Author Topic: DON'T pay off your credit cards club  (Read 9255 times)

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #50 on: May 21, 2018, 02:30:15 PM »
All I can say is it must be nice to have enough money that doing short-term arbitrage with 0% money is a laughable matter.  For those of us not so well endowed it can be a valuable tool to shift liabilities into different timeframes to optimize benefits (tax, savings, investments, etc). 

I clearly stated in my first post that we could not have afforded to max our retirement savings in 2017 without this 0% debt.  This alone more than justifies the "risk".

BTW, the "risk" mentioned in this thread boils down to 3 things:  1)  Screw up and you owe big.  Duh.  2)  CC companies may change their minds and demand their money back.  Has this ever happened?  3)  CC companies may change their minds and 0% rollovers are no longer available.  Possible, yes, but has this ever happened?  And it would be prudent to make a plan in case of this contingency (as I have).

0% money.  I'll take it.  You can laugh at it.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #51 on: May 21, 2018, 02:35:42 PM »


OPs strategy works in very minute situations


Yup, my finances are minute enough that it makes sense.  Scratching out tax benefits year to year helps us peasants claw our way into your world.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #52 on: May 21, 2018, 02:38:06 PM »
esp if you're keeping the cash sidelined to pay off the debt.

It's called the emergency fund.  Which every rational MMM advocate keeps to safeguard against financial emergency.  No more, no less.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #53 on: May 21, 2018, 02:39:20 PM »
Lets just look at when this process would actually make sense. 

person cant afford to max tax advantaged space so

Year 1

Person takes out 10k in Credit card debt at 0% to max accounts

Year 2

Person takes out more say 12k in credit card debt at 0% to max acconts b/c now they are paying off last years' maxing

Year 3

Person takes out even more say 16k in credit card debt. at 0%

So something has to happen somewhere in here or credit card debt just keeps piling up - the person has to have some type of windfall or some expense disappear or earn more money or the debt just keeps piling up ...

i completely understand it let you max your accounts last year but there are very very limited situations in which this makes sense and someone will be able to cover the shortage from a previous year in the following year by leveraging 0% debt.

Then you follow all this up to say you have the money sitting on the sidelines to mitigate the "risk" you used that term first not me - so what exactly are you gaining now - you still havent shown me the advantage of the situation i proposed 3 posts ago - if its the 1% you're getting in interest from you sidelined money i'd say its highly laughable and not worth it at this point.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #54 on: May 21, 2018, 02:42:02 PM »
esp if you're keeping the cash sidelined to pay off the debt.

It's called the emergency fund.  Which every rational MMM advocate keeps to safeguard against financial emergency.  No more, no less.

No many of us dont keep them i've never had one.  but when your Efund is equal to your credit card debt owed even at 0% its not an efund your money is just sitting in a different bucket that you have to remember to pay on time or it blows up on you. 

20k in cash + -20k in credit card debt at 0% + 20k invested = 20k invested plus liability of paying debt on time with 20k of capital accessible for emergency
20k invest + 0 credit card debt with 20k available = 20k invested with no liability of paying anything on time and 20k of capital accessible for emergency.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #55 on: May 21, 2018, 02:44:34 PM »


Then you follow all this up to say you have the money sitting on the sidelines to mitigate the "risk" you used that term first not me - so what exactly are you gaining now - you still havent shown me the advantage of the situation i proposed 3 posts ago - if its the 1% you're getting in interest from you sidelined money i'd say its highly laughable and not worth it at this point.

So, you don't agree with the importance of maintaining an emergency fund?  You live on the edge with $0 cash available at a moment's notice?

boarder42

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Re: DON'T pay off your credit cards club
« Reply #56 on: May 21, 2018, 02:49:14 PM »


Then you follow all this up to say you have the money sitting on the sidelines to mitigate the "risk" you used that term first not me - so what exactly are you gaining now - you still havent shown me the advantage of the situation i proposed 3 posts ago - if its the 1% you're getting in interest from you sidelined money i'd say its highly laughable and not worth it at this point.

So, you don't agree with the importance of maintaining an emergency fund?  You live on the edge with $0 cash available at a moment's notice?

i typically run a net negative balance between what i owe on credit cards(paid off monthly) and what i have in my checking account.  right now its around -2000. 

and you're not actually maintaining an EFUND if you have 20k in credit card debt and 20k in cash in an account.  this is 0 dollars.


my efund is credit cards - if something comes up it goes on a credit card
then to pay them off we will hault our taxable investments for the next 2 month ~2k/month
if that doesnt get there then we hault our 401k investments for a bit ~ 4k/month
if that doesnt get there then we can tap our taxable resources

the likelihood we have to tap taxable accounts is very slim. 
« Last Edit: May 21, 2018, 02:53:39 PM by boarder42 »

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #57 on: May 21, 2018, 02:51:51 PM »


i typically run a net negative balance between what i owe on credit cards(paid off monthly) and what i have in my checking account.  right now its around -2000. 

and you're not actually maintaining an EFUND if you have 20k in credit card debt and 20k in cash in an account.  this is 0 dollars.

Same as you.   ;)


boarder42

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Re: DON'T pay off your credit cards club
« Reply #58 on: May 21, 2018, 02:54:17 PM »


i typically run a net negative balance between what i owe on credit cards(paid off monthly) and what i have in my checking account.  right now its around -2000. 

and you're not actually maintaining an EFUND if you have 20k in credit card debt and 20k in cash in an account.  this is 0 dollars.

Same as you.   ;)

this isnt the same thing esp. when you're claiming you have an Efund

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #59 on: May 21, 2018, 02:59:00 PM »

this isnt the same thing esp. when you're claiming you have an Efund

OK Chief.  Whatever you say.

I'm still on board with your "don't pay off the mortgage club".  We pay the minimum each month on our 2.75% mortgage.

I guess I'm just the renegade advocating for a better deal.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #60 on: May 21, 2018, 03:22:34 PM »
OK I was going to be done with this.  But I just had one beer too many to keep my damned mouth shut.

Forget all the details and all the arguments.  It boils down to this:

0% money.

One of the most basic economic principles is the discount rate of money.  $1 in my hand today is worth more than $1 in my hand tomorrow.  It's worth more again than $1 in my hand next month.  And it's worth yet again more than $1 in my hand next year.  It's basic economic fact.

How many lenders are willing to give you money for 0% for a year?  Or 15 months?

Damned few.

What you do with it, investments/tax avoidance/income shifting/etc/etc/etc is immaterial.  You can borrow $1 today and pay back $1 in 12 (or 15) months.

I don't understand why that is such a difficult concept to grasp among people smart enough to be here.  With very little creativity you can figure out how to leverage this FREE money to your advantage.

Or don't.  No skin off my nose.

0% money. 
« Last Edit: May 21, 2018, 03:26:47 PM by Pizzabrewer »

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #61 on: May 21, 2018, 03:53:59 PM »
via Imgflip Meme Generator

Bonus points if you read this in "Gru voice" in your head

I'm Sorry If You Don't Understand The Potential Economic Benefits Of Shifting Your Expenses One Year Into The Future At No Cost.


boarder42

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Re: DON'T pay off your credit cards club
« Reply #62 on: May 21, 2018, 07:34:18 PM »
If you truly were shifting your expenses it would make sense but you're not you have all that money sitting on the sidelines to account for the debt so youre not really gaining much of anything. Let's say it's 20k and you're getting 1.5% interest on it it your savings account. If this lasts 10 years it netted you an avg of 310 bucks a year. I'm sorry but I don't see any real value in that and the time you spent to figure this out doesn't hardly make it worth that much money. There are probably dozens of other things you aren't doing that would get much larger return for less effort and risk.

Toad

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Re: DON'T pay off your credit cards club
« Reply #63 on: May 21, 2018, 09:07:18 PM »

How many lenders are willing to give you money for 0% for a year?  Or 15 months?

Damned few.


Actually I didn't really look until now, but it appears all the following offer 0% in ranges from 8-18 months:

Chase Freedom Unlimited
Citi Diamond Preferred
Wells Fargo Platinum (18 months !!)
Citi Simplicity Card (18 months !!)
Chase Freedom
Capital One VentureOne Rewards
Bank of America Cash Rewards
Citi Double Cash (0% on balance transfer only)
Capital One Quicksilver Cash Rewards
Amex EveryDay

and that is only the "top 10" CreditKarma told me about...so likely there are a good number more than that.

I suspect that if one were to go for all the "free" money they could get, they would need to get all of the cards that allow it in a relatively short period of time before starting to load them up...once a lender sees a large balance on your credit report I suspect you would be less likely to be approved for one of these.  That's probably what will keep me from going all in on this idea although it is tempting.

Seriously though, why don't you park your emergency fund in a high yield savings account like I suggested previously?  I would agree that ~1% on the amount isn't really worth it, but 5% with the same risk as you have for the 1%...really why not?  I can understand keeping some amount in a low yield account if that is what you use to pay bills, etc. for simplicity sake, but really why keep more than ~2 months of your typical bills in there?  That's what my "emergency fund" is (really is more of a "too lazy to micromanage more and don't want to overdraw my account fund"), and I don't really see any need for more than that in there.

An emergency simply results in less/none going into my taxable account and if needed pulling from my taxable account as was suggested earlier.  Keeping the "free float" money in a savings account makes sense to me since you would be leveraged, but only if it is high yielding.  If it is not, then really no point.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #64 on: May 22, 2018, 09:33:46 AM »

How many lenders are willing to give you money for 0% for a year?  Or 15 months?

Damned few.


Actually I didn't really look until now, but it appears all the following offer 0% in ranges from 8-18 months:

Chase Freedom Unlimited
Citi Diamond Preferred
Wells Fargo Platinum (18 months !!)
Citi Simplicity Card (18 months !!)
Chase Freedom
Capital One VentureOne Rewards
Bank of America Cash Rewards
Citi Double Cash (0% on balance transfer only)
Capital One Quicksilver Cash Rewards
Amex EveryDay


Yup, credit cards.  That's what I meant, I don't know of many (or any) other avenues to 0% money.  If you know of any, please dish.


Seriously though, why don't you park your emergency fund in a high yield savings account like I suggested previously?  I would agree that ~1% on the amount isn't really worth it, but 5% with the same risk as you have for the 1%...really why not?  I can understand keeping some amount in a low yield account if that is what you use to pay bills, etc. for simplicity sake, but really why keep more than ~2 months of your typical bills in there?  That's what my "emergency fund" is (really is more of a "too lazy to micromanage more and don't want to overdraw my account fund"), and I don't really see any need for more than that in there.

An emergency simply results in less/none going into my taxable account and if needed pulling from my taxable account as was suggested earlier.  Keeping the "free float" money in a savings account makes sense to me since you would be leveraged, but only if it is high yielding.  If it is not, then really no point.

Thanks for the suggestion, I just signed up for the card in your earlier link.  I assume I need to wait for it to arrive to open the linked savings account?  And is it just the savings account or is there also an associated checking account?

And for the record I'm not the one who said my e-fund was sitting around doing nothing.  That would be the folks above who delight in mocking me.

I'm certainly on the lookout for opportunities and appreciate your suggestion.  The money I'll be transferring to the 5% account will come from a BofA checking account I opened earlier and just received a $300 bonus for.  Not a bad return on $4000 direct deposits over 8 weeks.  Your suggestion is the perfect place to roll this money over.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #65 on: May 22, 2018, 09:49:19 AM »
if there were reasonable options for 5% ROI on 0% borrowed money on credit cards i'd be exploring this path.  but it appears there is currently one option capped at 5k.  5% return on free money sign me up and i'll leverage it up to 250k - thats some real value there. 

Toad

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Re: DON'T pay off your credit cards club
« Reply #66 on: May 22, 2018, 11:30:01 AM »
if there were reasonable options for 5% ROI on 0% borrowed money on credit cards i'd be exploring this path.  but it appears there is currently one option capped at 5k.  5% return on free money sign me up and i'll leverage it up to 250k - thats some real value there.

No disagreement here, but you take what you can get.

As far as the one I linked to earlier, read through that page and some of the comments.  I believe you need the checking account to open the savings account.  Also be aware that you need to make a transfer into it once a month (I believe) to avoid fees (like $3/mo or something).  I haven't done this one yet, but will later in the week probably so can't really help you with the specifics yet.

Toad

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Re: DON'T pay off your credit cards club
« Reply #67 on: May 22, 2018, 05:26:11 PM »
@Pizzabrewer

Just a heads up, I just saw this:
https://www.doctorofcredit.com/unverified-insight-no-longer-accepting-new-5-apy-accounts/

Quite literally the rug is being pulled out from under us on this one...you especially since you just signed up and were starting the process.  Sucks, but take a look around doctorofcredit, there are other accounts that have 4% + requiring various levels of hoop jumping...there is one that is at a juicy ~4.5% I am eyeing myself although it has substantial hoop jumping required for it.

C'est la vie.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #68 on: May 23, 2018, 03:36:52 PM »
@Pizzabrewer

Just a heads up, I just saw this:
https://www.doctorofcredit.com/unverified-insight-no-longer-accepting-new-5-apy-accounts/

Quite literally the rug is being pulled out from under us on this one...you especially since you just signed up and were starting the process.  Sucks, but take a look around doctorofcredit, there are other accounts that have 4% + requiring various levels of hoop jumping...there is one that is at a juicy ~4.5% I am eyeing myself although it has substantial hoop jumping required for it.

C'est la vie.

Kinda figures.  The very day I sign up is the day they shut it down.  In the morning when I signed up the 5% offer was still mentioned.  By evening it was gone.

At least they ended it before I had transferred any money.

I'm thinking at this point I'm better off doing rotating savings account bonuses.  Typically $150 for depositing $10k for 90 days.  An easy 5-6% if you stay on top of it.

tomsang

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Re: DON'T pay off your credit cards club
« Reply #69 on: May 24, 2018, 11:22:36 AM »
Not that it is huge, but BECU credit union has 6% rates for the first $500 for their savings and 4% for their checking accounts.  They are also one of the few institutions that have given me an unsecured LOC.

If you are interested in using credit to make money.  I would drop $500 in a savings and $500 in checking for all adults in the house and kids.  Wait six months or so and get an unsecured LOC for each of the adults.  The rates for the unsecured are 8.9% but there have been times when I was able to jump on a great opportunity with instant cash.  My LOC is usually at zero, but when you want instant credit it is great to have handy. 

https://www.becu.org/everyday-banking/checking-and-savings

https://www.becu.org/loans-and-mortgages/personal

solon

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Re: DON'T pay off your credit cards club
« Reply #70 on: May 24, 2018, 11:27:49 AM »
Not that it is huge, but BECU credit union has 6% rates for the first $500 for their savings and 4% for their checking accounts.  They are also one of the few institutions that have given me an unsecured LOC.

If you are interested in using credit to make money.  I would drop $500 in a savings and $500 in checking for all adults in the house and kids.  Wait six months or so and get an unsecured LOC for each of the adults.  The rates for the unsecured are 8.9% but there have been times when I was able to jump on a great opportunity with instant cash.  My LOC is usually at zero, but when you want instant credit it is great to have handy. 

https://www.becu.org/everyday-banking/checking-and-savings

https://www.becu.org/loans-and-mortgages/personal

I looked into BECU and they want you to be a Boeing employee, or live in the area. There aren't any other options, so if I wanted to go forward, I was going to have to lie. Has anyone had any experience with getting into a credit union you weren't technically qualified to be in?

tomsang

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Re: DON'T pay off your credit cards club
« Reply #71 on: May 24, 2018, 01:12:56 PM »
I looked into BECU and they want you to be a Boeing employee, or live in the area. There aren't any other options, so if I wanted to go forward, I was going to have to lie. Has anyone had any experience with getting into a credit union you weren't technically qualified to be in?

There are some requirements, but there are lots of options so I don't know how much they verify.  From reading the requirements, it is pretty open because it covers having a family member for most of the categories. 


https://joinus.becu.org/ome.aspx
Do you live in one of the following?
Washington: I live, work, worship or attend school in the state, or I have a family member who does.

Oregon: I live or work in the following counties: Benton, Clackamas, Columbia, Lane, Linn, Marion, Multnomah, Polk, Washington, and Yamhill.

Idaho: I live, work, worship or attend school in the following counties: Benewah, Bonner, Boundary, Clearwater, Idaho, Kootenai, Latah, Lewis, Nez Perce, and Shoshone.

Are you one of the following?
Boeing Employees' Credit Union •Employee, director, retiree, or volunteer of the credit union
•Employee of any enterprise or organization in which the credit union has an ownership interest, directly or indirectly, in whole or in part
•Family member of someone above
 

Boeing Company •Employee, director, retiree, or volunteer of The Boeing Company, subsidiaries and affiliates currently or previously owned or operated in whole or in part by The Boeing Company or Federal employee stationed at The Boeing Company plants
•Family member of someone above

Credit Union •Employee, director, retiree, or volunteer of a credit union or a credit union service organization
•Family member of someone above



Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #72 on: June 21, 2018, 11:35:56 AM »
@boarder42:  Man you're going to hate this one.

I just got some "checks" in the mail from Barclays to access the credit limit on my card.  3% fee up front, 0% interest on the balance until 9/1/2019.

I'm looking at a multi-tiered approach to this.  Write a check to myself for $12k.  Pay off the 401k loan we have against my wife's account (about $10k).  Take out a new 401k loan for ~$30k.

Use this money to max our 2018 IRA contributions and fund our monthly expenses so we can max our 401k withholdings the rest of the year.  The goal being again to get under the $37k AGI to give us up to $2000 savers credit on our 1040.  And kick the can another 15 months down the road.

In the meantime I'll cycle the cash around to earn a few savings account bonuses to cover the $360 Barclay fee.

Tell me how much you hate this idea.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #73 on: June 21, 2018, 11:43:31 AM »
its beyond stupid since you could manufacture spend to run that balance up on a 0% card for much less than 3% and the debt is only secured for 15 months.  if you're going to do this you should at least be efficient about it.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #74 on: June 21, 2018, 11:45:06 AM »
its beyond stupid since you could manufacture spend to run that balance up on a 0% card for much less than 3% and the debt is only secured for 15 months.  if you're going to do this you should at least be efficient about it.

Ah but it's not a 0% card unless I take this specific offer.  I've run through the 0% period they offered when opening this card.

I knew you'd hate it.  ;)

P.S.  I'm still paying the minimum each month on our 2.75% mortgage...


« Last Edit: June 21, 2018, 11:47:02 AM by Pizzabrewer »

OurTown

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Re: DON'T pay off your credit cards club
« Reply #75 on: June 21, 2018, 11:47:17 AM »
This whole thing sounds like a really, really bad idea. 

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #76 on: June 21, 2018, 11:55:55 AM »
This whole thing sounds like a really, really bad idea.

Ha!  I'm loving the hate.

Me, I look at it as a creative way to use 0% money to achieve some big paybacks.  My main goal:  max our 401ks, IRAs and HSAs, lowering our AGI enough that the savers credit brings our 1040 tax to $0.  With this approach we saved around $6k in fed tax plus $1k in state tax last year. 

boarder42

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Re: DON'T pay off your credit cards club
« Reply #77 on: June 21, 2018, 12:37:47 PM »
This whole thing sounds like a really, really bad idea.

Ha!  I'm loving the hate.

Me, I look at it as a creative way to use 0% money to achieve some big paybacks.  My main goal:  max our 401ks, IRAs and HSAs, lowering our AGI enough that the savers credit brings our 1040 tax to $0.  With this approach we saved around $6k in fed tax plus $1k in state tax last year.

you're not being very creative spending taht 3% when much lower rates can be had with not much effort.

Telecaster

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Re: DON'T pay off your credit cards club
« Reply #78 on: June 21, 2018, 03:46:51 PM »
@boarder42:  Man you're going to hate this one.

I just got some "checks" in the mail from Barclays to access the credit limit on my card.  3% fee up front, 0% interest on the balance until 9/1/2019.

I'm looking at a multi-tiered approach to this.  Write a check to myself for $12k.  Pay off the 401k loan we have against my wife's account (about $10k).  Take out a new 401k loan for ~$30k.

Use this money to max our 2018 IRA contributions and fund our monthly expenses so we can max our 401k withholdings the rest of the year.  The goal being again to get under the $37k AGI to give us up to $2000 savers credit on our 1040.  And kick the can another 15 months down the road.

In the meantime I'll cycle the cash around to earn a few savings account bonuses to cover the $360 Barclay fee.

Tell me how much you hate this idea.


There's a lot not to like there.   

First problem is the part I bolded.  Borrowing money to pay for normal expenses is almost always a bad idea.  I can kinda see borrowing like this to invest if you can lower your taxes, as you did.  In the past, I've borrowed from my HELOC to top off my SE 401(K), because the tax savings were more than the interest, and I was able to pay off the HELOC relatively quickly.  So I get that.  But borrowing to pay normal expenses sounds really scary to me.   

Next, it is my observation these 0% balance transfer offers tend to be a bit faddish.  They get real popular for a while, then they go away.  If the economy slows down, which it will eventually, credit card companies will tighten up in a hurry.  It is not clear to me what your plan is when this happens.  It seems like you are incubating a little time bomb that might explode at a bad time. 

Next problem:   Moving money around to cover the $360 fee is an illusion.  The money to pay $360 to Barclay's comes out of your pocket and no where else.  Don't kid yourself.  You're taking a 3% loss off the top. 

The next problem, and this is a biggie:    401(k) loans are stupid.  You talk about maxing out your 401(k) as an advantage of this scheme, but the portion of the 401(k) that is loaned out doesn't generate any return, so there is an opportunity cost  you are not including in your analysis.  401(k)s are supposed to be a vehicle to save for retirement, but they don't accomplish that if you take loans from them, so you are screwing yourself on the retirement front.     Some people think that 401(k) are a good deal because the interest payments go back to you.  And' that's true, except that the interest comes out of your pocket.   The "interest" is is just a non-deductible 401(k) contribution.    And you mentioned that you are borrowing to pay for normal expenses, and one of your normal expenses is the interest on the 401(k) loan.  So to a certain extent you are borrowing to pay back your borrowing.  That sounds scary.  Along those lines, you are borrowing in order to max your 401k, yet you are also borrowing from your 401k.  The logic escapes me. 

It gets worse.   The 401(k) loan payments are made with after tax dollars (really just a non-deductible contribution), but normal withdrawals are taxed as ordinary income. Although you mentioned your tax rate is currently 0%, that could change if your income increases in the future (and that would be a good thing, right?)  If that happens then you are going to get jobbed on taxes because the 401(k) loan payments are made with after tax dollars (really just a non-deductible contribution), but ordinary withdrawals are taxed as ordinary income.  So you pay tax on the interest going in, and then pay tax on the contribution coming out.  That's a hose job and a half.  If you simply invested the money instead of paying interest on the 401(k) loan, you wouldn't have to pay tax on the principle when you withdrew it (unlike the 401K), and capital gains rates are typically lower than ordinary income rates.  So you might be jobbing yourself on taxes down the road, there too.  Hard to say, but I don't think you are saving nearly as much on taxes as you think you are.

 

OurTown

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Re: DON'T pay off your credit cards club
« Reply #79 on: June 22, 2018, 06:53:27 AM »
This whole thing sounds like a really, really bad idea.

Ha!  I'm loving the hate.

Me, I look at it as a creative way to use 0% money to achieve some big paybacks.  My main goal:  max our 401ks, IRAs and HSAs, lowering our AGI enough that the savers credit brings our 1040 tax to $0.  With this approach we saved around $6k in fed tax plus $1k in state tax last year.

No hate, just a warning.

I have no problems with using 0% money.  In fact, just yesterday, in real life, I took on a $2,700 debt at 0% for one year.  It was for a dental procedure on one of those "Care Credit" cards.  The specific purpose for this 0% credit is to carry the debt through to 2019 and then pay it off with our 2019 FSA money.  (I already blew our 2018 FSA money on my daughter's braces).  Ultimately by paying for my implant with pre tax dollars I will save 22% on $2,650.

Also, a long time ago in the past, way back in my debt payoff days, I used those 0% offers to transfer balances around between cards so that I could pay off one while the other one sat in the 0% zone. 

I am also choosing to continue to invest as I go rather than pre-paying the mortgage balance.  (15 yr, 3 3/8 %, runs through 2028).  But bear in mind, the mortgage loan is a loan I would have had anyway.  I didn't take on additional risk, I'm just choosing to float the mortgage rather than pay down early.  When I hit my magic FIRE number in investments, I'll look to see how much is left and I may pay off the balance at that point. 

Credit cards are sharks/snakes/velociraptors.  Don't play around with them or you might get bitten.     

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #80 on: June 22, 2018, 10:21:29 AM »

Credit cards are sharks/snakes/velociraptors.  Don't play around with them or you might get bitten.     

Then just look at me as the snake-wrangling, gator-rasslin', shark-huntin', zero-cost-credit-card-money-using badass that I am.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #81 on: June 22, 2018, 11:03:19 AM »
i really dont think youre coming out that far ahead you're playing money games but not really doing the full math on the back end as @Telecaster pointed out.  to each their own and i do a lot to make an extra buck this just seems incredibly unworth it. esp when you're bringing 401k loans into the fold.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #82 on: June 22, 2018, 12:36:49 PM »
i really dont think youre coming out that far ahead you're playing money games but not really doing the full math on the back end as @Telecaster pointed out.  to each their own and i do a lot to make an extra buck this just seems incredibly unworth it. esp when you're bringing 401k loans into the fold.

Well our maxed-out retirement accounts and our "$0" entry on 1040 line 63 would disagree with you.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #83 on: June 22, 2018, 12:43:25 PM »
you just shifted money from a future year into a current year - unless your income increases enough to accomodate covering the credit card loan and maxing it out this year you've done nothing.

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #84 on: June 22, 2018, 12:56:43 PM »
you just shifted money from a future year into a current year - unless your income increases enough to accomodate covering the credit card loan and maxing it out this year you've done nothing.

You've got it exactly backwards. I'm shifting the tax burden from current years into future years. Since I've gotten an earlier start planning this year we may be able to do some Roth IRA action and still keep line 63 at $0. Non-taxed money going into a never--taxed account. On top of the other benefits (maxing pre-tax retirement accounts, did I mention $0 on line 63?).

It's genius.

boarder42

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Re: DON'T pay off your credit cards club
« Reply #85 on: June 22, 2018, 12:59:47 PM »
you just shifted money from a future year into a current year - unless your income increases enough to accomodate covering the credit card loan and maxing it out this year you've done nothing.

You've got it exactly backwards. I'm shifting the tax burden from current years into future years. Since I've gotten an earlier start planning this year we may be able to do some Roth IRA action and still keep line 63 at $0. Non-taxed money going into a never--taxed account. On top of the other benefits (maxing pre-tax retirement accounts, did I mention $0 on line 63?).

It's genius.

its not genius as income increases so does tax burden - until you show me a spreadsheet of how this money is moving around and how you're actually recompensating yourself i still think its a terrible idea. you're basically shifting tax burden from a 12% bracket to a 22% future bracket - the opposite of genius.

FIRE@50

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Re: DON'T pay off your credit cards club
« Reply #86 on: June 22, 2018, 01:00:02 PM »
I love that you added "It's genius." at the end. I'm considering making that my auto signature. With your permission of course.

v8rx7guy

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Re: DON'T pay off your credit cards club
« Reply #87 on: June 22, 2018, 02:00:30 PM »
I love that you added "It's genius." at the end. I'm considering making that my auto signature. With your permission of course.

That was when I realized he must be trolling us.

To the OP, I think you should change your title, there clearly is no "club" here...

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #88 on: June 22, 2018, 10:57:33 PM »
Yup, although a few have chimed in with some badass cc stories (HT to lexde, talltexan, Secondcor, tomsang and MsSindy), this is a pretty lonely club.

Not trolling but I must admit I'm having fun with all the facepunches.  It does seem everyone is missing the point.  I don't feel like repeating the benefits of what I'm doing, but you can be sure that I'll continue using the cc's offers to my advantage.  I'm the king of 0% money.

ETA:  Oh, I can't resist once again.  IRS 1040 line 63:  $0.00
« Last Edit: June 22, 2018, 11:15:57 PM by Pizzabrewer »

boarder42

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Re: DON'T pay off your credit cards club
« Reply #89 on: June 23, 2018, 04:58:46 AM »
You're paying 3% in fees

Telecaster

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Re: DON'T pay off your credit cards club
« Reply #90 on: June 23, 2018, 09:09:35 AM »
Yup, although a few have chimed in with some badass cc stories (HT to lexde, talltexan, Secondcor, tomsang and MsSindy), this is a pretty lonely club.

Not trolling but I must admit I'm having fun with all the facepunches.  It does seem everyone is missing the point.  I don't feel like repeating the benefits of what I'm doing, but you can be sure that I'll continue using the cc's offers to my advantage.  I'm the king of 0% money.

ETA:  Oh, I can't resist once again.  IRS 1040 line 63:  $0.00

I get that part.  Here's the part I don't get:  You are borrowing money to pay normal expenses.   Or, to put it another way, you are borrowing to fund your current lifestyle.  Although it only costs between 0-3% right now, that money will have to be paid back eventually.  While your current self is happy with this arrangement, your future self might not be.  I am 100% confident that 0% balance transfers won't last forever.  It doesn't appear to me that you have a plan for when--not if--that happens.

The other part I don't get is why you are screwing yourself financially by taking out 401(k) loans.  That is a truly dumb financial mistake.  You are also not accounting for the double taxation cost on the 401(k) loan.  Lots of schemes look great if you ignore the costs.   Your future self will definitely not be happy with your current self in that regard. 


nick663

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Re: DON'T pay off your credit cards club
« Reply #91 on: June 23, 2018, 10:00:26 AM »
If you're at a $0 total tax bill... are pre-tax contributions even the smartest move?  I would pay 10% income tax to put the money in a post-tax account. (and you better be sure you're not putting 0% income tax money in a pre-tax account!)

Still not clear on if you have the funds set aside to pay this debt back or you're using the CC to finance retirement savings.  If the former, your gains aren't great as you're just earning a return of wherever the savings is sitting.  If the latter, you better hope that you never lose your source of income for any longer period as the cash is not readily available.

Also, as balances climb you're eventually getting backed into a corner where approval for a new credit card becomes less and less likely.  What is your exit strategy when this happens?

I don't want to write this off completely but I'm seeing a lot of hurdles and I don't think the benefits are better than more typical credit card strategies (like churning for sign up bonuses or selling trade lines).
You're paying 3% in fees
He seems to keep missing this.  I'll take 0% money all day but it's not 0% if there are fees attached to it.  A 3% fee is huge and wipes out pretty much any advantage I see in this.
« Last Edit: June 23, 2018, 10:01:57 AM by nick663 »

boarder42

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Re: DON'T pay off your credit cards club
« Reply #92 on: June 23, 2018, 12:06:38 PM »
Yep lots of costs and optimization missed due to not running the real numbers and putting blinders on for the future.

secondcor521

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Re: DON'T pay off your credit cards club
« Reply #93 on: June 23, 2018, 01:36:14 PM »
A 3% fee is huge and wipes out pretty much any advantage I see in this.

Reminds me of the old business class joke:  "We're losing money on each sale, but we're making it up on volume!"

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #94 on: June 23, 2018, 01:49:17 PM »
A 3% fee is huge and wipes out pretty much any advantage I see in this.

Reminds me of the old business class joke:  "We're losing money on each sale, but we're making it up on volume!"

One Discover and one Chase savings account bonus (for which I otherwise wouldn't have the cash) and the $360 is more than paid back.
« Last Edit: June 23, 2018, 01:53:57 PM by Pizzabrewer »

secondcor521

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Re: DON'T pay off your credit cards club
« Reply #95 on: June 23, 2018, 02:29:16 PM »
A 3% fee is huge and wipes out pretty much any advantage I see in this.

Reminds me of the old business class joke:  "We're losing money on each sale, but we're making it up on volume!"

One Discover and one Chase savings account bonus (for which I otherwise wouldn't have the cash) and the $360 is more than paid back.

I heard an old adage a few years ago that I thought was clever, and it helped me.  Perhaps it could help you at an earlier age than I was when I heard it (I suspect you are younger than me):  "Knowing is the enemy of learning".

Cheers.

nick663

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Re: DON'T pay off your credit cards club
« Reply #96 on: June 23, 2018, 09:18:44 PM »
A 3% fee is huge and wipes out pretty much any advantage I see in this.

Reminds me of the old business class joke:  "We're losing money on each sale, but we're making it up on volume!"

One Discover and one Chase savings account bonus (for which I otherwise wouldn't have the cash) and the $360 is more than paid back.
You need 15k to get the Discover savings bonus meaning the 3% fee would be $450.  You'll be 4-6 months in before breaking even on the fees.

This is why I said 3% pretty much wipes out the advantage.  With the risks involved on CC debt I wouldn't want to invest the money in anything but a sure thing and those investments don't have that great of returns right now.  0%?  I'll throw 15k in a 12 month 2.3% CD and collect my $345 profit.  At 3% you either need to put a lot of work in to churn bonuses or take on additional risk just to get ahead of the fees. 

The way the landscape is today, there are just flat out better ways to take advantage of credit cards (like the vacation I just took with airfare/hotels/rental car paid for by rewards).  This could change down the road as interest rates increase but until then I'm not seeing the attractiveness of this.

missundecided

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Re: DON'T pay off your credit cards club
« Reply #97 on: June 23, 2018, 10:02:55 PM »
This whole thing sounds like a really, really bad idea.

Ha!  I'm loving the hate.

Me, I look at it as a creative way to use 0% money to achieve some big paybacks.  My main goal:  max our 401ks, IRAs and HSAs, lowering our AGI enough that the savers credit brings our 1040 tax to $0.  With this approach we saved around $6k in fed tax plus $1k in state tax last year.
Quote

I have no problems with using 0% money.  In fact, just yesterday, in real life, I took on a $2,700 debt at 0% for one year.  It was for a dental procedure on one of those "Care Credit" cards.  The specific purpose for this 0% credit is to carry the debt through to 2019 and then pay it off with our 2019 FSA money.  (I already blew our 2018 FSA money on my daughter's braces).  Ultimately by paying for my implant with pre tax dollars I will save 22% on $2,650.
     

Are you sure about the FSA? It's my understanding that 2019 FSA reimbursements are applicable only for 2019 dates of SERVICE, not when it's paid for. Orthodontia tends to be the exception to that rule due to the prolonged servicing period.

BluePhoenix75

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Re: DON'T pay off your credit cards club
« Reply #98 on: June 25, 2018, 01:53:05 PM »

Forget all the details and all the arguments.  It boils down to this:

0% money.

One of the most basic economic principles is the discount rate of money.  $1 in my hand today is worth more than $1 in my hand tomorrow.  It's worth more again than $1 in my hand next month.  And it's worth yet again more than $1 in my hand next year.  It's basic economic fact.

How many lenders are willing to give you money for 0% for a year?  Or 15 months?

Damned few.

What you do with it, investments/tax avoidance/income shifting/etc/etc/etc is immaterial.  You can borrow $1 today and pay back $1 in 12 (or 15) months.

I don't understand why that is such a difficult concept to grasp among people smart enough to be here.  With very little creativity you can figure out how to leverage this FREE money to your advantage.

Or don't.  No skin off my nose.

0% money.

Inneresting approach.  By your own logic: If $1 today is move valuable than $1 tomorrow, then yesterday's dollar is even more valuable tomorrow. And, the longer you keep yesterday's dollar, the more valuable it will be.

So, I'm confused why this logic is not applied to 401K loans.  Using yesterday's dollar to fund near term expenses means you are using more expensive money.  Wouldn't it be best to use today's dollars to fund today's expenses and leave your 401K money in to grow as long as possible?  Since the $1 you're using to pay it back will never be as valuable as the $1 you borrowed...

Pizzabrewer

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Re: DON'T pay off your credit cards club
« Reply #99 on: June 25, 2018, 03:31:02 PM »
BluePhoenix:  the whole point of this is that it allows us to max our retirement accounts. Last year we reduced our AGI to the point we paid no federal income tax. I plan to do the same this year. So look at it as putting the borrowed money right back into the 401ks while saving about $6000 in taxes.

I feel like a broken record that no one is hearing.