Put your credit card to work

by Rocket Finance

In my previous post, I explained the terms ‘balance transfer arbitrage’ and ‘App-o-rama’. Both strategies are risky, but there are definitely instances where an introductory rate on a credit card can be leveraged in order to give your family finances some breathing room. If you have good credit, if you plan carefully, if you keep good records and if you can follow a schedule, balance transfer arbitrage or even an app-o-rama make a whole lot more sense than continuing to charge up high interest credit cards or taking out a payday loan.

I have executed balance transfer arbitrage several times over the past three years. We have kept $5,000 to $10,000 worth of interest-free loans sitting in our bank account over the last two to three years. I once even did a limited AOR – limited because we only applied for a dozen or so credit cards. (Real AOR’s typically involve close to 50 credit card applications.) At one point, we had over $60,000 worth of balance transfer money in the bank. It is a little nerve-racking to have that kind of money sitting in an account and knowing that it all has to be paid back, but we made quite a bit of interest from that money at a time when online savings accounts were in the 4% to 6% range. I don’t think I will personally ever do another AOR, but if you are considering using credit cards to generate some extra cash, let me familiarize you with a few terms:

Credit Score

Every application for credit affects your credit score, regardless of whether or not you are approved. The reality is that you are selling your credit score. BTA will hurt your credit a little, an AOR will trash it. However, your credit score will recover and then improve a great deal over the months after your AOR. Important: If you plan to apply for financing for a house or car in the next year, do not attempt an AOR.

Cash Advance

You must read all of the fine print on your credit card applications to make sure that you do not trigger a cash advance. Cash advances are never interest free and they are usually accompanied by high fees. Sometimes credit card companies will send you checks that with which to make a purchase, a balance transfer or access a cash advance. Sometimes several checks will come for the same card – and each check will have a different set of restrictions. These checks can be useful, but I always call the credit card company ahead of time to clarify the terms before using one of these checks.


This is where credit card companies have gotten a little smarter over the past 12 to 24 months. There are very few balance transfer offers that do not include fees of at least 3% anymore. What you need to look for are offers with temporarily waived fees or capped fees. If you are transfering a balance of $10,000 and the fee is 3%, you will pay $300 up front. However, if the fee is capped at $75 or $99, this offer could be a pretty good deal. Sometimes, you can beg your way out of paying a balance transfer fee with the customer service rep on the phone – ymmv.

Credit Limit

Never close a line of credit if you can help it. Closing a line of credit hurts your score. Try to keep your overal credit usage between 50% and 75%. Add up all of your lines of credit and then decide how much balance transfer money you can try for. For instance, if you have credit lines of $200K, you don’t want to use more than $100K to $150K.

Liquid Accounts

There are stories of people playing the stock market, purchasing T-bills or investing in mutual funds using balance transfer money. I think this strategy is begging for trouble. Keep the money where you can get it instantly. If you mess up a payment or your investment tanks, you need to be able to pay off your balance quickly. I keep my money at FNBO Direct or ING Direct. (If you would like an ING referral with a $25 bonus, request one via email.) I should not have to say this, but here goes: don’t spend the money.


You need to make sure that you make all of your payments on time. A late payment can trigger fees or an interest rate hike. Credit card companies are required by law to set minimum payments for at least 2% of your balance. I always pay $10 more than the minimum payment. If you only pay the minimum payment, this can hurt your  credit score.

In my next post, I will discuss different techniques for taking advantage of a 0% credit card introductory offer.

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