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Post by David Hanson on FW: Investing w/ credit line promo rates: strategies, FAQ , links, AOR info, etc. RE making $$$ from credit

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#1 markber


    1 billion bucks

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Posted 16 December 2006 - 12:32 AM

Below is a repost of DaveHanson's post from FW. I hope it will be useful for people who are interested in investing 0% credit from credit cards.

<b>Thread rationale</b><br><br>It seems it's time for a consolidated thread discussing the use of credit line promotional rates to make money. There have been many, many threads here on FW and elsewhere over the years that touched on this subject. Please help increase the value of this thread by adding other pertinent links to it, and I will try to keep the OP updated. Meanwhile, I'll keep this post largely factual, and keep my own opinions on "best practices" for the following post.<br><br><br><b>Background info</b> <br><br>For many years, credit card companies have enticed customers to either open new accounts, or rev up usage on their existing accounts, by offering promotions that allow for borrowing their money at much lower interest rates than their standard agreements allow for. Since FW's inception and earlier, many FW members have used various means to profit from these offers. In recent years, as more have tried these strategies and CC companies have become more automated (and often more sophisticated), there has been a dramatic increase in reported problems with these strategies.<br><br><br><b>Investing BTs: the "standard FWF technique".</b><br><br>The most commonly cited FWF strategy works roughly as follows:<br><br>Step 1: Receive an offer of (for example) 0% on BTs for one year from a $25K Chase line, with a $50 BT fee.<br><br>Step 2: Transfer all or almost all of the card's credit limit into a bank account (when available as on option), or to another credit card account (some offers require this). Some ways people have accomplished this step are detailed <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=522179">here</a> .<br><br>Step 3: Stash that money in a safe investment, earning returns for the duration of the promotion.<br><br>Step 4: Pay the minimum monthly payments for 12 months (generally 2-3%).<br><br>Step 5: When the promo period ends, pay off the remaining balance with proceeds from the investment, leaving yourself with $0 balance on the card. <br><br><br>This basic strategy can then be repeated with other cards, the same cards, or even with multiple cards simultaneously. Some things to note about this approach:<br><br>-It ignores effects on one's credit score, or other reactions from lenders. In my opinion, this is a mistake. Nevertheless, some have managed to do this for years without adverse consequences. <br><br>-It assumes that the promotional rate is available for a limited time. Most very low offers are, but <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=195938">some</a> are not.<br><br>-It assumes a fee for doing the transfer. It used to be that many BT offers didn't require a fee, now most do. (Also, the amount of the fees has increased notably in the last year, often going as high as $75.) If there is no fee, then there's no real incentive to do one big BT--splitting them up works well too.<br><br>-BT cards should ALMOST ALWAYS be segregated from cards used for purchases, UNLESS the terms of the BT require otherwise (in which case purchases should be for amounts as small as possible). The main reason is that once you're carrying a balance, purchases have no "grace period"--meaning that you're paying the purchase rate from the moment you buy anything. Even worse, the payments you make always go towards the lowest rate first. That means that if you have a 0% offer, and buy a $1,000 item at the purchase rate of 12%, then you'll keep paying $10 per month to finance that purchase until the ENTIRE BT is paid off. There are a few exceptions, as manuel notes below, but these are rare.<br><br>-The promo rate offers require that strict conditions might be maintained. In particular, late payments on the card, OR EVEN ANOTHER ACCOUNT, can cause the rate to be "jacked" up to 30% immediately. Anyone who isn't very careful to adhere to ALL these conditions is asking for major hassles.<br><br>-It assumes that the funds are invested in something ABSOLUTELY SAFE. If a payment is missed, the rate gets jacked, etc. funds should be readily available to pay it off. <br><br><br><b>Variations on the "standard technique"</b><br><br>There are MANY different variations on the standard technique. I will list just two options to start, and we can add more as the thread grows.<br><br>-<b>Partial utilization/"Rollling maximization" strategies.</b> The standard technique simply maxes out a credit line, and pays off the minimum each month after. This variation uses only a fraction of the line--generally 50% or less--OR pays off the FULL balance before the close of each billing cycle, only to draw it up again immediately after the cycle closes. The main reason for this variation it to keep one's credit score from tanking (it will ALWAYS drop, and often significantly, if one has a line report to the credit bureaus showing more than 50% of their available balance being used), and/or to keep a lender from getting nervous about "high risk activities."<br><br>-<b>Coupling BTs with a HELOC or other LOC.</b> The standard technique pulls cash from the CC companies, then parks it in some investment (money market, short-term CD, etc.) until the money is due back to the line issuer. This variation takes a line of credit, typically a equity LOC secured by the home, and uses BT money to pay down that line. When the money is due back to the CC company, the HELOC is simply drawn back up again to pay it off. In so doing, a standard competitive HELOC with, say, a prime -.5% rate would effectively yield 5.5%, a much higher rate than short-term money markets would yield. At the same time, one can more easily pay off the balance, simply by drawing on the LOC. For more on HELOCs and how they can be used, see <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=150875">this</a> thread and its links, and <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.sagetips.com/">this</a> well done website.<br><br><br><b>Increasing credit (and goosing returns!) via the credit "Application Spree" / AOR / "App-O-Rama"</b><br><br>At least since the 1990s, several FWF members have bundled credit applications together so as to maximize the prospects for greater credit on better terms while containing associated damage to our credit profiles. In 2004, celebrated FWF member SUCKISSTAPLES coined (AFAIK) the phrase "Application-O-Rama" to <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=265432">describe</a> his own version of such a strategy. Since then, references like "AOR" and "App-O-Rama" have entered the FW lexicon, loosely describing various implementations and usages of this technique. Because of its extensive contributions from many different sources, that thread remains useful reading for anyone who wants to get up to speed on related discussions here at FWF.<br><br>The core idea is to pick a time when's one credit score and profile are relatively good, and then apply for many new credit lines and/or line increaes all at the same time, so that the creditors will all see the "good" profile (before many credit "inquries", larger credit utilization, etc. does its damage), and accordingly award high line limits and generous promo terms.<br><br>While there are many reasons one might want to persue an AOR, the rationale that seemed to capture the imagination of most FWF members was to enhance the exploitation of low- or no-interest BT offers. <br><br>Many FWFers have combined the AOR and various credit investment techniques to try to maintain as much low/no interest money as possible. Several have posted threads about their own experiences. The most recent detailed threads I know about as of this OP are <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?start=0&catid=52&threadid=450566">here</a> and <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=425743">here</a> .<br><br><br><b>Related useful threads</b><br><br>-Information and experiences on <b>getting LARGE credit lines</b> is <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/t/52/238073/">here</a>. <br><br>-A list of <b>creditors that allow the reallocation of large credit lines</b> is <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/t/52/237296/">here</a>.<br><br>-A thread dedicated to recording and discussing instances of <b>"adverse action"</b> (cut or closed lines, loss of promotional perks, etc.) and their causes is <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=322874">here</a><br><br>-A thread devoted to getting your BT money into checking accounts is <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=522179">here</a> .<br><br><br>(A final note on the origins of this thread, for anyone interested. In the <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=61657">no-fee CC BT deals on new accounts thread</a>, popechild had some questions about investing money from low- and no-interest CC balance transfers. When I asked him to keep questions/discussions out of that thread, he politely pointed out that others had already been directed to that thread for such discussion. The last <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=473448">thread</a> asking questions about this issue confirms popechild's point, and the FWF <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/t/52/457977/">sticky</a> thread links to taylor's <a target="_new" href="/redirect/bounce.php?afsrc=1&url=http://www.fatwallet.com/forums/messageview.cfm?catid=52&threadid=158558">cc thread</a>, which also lists that same "no-fee CC" thread as the sole heading under "Balance transfers.")<br><br><br><b>Edit</b> Updated to correct language about purchases coupled with BTs (thanks manuel), to add more links on HELOC per popechild's request, and correct typos.<br><br><b>Edit 7/06:</b> Useful links section added, thread origins section moved to bottom.<br><br><b>Edit 10/06:</b> Fixed typos, added link to getting BTs into checking accounts thread. <!-- google_ad_region_end=op -->
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source: fatwallet.com/t/52/477214/