Credit Card Arbitrage: Easy money or Risky Bet? (Luke Schneider)
Credit Card Arbitrage is the process of borrowing money through credit cards with very low interest rates and using that money as capital for investing in financial instruments with higher ROI and making profits through the rate difference. Many credit card companies provide introductory offers on their cards to attract new customers by offering 0% interest rate for transferring balance from their present cards. You can borrow money using the new card with very low interest rate (which can be 0% in some cases) and use that for investing in other high-yielding financial instruments. These can be anything like savings accounts with higher interest rates, stocks, commodities, mutual funds, binary options or other investments. You can use the returns you obtain every month from other investments to pay your credit card minimum dues and whatever difference remains is your profit.
The main risk factor with Credit Card Arbitrage is that if you don’t make your card payments on time, it will impact your credit score and you won’t be able to obtain credit card debts or loans at later point of time. But if you take advantage of 0% teaser rate, invest in appropriate financial instruments and manage to repay all your credit card dues on time, it will not only boost your credit score, but you can also earn profits. It depends on what investments you choose and how carefully you device your investment strategy.
There are lots of credit cards available in the market and if you want to make money with Credit Card Arbitrage, you should choose the right card based on how much it will cost in charges levied per month for not paying the minimum due and APR (Annual Percentage Rate). You should also carefully read the terms and conditions of the offer before choosing your card. You can get free credit card advice from certain online websites which will help you in choosing the right card. If you get a 0% APR as an introductory offer from any of the new cards to move balances from existing cards, you should definitely go for it. You should also understand the various rewards and benefits of the card you are going to buy and also be aware of the drawbacks with that card. You should also understand that failure to make your card payments on time will damage your credit score, employability and lead to a huge financial disaster.
You should only choose cash-advance or balance transfer cards with 0% interest rates for 6-12 months as introductory offers. You can use the funds from this card in other forms of investment like high interest yielding savings account, stocks or commodities based on your market knowledge. Such investment ideas are more like gambling and there is a probability that it will turn into losses. If you are an investment professional with excellent market knowledge, then you can easily make money with credit card arbitrage. But for newbies and amateur traders with very less market knowledge, credit card arbitrage is a very risky choice. Also if the market situations are difficult, it’s definitely not advisable to get involved in credit card arbitrage. It also leads to a habit of accumulating credit card debts and over a period of time will impact the credit score and financial health of individuals.
When you are involved in Credit Card arbitrage, you should remember that defaulting on payments even once will result in your card’s interest rate being reset to double-digit numbers. You should always do the math on how much interest you will pay for the card and the returns you can expect from your investment. You should also consider all the associated risks and carefully plan before committing to Credit Card arbitrage. You can set autopay for your monthly card payment to avoid penalties or late fee.
Choosing the right investment method is the most crucial thing if you want to be profitable with credit card arbitrage. You should invest in safer methods such as money market funds or savings account to avoid unexpected losses. You should not gamble with binary options, stocks or securities which can go wrong anytime based on market fluctuations. Credit card arbitrage cannot be considered easy money and it all depends on how smart you are in planning your investments and the introductory APR you are getting with the card. There is considerable risk involved.
From: Luke Schneider