0% - 8 Months Later
About 8 months ago, I detailed my plan to borrow $15,000 interest-free from Citi on two credit cards (one in my wife's name and one in mine). I planned to invest this money in a money market and make some free income. I called the post "0% APR Arbitrage" and followed up shortly after that with "0% APR Followup". As it turns out, things didn't really go as I planned and I share this story as a warning for anyone who is trying what I termed, "...NOT financial planning. But, it is investing, albeit with a high level of risk in some ways."
For awhile, I was doing great. No problems and I was making interest and paying the minimum required payment each month (you have to to keep the 0% rate!). Then, things started to go down hill. My wife, who is currently a grad student, was stricken with an illness that kept her out of school and functionally disabled. My income is not enough to keep us solvent in the expensive Northern Jersey area so we supplement with schools loans. With wife out of school not only do we lose those loans, but we have to start paying back what we already borrowed and she doesn't qualify for disability because she hasn't worked in years due to school. Short story - we're in trouble. Top all this off with thousands in medical bills (insurance copays + out of network to get the care she needed).
Fast forward 8 months and this money is due by Decemeber and we've spent ALL of it (good part is it kept us from overdrawing our checking). What to do?...
Luckily, my wife is okay now and back in school and will finish and get a job (with a high 5-digit salary) by the end of the Fall. This would not be enough time to get the money to pay off the loan, so I called my other credit cards and wheeled and dealed with the phone reps (and their managers). My sell was, "I have 11 0% offers on my desk right now. I'd rather keep my business with you so can you offer similar terms?" I was prepared to pay the 3% transfer fee to have the money transfered to a new card. It would have been about $400.
Chase wouldn't play ball and my Amex card doesn't offer balance transfers so I called MBNA. They offered me 1% APR with a fee of $75 until April 2007 and I took it. This buys enough time to pay it back. I took out $13,500 and I'm paying off the two Citi cards. If all goes well I'll have the money to pay back the MBNA card by April.
Moral of the story - BE CAREFUL when you pull stuff like this. I weathered it fine because I knew I could get more credit and in the end I'll have gotten a $15,000 17-month loan for $100 but still, the lesson stands. You never know what can happen to you, so if you play with debt be sure you understand the stakes.
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One of the few cards that still offers 0% or close to it is the 'Sony Card'. I have been switching between Sony & MBNA for the last 1 1/2 years and gratually paying off my loans. Of all the cards I dealt with, both these cards offer the best transfer deals with a max of $75 transfer fee. Discover on the other hand charges 3% of the balance & there is not $75 limit anymore.
Jesse - thanks for the post. I applaud you for paying down your debt in a very intelligent way. I toyed with opening additional cards but I'd prefer to not have the impact on my credit score. For my holding period I'll take the 1% rate for simplicity and the ability to not have to apply and have my credit report hit again. Keep up the good work!
I've just indulged in two 0% APR deals in the last month and I've learnt a lot. Both deals were free of transaction costs and with my credit line at 25K, I was expecting to make a cool $1.5K in 12 mos by just reinvesting in CDs.
There are a couple of caveats though:
1) To start with, make sure you have the entire credit limit available (i.e. don't have any existing balances)
2) Once you get the 0% APR on say 25K, make sure you don't charge anything else on that card.
The reason is that the fine print says that any payment you make (and you have to make minimum payments every month) will be applied to the lowest APR amounts. So, if you have any higher APR balances (e.g. purchases), then those start piling on finance charges. So, even if you made the monthly payment to cover those purchases, the credit card company applies it to the 0% APR amounts. Cheeky!
This is interesting story, but one point is missed: you would have had to borrow that money anyway, and at least you were doing it at 0%. You just choose to "use" money that you had laying there, when in fact, it should have been off-limits.
Kris - thanks for reading. That's true but I wouldn't say "choose". I think my point is sometimes even the best laid plans get nailed by life. While I isolated a nice system of borrowing free money without financial risk I neglected to respect that the larger system of life has risks you can't neutralize as easily.
