Author Topic: Taking advantage of 0% APR credit card offers  (Read 5340 times)

sergey_1989

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Taking advantage of 0% APR credit card offers
« on: April 23, 2014, 09:59:52 AM »
Hello everyone,

I was recently approved for a few credit cards that offer 0% APR on purchases for 12-18 months. Since I don't spend much, I was wondering if I can somehow transfer money to my checking account. I will carry the debt until the intro APR expires and then pay off the entire balance.

A friend of mine suggested using Paypal or Square to "pay myself". Yes, there is a transaction fee but it's well worth it if I can invest the cash. Has anyone done something like this before?

Scandium

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Re: Taking advantage of 0% APR credit card offers
« Reply #1 on: April 23, 2014, 10:12:19 AM »
... but it's well worth it if I can invest the cash.

You forgot to include: "...and the investment does not lose value"

sergey_1989

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Re: Taking advantage of 0% APR credit card offers
« Reply #2 on: April 23, 2014, 10:24:25 AM »
I am well aware of the possible implications :)

thesinecure

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Re: Taking advantage of 0% APR credit card offers
« Reply #3 on: April 23, 2014, 10:54:27 AM »
there's no free lunch obviously...

Generally there is a one time fee of 1-3% of the transfer amount to take advantage of the offer, and also dollar limits on what you can put directly into your checking account and how often (usually like a $5k limit, once every 90 days or so).

I imagine if you just deposit in cash, you'll actually lose money as it's pretty rare to find a cash rate that's higher than the transfer fee.  I've been doing this for more than 10 years now and never had a cash account that paid more than the fee, or if it did it was only 25 basis points so wasn't really worthe the hassle.

With all that said...

WHY YES!  I do get these as well and frequently take advantage of them!

I prefer to use them for debt reduction, not for investment.  As the PP indicated, this doesn't work if an investment goes down in value.

I estimate how much I could theoretically pay extra on say my mortgage balance over the term of the offer (12 to 18 months worth, whatever the offer timeline is, with a good margin of safety just to be conservative), and will get that much put directly into my checking account.

I just did this in late February, took $11k out with a 2% fee upfront for 0% for 15 months, and put it all toward our 2nd mortgage which is at 5.75%.

The rest are all approximate figures:  I itemize deductions so I used 25% as my marginal tax rate on the interest savings of @ $1,100 which gives me a true cash equivalent of $825.  That minus the $220 fee gives me savings of $605 (just over $40 a month, I use 14 months in my calc since it takes a week or two to get the money moved between the various locations)!

PLUS - it has the added benefit of dropping the balloon by @ $17k (so a factor of 1.545 times).  That's SUPER SWEET!

Just make sure you're sure you can afford to pay early this way...I've been a little too aggressive a couple times in the past, and had to dip into my safety margin to hold things together for a few weeks/months.

arebelspy

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Re: Taking advantage of 0% APR credit card offers
« Reply #4 on: April 23, 2014, 11:32:21 AM »
A friend of mine suggested using Paypal or Square to "pay myself". Yes, there is a transaction fee but it's well worth it if I can invest the cash. Has anyone done something like this before?

There are many ways to do it transaction fee free.  The easiest is to do a balance transfer from another card you own (even if that card doesn't have a balance, or doesn't have one as large as the transfer).  You'll then have a credit on that account, and you can call them to have them send you a check for the overpayment.

Ongoing discussion on this topic here: http://forum.mrmoneymustache.com/welcome-to-the-forum/chase-sent-me-checks-for-0-til-62015-and-only-2-fee/
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sergey_1989

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Re: Taking advantage of 0% APR credit card offers
« Reply #5 on: April 23, 2014, 11:49:42 AM »
Well, unfortunately, some of the offers I was approved for don't include 0% balance transfers. However, there is 0% on purchases.
My assumption is that I can use the credit card to "pay" myself but I'm not sure how to deal with taxes later. If I receive few thousands on Paypal account, won't it be classified as income?

warfreak2

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Re: Taking advantage of 0% APR credit card offers
« Reply #6 on: April 23, 2014, 12:15:49 PM »
If it's income then the "purchase" is a deductible expense. And it's not income, but a transfer between two accounts. I can't imagine you'd be liable for more tax either way.

sirdoug007

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Re: Taking advantage of 0% APR credit card offers
« Reply #7 on: April 23, 2014, 12:36:43 PM »
Why not just put everyday purchases on the 0% card rather than another card or cash to build the balance over time.  Just don't put anything you wouldn't have otherwise purchased on it.

I did this in the past and it is a way to avoid fees from paypal etc.  Then the money you didn't use can be invested somehow to earn more something.  At the end of the 0% period, pay it off in full.

sergey_1989

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Re: Taking advantage of 0% APR credit card offers
« Reply #8 on: April 23, 2014, 12:46:56 PM »
My expenses are already low so even if I use those credit cards for everyday purchases, it will take me a while to spend this much.
I think I'll try Paypal. Even if the stock market tanks, the credit cards will be just a small part of my investments :)

thesinecure

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Re: Taking advantage of 0% APR credit card offers
« Reply #9 on: April 23, 2014, 01:07:47 PM »
Well, unfortunately, some of the offers I was approved for don't include 0% balance transfers. However, there is 0% on purchases.
My assumption is that I can use the credit card to "pay" myself but I'm not sure how to deal with taxes later. If I receive few thousands on Paypal account, won't it be classified as income?
why won't Paypal take 2.9% (there are some that they don't but will require some extra admin of multiple accounts)?  even if they don't, there's still the transaction fee

buying stuff with that card that you would anyway seems like the way to go, at least to defer the cash outlay today which effectively lets you earn the cash rate on a savings account.  you still need a positive spread and it doesn't solve the potential for investments to go down

as others have noted, these types of offers usually work best when you have other balances on other cards - theoretically as long as the offers don't run out then you could probably do this over and over for say 2-3% APR, but if they run out then you've got to eventually pay up

borrowing money to invest is not risk free - run all the financial models and simulations you want, there is an absolute risk that the investment loses value and/or that you can't pay off the balance when it comes due for some reason

some are ok with that risk tolerance - others aren't