Monday, December 11, 2006

Credit Card Arbitrage

In my Principles of Economics class today we discussed the possibility for credit card arbitrage. Many credit card companies offer 0% financing for borrowers with high credit ratings. This blogger made several thousand dollars using cash advances and balance transfers to purchase CDs or put money in a bank account. The author could then make 1% or 2% guaranteed return (Bank Interest – Credit Card Fees – Taxes on Interest). However, as he notes he ruined his credit score which would cost him much more by raising his interest rates on loans in the future (if he wanted them) and the offers dried up. This article also misses the opportunity cost of dealing with all these issues. So in the end I do not think it is worth it, on the other the hand I have a low risk tolerance.

One final thought if this was such a great money making opportunity wouldn't the banks know about it.

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