this game at the very least get into some money market funds that are earning 5%. Check out VFMXX as an example.

3) You need to compare the 0% interest card for purchases to a different card that can earn you cash back. At the very very least you can earn 2% cash back on purchases with a new fee credit card. You don’t get that with the 0% card which also cuts into your profit some. 2% cash back is tax free. Interest from a bank is or money market account is pretax so you need to deduct taxes from your math. Believe me you’re not making as much as you think from this adventure.

4) Your probably far better off signing up for 2 credit cards with good bonuses for a certain amount of spend. You can easily find something that will return 7.5% or way more cash back. Again, cash back is tax free.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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