easy money

[Anonymous]

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ByrdMan wrote:
The only way that this could make sense is if the OP held over that 3K (see I can do it) to make the payments or whatever the minimum is going to be, and not put it in a CD. Then recalc the return based off of $22,000. Otherwise, they have created a monthly debt of $250 or more just to earn less than $1,000. What if the minimum payment is 2%? That's 500 per month or 6,000 per year. To earn 4% on $19K. To each his own, but this doesn't make sense to me.

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Exactly right.  So either you'd want to place the $3K or $6K or however much the monthly payments will total into a savings account of some sort so they'd be available instantly for the minimum payments (or if you already have an additional amount in savings that could certainly work, and would allow you to put the full $25K in the CD). 

So if you end up putting a smaller amount in the CD, then this would certainly need to be factored in to the overall interest that'd be earned.

It may reduce the overall "profit" amount enough that this wouldn't end up feeling worthwhile - but it would be very unlikely to result in a negative gain, unless other mistakes are made

Arbitrage does depend on a thorough mathematical analysis to see if it will be worth the gain, and then very careful execution to make sure no mistakes are made an unnecessary fees are inccurred.  Personally I'm not sure that I could handle the stress enough to make it worthwhile, but it's certainly possible to execute successfully!

Good luck OP if you do end up doing this - let us know how it turns out

[Anonymous]

Well in defense of the OP perhaps she was just curious or perhaps she just wanted to start a great discussion! (I myself have been known to ask questions just to spur a debate)

And again I apologize for my "incorrect assumption" that the OP would not be able to afford the monthly payment and would default on the card.

I may have also incorrectly assumed that she intended to pay off the entire $25K balance in a year and thus her expected monthly min payment would be lower.

In my defense I based these assumptions on the risk vs. gains of the scenario. Going $25K into debt to make a $1K profit in a years time??? Sure in theory it could work and Im not saying there aren't CD's with 4.5% interest rates or credit cards that offer 0% cash withdrawal with 1yr terms... anything is possible.

Also I would like to explain a bit about my DrPepper theory... I didn't mean that as an insult to anyone's investment abilities but it I used it as an example the other day at work to show the value of some stocks right now. Sometimes putting something in "tangible"terms is what it takes to show someone the true value of something.

What I meant by it is short term investments are NOT doing well right now and the value of stocks plummet every afternoon - and while I understand the original question ways based on CD's there is a correlation.

Certainly if I had an extra $250 -$3500 to invest every month I would be putting as much of it as possible into a 401K or an IRA. I absolutely would  not be using it to pay off a debt that I didn't have to have (I wouldn't use it to buy 5000 cases of DrPepper either)

Bottom line it would be damaging to your credit score and the risks are just exponentially higher than the gains. Lets say all the damage it did was lower your credit score by 50 or 60 points. But what happens if sometime during this year while all of your extra cash is tied up making payments on this card and you end up needing to buy a new car....now your credit is tanked your cash is tied up and your screwed! Anything can happen in a year and I just can't see taking this kind of risk for $1K.

Profits from yardsale/eBay sales one thousand dollars,

Damage to credit score 0 points,

Peace of mind from not being $25K in debt---- Priceless!

[dilligaf_racing]

What credit card company charges a 1% min payment? Does that exist ?

[haulingthescoreup]

BofA still does. When my 0% BT started at $8400, they were charging $84 minimum payment. Now that it's down to $3900, they're charging $39.

Silly Bofa, they're getting $500+/ month whether they want it or not.

[Anonymous]

First it does work.

It is very difficult to walk away with profit. The banks know this and gamble on it. I recommend if someone plans on trying this that they might do it with less money to try it, see if they pull it off correctly with out mistakes. One mess up is very expensive. The bank is betting that you will mess up. Always have enough for 3 payments in your bank account. Don't cut it short.

Another thing that the bank knows is if you need money once you have it you might use it. People are tempted to spend it.

And if all goes wrong, you will owe them money for interest. You need to be able to pay off at least 1 month of high interest from your own savings right away should you mess up. Then cancel the CD take the loss on the early termination of the CD to PIF loan. So to gain $900 from this after taxes $675 roughly you need to have about $700 in savings to cover your risk loss if things don't go as planned. This is separate from the money needed to be held for payments. You are basically risking almost your entire profit for an almost equal gain which is why I stated might try a smaller dollar amount to start with.

But once you get the hang of it,,, the "BT Game" as it's called would have very LOW risk.

Risks not factored but do exist...

Bank decides you extended too far and hits you with a F/R or closes your account, CLD, ect..

Bank goes out of business and FDIC takes a week longer than expected.

You become ill or something and can't close the CD or miss a payment.

BANK FREEZES/SEIZES YOUR ACCOUNT (30 days) FOR ODD TRANSACTIONS... Been there done that!!!

[MattH]

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@haulingthescoreup wrote:

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@Junejer wrote:

Also, for those who will read this in the future, as AmyBoo alluded to, what about the monthly payment that you have incurred that you didn't have before? Assuming that they are only asking for 1%. On $25M, that is $250 per month. $250 x 12 = $3M. Your gross profit = ($2M). Don't forget the 1099 INT that you will owe IRS that pizza mentioned. Not a good idea.

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For those who just spat coffee all over their laptop screens, ByrdMan has a commercial banking background and uses M for "thousand", not for "million."

It makes for startling reading!

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Yep, I noticed that a while back -- took me several postings before I realized what he meant!

[Anonymous]

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@dilligaf_racing wrote:
What credit card company charges a 1% min payment? Does that exist ?

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Citibank wants 1.5%.  I have $7.2K at 0% on a card and they want $108 ($72+$36) as a monthly payment.

[Anonymous]

The most serious problem is your other creditors do a soft on you as a regular check, see you have a maxed out card and take administrative action. Suddenly your utility is skyhigh and your credit lines rockbottom low - your scores are half tanked. Amex pulls your score, cancels your cards, and sends a team of assassins at you for revolving a debt with someone else.

Think it can't happen - read some of the threads on the credit card board - and watch any of the Jason Bourne movies.

[Junejer]

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debtisgood wrote:

The most serious problem is your other creditors do a soft on you as a regular check, see you have a maxed out card and take administrative action. Suddenly your utility is skyhigh and your credit lines rockbottom low - your scores are half tanked. Amex pulls your score, cancels your cards, and sends a team of assassins at you for revolving a debt with someone else.

Think it can't happen - read some of the threads on the credit card board - and watch any of the Jason Bourne movies.

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Love the Bourne movies.

[waqaszm1]

bofa charges a transaction fee of 3% or $10, which ever is greater. On your cash advance of $25,000 - you will be paying atleast $750 in transaction fee !!!