The Money Mustache Community
General Discussion => Throw Down the Gauntlet => Topic started by: Pizzabrewer on May 02, 2018, 08:42:57 AM
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Last year I wanted to ramp up our retirement savings, starting around July. I boosted my 401k withholdings to 60% (the max my company would allow) and my wife boosted hers to almost 70%.
This left us with very little take-home pay to live on.
We had started cc hacking earlier in the year and had a slew of cards still at the introductory 0% rate. So we put everything we could on these (alas, not including the mortgage) and ran up almost $20k in cc debt. The positive side to this is our contributions to our retirement during this period were well over $30k. Plus we got some pretty sweet cc bonus dollars.
The 0% rate expired recently on those cards. Lo and behold, BofA had a timely offer for a new cc, $0 balance transfer fee and 0% interest for (I think) 15 months. PNC also came through with an offer on my old, unused Visa card: 2% balance transfer fee and 0% interest for a similar period.
So I utilized these to the tune of about $16k. As long as we make the minimum monthly payment (which appears to be 1% of the balance), they will continue lending us this money for free.
I don't see this discussed much here. Probably due to the danger of missing a payment and getting your rate jacked up to 20% or more. But as Mustachians we have our shit together, no?
Anyone have an epic cc story?
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Oh, and one other benefit. Thanks to our hefty retirement savings (401k, IRAs and HSA) our AGI was reduced enough to qualify for the saver's credit. Our federal tax owed for 2017 was $0.
All largely thanks to the generosity of the credit card companies.
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Anyone have an epic cc story?
Sadly, many of us do...that's why we're here.
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Nice work!
I wasn't able to completely pay off one of my cc's one month back in 2008. It had a balance of maybe $120. I paid it off the next month. That's the best story I've got for debt of any kind.
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Are these 0% balance transfers without any other associated fees? I’ve had some offers for 0% but there’s always a transfer fee which ends up being 2-3% and rendering the whole thing moot.
And if so can you balance transfer multiple cards to one card? I.e. I can make 2-3 minimum spends on multiple cards, then transfer each of those balances to the one 0% card? That would be a nice way to kill multiple birds with one stone.
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Are these 0% balance transfers without any other associated fees? I’ve had some offers for 0% but there’s always a transfer fee which ends up being 2-3% and rendering the whole thing moot.
And if so can you balance transfer multiple cards to one card? I.e. I can make 2-3 minimum spends on multiple cards, then transfer each of those balances to the one 0% card? That would be a nice way to kill multiple birds with one stone.
Yes, as stated above the BofA offer was for $0/0% transfer fee and 0% interest. The PNC offer was for 2% transfer fee (the lowest I'd seen other than the aforementioned BofA offer) and 0% interest. The only reason I didn't transfer the whole amount to the BofA card was the credit limit they gave me. So $4200 of the transfers went to PNC at 2%. Still a great deal.
And yes you can transfer multiple balances. We consolidated the balances on 4 cards to these two.
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Anyone have an epic cc story?
Sadly, many of us do...that's why we're here.
Ha. I think you're talking of a "bad" epic story. I'm advocating using the cc companies' offers to our benefit. I know credit card debt has a horrible reputation, but a $16k loan at 0% interest for 15 months, why wouldn't you?? I have the cash to pay them off in full, but that would be foolish.
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I applied for the Amex EveryDay card with $0 fee and 0% APR for 15 months. I got a $25K limit, but only a $7,500 balance transfer limit. DAMN. :-(
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This seems like a terrible idea to me. How long will it take before you run out of 0% interest balance transfer options? Then what? You pay it off quickly? You draw from the savings accounts that you deferred money into earlier? What happens if during this (lets just say) 2 year time frame, the market goes down significantly? Then you're either paying it back with investments that are now worth less when you put them in, or paying with money that could be catching the next upswing in the market. This sounds like an fools game to be borrowing on a credit card to pump up your savings rate.
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The potential horror story of it all is if you miss a payment and then interest is charged from the very beginning and with $20k sitting there for a year, you're hit with a 20%, $4000 interest charge.
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The potential horror story of it all is if you miss a payment and then interest is charged from the very beginning and with $20k sitting there for a year, you're hit with a 20%, $4000 interest charge.
This too. So many things wrong with this "accumulate credit card debt to invest more" scheme.
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Ha! I knew this post would draw plenty of "what-if-isms".
Credit card debt = always bad. Right?
Wrong.
Like I said above, if you have your shit together you won't miss a payment. I have several options going forward (14 months from now, a virtual eternity in planning terms) to pay off the debt or roll it into another 0% situation.
Taking advantage of an interest-free loan, that's a good thing if you know what you're doing. Y'all gotta get over the (in most cases justified) hate for cc debt.
Me, I'll take the free money.
Boo-yah.
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In the long-term with credit cards there is more risk involved than other types of debt, which requires a greater return for it to be worth it. This is why there will be more criticism of this idea. Leverage is good, but credit card debt is risky due to the necessity of a 0% offer being available elsewhere, having the cash on hand to pay off at any point if no other offer is available, and carrying it on your report will affect your credit score (balances on revolving accounts).
I'm 26 years old and have moved around about $6,000 every year at 0% which has been worth it for the opportunity to travel on amazing trips like hiking the Appalachian Trail, and doing a yoga teacher training in Bali, even with entry-level income, and now that I've progressed in my career it is much more manageable and not necessary to carry this debt anymore. It takes discipline and awareness to do this effectively, and you have to know when it's time to move on.
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Anyone have an epic cc story?
Sadly, many of us do...that's why we're here.
Ha. I think you're talking of a "bad" epic story. I'm advocating using the cc companies' offers to our benefit. I know credit card debt has a horrible reputation, but a $16k loan at 0% interest for 15 months, why wouldn't you?? I have the cash to pay them off in full, but that would be foolish.
Yeah, I get it. I don't even have mileage cards (although I do have 2 "cash-back" cards). Everything else takes too much energy and I'd rather spend that time and focus on something with a much greater reward -- work! Some people have the desire (and time) to chase these rewards. I don't, so the chance of missing a payment due to the churn would be greater. Good luck to you though.
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I've gotten into this situation because I'm stubborn, and don't do a budget or optimize as well as I could (I'm half-ass, rather than badass).
It's silly with the net worth my wife and I have (passed $1 mill last year) that we have these little debts, yet we're here because I don't want to sell investments and time things. A couple of words of advice:
1. Transfer balances EARLY in the billing cycle. especially with Chase, it seems to take days for the balance to move to the next card, and you don't want to tack on late fees.
2. Make sure you're logging onto the website of your card issuer every month. B of A changed my minimum payment once, and it caused all sorts of fees/penalties.
3. It helps to have a "cross-ruff" where you're moving balances around between three different banks. At any time, I have floating balances with two out of three banks, so there's always a card at $0 that's ready for the next move.
4. Remember that these credit cards are CALLABLE. This doesn't matter until suddenly it does.
5. Be aware of the places in your life that are effectively interest free: tax returns, bonuses, other spikes in expenses/income, like planned charitable giving (my wife and I contribute to our church throughout the year). Use these to try to pull ahead on the debt by contributing into investment accounts early in the year.
In my case, I've decided to think about these debts as "negative bonds", so I'm gradually paying them down now to try to trim my investment risk, with the idea that I can dramatically ramp the debt back up if a bear market suddenly appears.
Good luck!
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In college I used to use 0% cash advances to invest in CDs, then pay the CC off before the rate changed. It was just free money to earn interest on.
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I've been CC borrowing to invest for the past 2.5 years to the tune of about $60k of rotating debt. I have 5 cards that I rotate. I invest with Realty Shares (need to be accredited investor) and pick situations that net me 9 - 16% IRR (before CC fees). Paying the 2 - 3% CC transfer fee +the yearly fee usually eats up about 3 months worth of profit, but since my rotations are 15 months, I'm still getting a year's worth of investments with borrowed money.
I have all CC set up on auto debit so I don't miss a payment. Plus, I have a nice cash flow that should anything go awry, I can pay off the cards. If I was living really tight, I wouldn't be comfortable trying this maneuver. Also, if my only option to invest was the stock market, I wouldn't be comfortable (that's just me!). I do realize that RS as a platform could go belly up, but it's a risk I'm willing to take for the nice returns on a portion of my overall portfolio. I love seeing that "mailbox money" roll in every month.
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I've been CC borrowing to invest for the past 2.5 years to the tune of about $60k of rotating debt. I have 5 cards that I rotate. I invest with Realty Shares (need to be accredited investor) and pick situations that net me 9 - 16% IRR (before CC fees). Paying the 2 - 3% CC transfer fee +the yearly fee usually eats up about 3 months worth of profit, but since my rotations are 15 months, I'm still getting a year's worth of investments with borrowed money.
I have all CC set up on auto debit so I don't miss a payment. Plus, I have a nice cash flow that should anything go awry, I can pay off the cards. If I was living really tight, I wouldn't be comfortable trying this maneuver. Also, if my only option to invest was the stock market, I wouldn't be comfortable (that's just me!). I do realize that RS as a platform could go belly up, but it's a risk I'm willing to take for the nice returns on a portion of my overall portfolio. I love seeing that "mailbox money" roll in every month.
Now THAT'S the kind of epic cc story I was asking for! Congrats on working the cc companies to your advantage.
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I've gotten into this situation because I'm stubborn, and don't do a budget or optimize as well as I could (I'm half-ass, rather than badass).
It's silly with the net worth my wife and I have (passed $1 mill last year) that we have these little debts, yet we're here because I don't want to sell investments and time things. A couple of words of advice:
1. Transfer balances EARLY in the billing cycle. especially with Chase, it seems to take days for the balance to move to the next card, and you don't want to tack on late fees.
2. Make sure you're logging onto the website of your card issuer every month. B of A changed my minimum payment once, and it caused all sorts of fees/penalties.
3. It helps to have a "cross-ruff" where you're moving balances around between three different banks. At any time, I have floating balances with two out of three banks, so there's always a card at $0 that's ready for the next move.
4. Remember that these credit cards are CALLABLE. This doesn't matter until suddenly it does.
5. Be aware of the places in your life that are effectively interest free: tax returns, bonuses, other spikes in expenses/income, like planned charitable giving (my wife and I contribute to our church throughout the year). Use these to try to pull ahead on the debt by contributing into investment accounts early in the year.
In my case, I've decided to think about these debts as "negative bonds", so I'm gradually paying them down now to try to trim my investment risk, with the idea that I can dramatically ramp the debt back up if a bear market suddenly appears.
Good luck!
Good advice, thanks. Yes I noticed how long it takes for these transfers to process. It's not a last-minute thing to do for sure. And yes you need to keep on top of the accounts. I check them all at least once a week. I would hope anyone here is smart enough to pay attention (which eliminates the most common criticism of this strategy). Thanks again!
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The potential horror story of it all is if you miss a payment and then interest is charged from the very beginning and with $20k sitting there for a year, you're hit with a 20%, $4000 interest charge.
This too. So many things wrong with this "accumulate credit card debt to invest more" scheme.
Yup, if you don't trust yourself enough to keep current with your accounts then this isn't a strategy for you.
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@secondcor521 has an epic thread in another forum from back in the days when interest rates were really high for savings accounts and CDs and i think he managed to do like 250-500k rolling balances and think about the ROI on that level of free money with a guaranteed return.
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Isn't this scheme based on the fallacy that you will have a positive return (or more precisely a greater return than your balance transfer costs) on your investment over the short amount of time you can get away with zero interest credit using balance transfers? What I am saying that if you look at the S&P500 rolling returns for a 1, 2 or 3 year period, the likely horizon for what you're trying to do, there is not a small chance that you will return less than 2%. I understand the churning part of it, but that doesn't require you to carry over a balance to achieve churning (aka you pay it off every month). And the thread you are spinning of of "The DON'T pay off your mortgage club" also makes sense because mortgages are based on a very long payoff period (30 years?) where you can safely assume a 7% (or whatever you want to assume) ROI.
Again, I ask, how long do you think you can get away with interest free credit, and how much in balance transfers is it going to cost you?
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BofA was $0 balance transfer fee. Zero. Zip. Nada. Amex currently has a similar offer. As I stated above I paid 2% on a fraction of the total. The blended fee worked out to 0.5% for 15 months. About 0.4% per annum. With enough planning (14 months at this point, which as I said above a virtual eternity in planning terms) I expect to pay no transfer fees in the future. I doubt the idea of 0% balance transfers will go away in the next year or 2. Or I could pay off the balance with cash on hand. But as long as the cc companies are willing to lend me the money for free, I'll be at the front of the line.
Did you miss the part where I said our increased 401k withholding thanks to this strategy lowered our 2017 federal tax to $0.00? That has already more than returned the $84 balance transfer fee we paid. In multiples. Many multiples.
Clearly you hate this idea. I get it. It's not for you. But for me, I'll take the free money. It's all about working the angles to our advantage. Investment returns are immaterial. Zero percent money is zero percent money. Seems foolish to me to reject it because "evil cc companies" and "what-ifs".
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@secondcor521 has an epic thread in another forum from back in the days when interest rates were really high for savings accounts and CDs and i think he managed to do like 250-500k rolling balances and think about the ROI on that level of free money with a guaranteed return.
Ironically enough, I chronicled that story on a site named fatwallet, which has ceased operations. I think it was over $500K at the most, and to address the concern of the poster immediately below boarder42, it was all stored in high yield savings accounts paying about 5% for about a year. I don't recall the numbers but I think I cleared about $14K to $18K after the minimal fees.
The game changes over time, though. That one is no longer feasible, but there are others out there. When those go under, someone else will find another thing to exploit.
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Over the years I have used them a number of times with great success. This post talks about using debt to increase wealth.
https://forum.mrmoneymustache.com/investor-alley/are-there-any-studies-showing-that-'dry-powder'-in-your-aa-actually-is-valuable/msg1988822/#msg1988822
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@secondcor521 has an epic thread in another forum from back in the days when interest rates were really high for savings accounts and CDs and i think he managed to do like 250-500k rolling balances and think about the ROI on that level of free money with a guaranteed return.
Ironically enough, I chronicled that story on a site named fatwallet, which has ceased operations. I think it was over $500K at the most, and to address the concern of the poster immediately below boarder42, it was all stored in high yield savings accounts paying about 5% for about a year. I don't recall the numbers but I think I cleared about $14K to $18K after the minimal fees.
Dayam. I was doing the same but with much less float. ING was paying out a good rate and the 0/0 offers were everywhere. I charged everything I could, "paid" my savings account, and the 0% card balance grew.
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Secondcor, tomsang and MsSindy you are my heroes.
Dang, my efforts are feeble in comparison. Well done!
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Did you miss the part where I said our increased 401k withholding thanks to this strategy lowered our 2017 federal tax to $0.00? That has already more than returned the $84 balance transfer fee we paid. In multiples. Many multiples.
This is a weak analysis. There is a deferred tax liability associated with pre-tax accounts, which may or may not end up being 0 depending on your situation in the future. Also, as long as the credit card balance remains the risk is still there and return not fully realized.
The thought behind this is good, just a little too emotional / brash in response to people who are just asking you simple questions.
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One other habit that's helped keep me current on this is setting all payments for credit cards on the same day of the month (requires a bit of finesse getting due dates synced up).
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Dang, my efforts are feeble in comparison. Well done!
Pizzabrewer,
Since you are able to manage the credit card dance, you may also be interested in Arebelspy's posts on selling tradelines. Seems to be some money on the table for people who can juggle multiple cards.
author=arebelspy link=topic=66145.msg1356357#msg1356357 date=1482994662 (http://author=arebelspy link=topic=66145.msg1356357#msg1356357 date=1482994662)
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
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If someone wants to offer me 0% I'll take it. Have a couple months left on a Lowe's fridge. 2017 was a really weird year for us financially and would have left us with a crazy tax bill had we not utilized a couple more 0% cards (opened specifically for this). Maxed out the retirement accounts and lowered our tax bill significantly. Now trying to pay the Piper because I don't want revolving credit card debt. I need that space available for CC hacking :D
Sent from my H1623 using Tapatalk
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
I was going down the tradeline route, but pulled out as we were doing multimillion dollar financing between home and business. They were offering very sizable amounts for our $50k 20+ year credit cards. I also would not want to lose those, but I hear that the credit stays with the report even if they shut down the cards.
I believe having Loc's provides way more liquidity if an opportunity pops up. See previous posts. I have made well in excess of $500k by using CC, LOC, and 401k loans over the years.
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Did you miss the part where I said our increased 401k withholding thanks to this strategy lowered our 2017 federal tax to $0.00? That has already more than returned the $84 balance transfer fee we paid. In multiples. Many multiples.
This is a weak analysis. There is a deferred tax liability associated with pre-tax accounts, which may or may not end up being 0 depending on your situation in the future. Also, as long as the credit card balance remains the risk is still there and return not fully realized.
The thought behind this is good, just a little too emotional / brash in response to people who are just asking you simple questions.
Yup maybe I was a bit too strident in my responses. The internet, ya know? It is frustrating getting hammered with criticisms that boil down to "really bad things can happen". I'm pretty sure I'm aware of what things can happen and have the discipline to avoid them.
I'd argue it's not a weak analysis. Borrowing post-tax money allowing us (greater dollar) pre-tax investments while deferring all federal tax liability for years, that's a win in my book.
And opportunities to borrow money for free aren't plentiful. I'll take advantage of the ones offered.
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3. It helps to have a "cross-ruff" where you're moving balances around between three different banks. At any time, I have floating balances with two out of three banks, so there's always a card at $0 that's ready for the next move.
aka a bridge loan
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3. It helps to have a "cross-ruff" where you're moving balances around between three different banks. At any time, I have floating balances with two out of three banks, so there's always a card at $0 that's ready for the next move.
aka a bridge loan
Heh, I see what you did there.
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Kudos!
I did this years ago when I first got a mortgage- my interest rate was 9% and I had a credit card with a $20k limit- Citibank would send you a cheque for 85% of your limit for zero cost @ 0% for 18 months which I deposited in my offset account (Australia) and used another card for day to day usage. 18 months later, I just payed the balance back. Today with much lower mortgage rates plus transfer fees which didn’t exist back then, it’s pretty much a wash.
Just last week I suggested to my husband that we find a 0% credit card for our upcoming solar panel purchase to smash out that cost quickly and not see a dint in our stash... I know it’s a probably a phycological benefit at best, but hey, every bit counts!!
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You know, this thread appeared just as I'm trying to decide which direction to move:
In one hand, I have a post-tax investment account of roughly $20,000, and approximately $3,000 set aside in savings accounts
In the other hand, I have some debts that have accumulated to approximately $32,000:
$6,000 car loan (3% interest; $540 monthly)
$6,600 AC loan (0% interest; $160 monthly)
$1,180 that I owe my children (I pay them 1% of the balance every two months)
$4,000 of credit card balances for actively used cards that involve spending from the current month (this represents a sustainable amount of monthly spending for our household)
$16,600 of credit card balances that are currently at 0% (expiring between June 2018 and June 2019
It seems as though I ought to be able to manage that investment account (via the 4% rule) to sustain the debts I am describing, and perhaps slightly more. Thoughts?
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So I realized my new Amex Blue Cash card is 0% for 15 months. I got it for the $250 bonus, but now I'm charging everything on it and just paid the minimum ($35) on the first bill.
I have at the moment over $25k of 0% money available to me, of which I'm only using about $16k. I need to increase those cc balances, ASAP.
I'm the anti-Dave Ramsey.
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@secondcor521 has an epic thread in another forum from back in the days when interest rates were really high for savings accounts and CDs and i think he managed to do like 250-500k rolling balances and think about the ROI on that level of free money with a guaranteed return.
Ironically enough, I chronicled that story on a site named fatwallet, which has ceased operations. I think it was over $500K at the most, and to address the concern of the poster immediately below boarder42, it was all stored in high yield savings accounts paying about 5% for about a year. I don't recall the numbers but I think I cleared about $14K to $18K after the minimal fees.
The game changes over time, though. That one is no longer feasible, but there are others out there. When those go under, someone else will find another thing to exploit.
Definitely not feasible on that scale...but I stumbled upon this beauty:
https://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/
5% return on up to 5k, and it appears you can have up to 4 accounts...so for 1 year with 20k floating on credit cards into the 5% savings account --> 1k net gain...this is very tempting since I currently have 13k I can float at 0% for ~14 more months. Never really messed with this before...something to think about for sure.
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I went ahead and rolled about $1,900 to a chase card I already had. 3% fee, but no interest for 46 weeks. It's a lower rate than my car or my mortgage.
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I went ahead and rolled about $1,900 to a chase card I already had. 3% fee, but no interest for 46 weeks. It's a lower rate than my car or my mortgage.
Ex-fucking-actly!
I will say that there are better deals out there (0% and 2% transfer fees) but I quibble.
Lenders are offering money at 0% and there are those (even here) who will warn against the evil cc companies. Use what they offer, I say.
Well done.
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
Dude it's not an either/or.
It's money being lent at 0% interest. All you gotta do is not fuck up. As the founder of the "Don't pay of your mortgage thread" I'm surprised you're not on board with borrowing free money.
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
Dude it's not an either/or.
It's money being lent at 0% interest. All you gotta do is not fuck up. As the founder of the "Don't pay of your mortgage thread" I'm surprised you're not on board with borrowing free money.
its not secured for a very long amount of time. and by not "fuck up" you mean not have the credit card companies change their policy on how youre borrowing and stop allowing 0% balance transfers or not have the equities you're investing in take a 30% hair cut all while the 0% balance transfer goes defunct. too many variables for very little gain here. its not as simple as saying make the minimum payment each month and you'll come out ahead.
With all that being said if you're so wildly confident in this why arent you running up 250k - 500k in 0% debt like secondcor did - the answer is b/c there isnt a secure enough investment vehicle to make it worth it right now. you're playing with fire to make pennies, if you arent willing to scale it for fear of losing it all then its probably not a sound long term strategy.
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
Dude it's not an either/or.
It's money being lent at 0% interest. All you gotta do is not fuck up. As the founder of the "Don't pay of your mortgage thread" I'm surprised you're not on board with borrowing free money.
its not secured for a very long amount of time. and by not "fuck up" you mean not have the credit card companies change their policy on how youre borrowing and stop allowing 0% balance transfers or not have the equities you're investing in take a 30% hair cut all while the 0% balance transfer goes defunct. too many variables for very little gain here. its not as simple as saying make the minimum payment each month and you'll come out ahead.
With all that being said if you're so wildly confident in this why arent you running up 250k - 500k in 0% debt like secondcor did - the answer is b/c there isnt a secure enough investment vehicle to make it worth it right now. you're playing with fire to make pennies, if you arent willing to scale it for fear of losing it all then its probably not a sound long term strategy.
Well the main reason I don't take out $250k to a half mill in 0% cc debt is because I don't have the credit rating/income/borrowing power to qualify for those amounts. I'm keeping this (necessarily) in the realm of what I can pull off, which makes sense at my income level and wealth. By utilizing this strategy I lowered our federal tax to $0 (zero dollars) and received a tax refund of $1100 from the state. Maybe in your world this is small potatoes (congrats to you) but this is a major win in my insignificant situation.
But none of that would have been possible without the 0% cc debt.
And, BTW, in addition to raising our retirement balances, we've managed to sock away enough in "emergency" funds to pay off the balances at a moment's notice if needed. So I count our risk at almost nothing.
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way way way more money in selling tradelines than doing this much higher risk balance transfer maneuver. I'm all about taking smart calculated risks but even this isnt worth the effort IMO. If something like Secondcor did was still available i'd be interested b/c thats real money thats protected.
Dude it's not an either/or.
It's money being lent at 0% interest. All you gotta do is not fuck up. As the founder of the "Don't pay of your mortgage thread" I'm surprised you're not on board with borrowing free money.
its not secured for a very long amount of time. and by not "fuck up" you mean not have the credit card companies change their policy on how youre borrowing and stop allowing 0% balance transfers or not have the equities you're investing in take a 30% hair cut all while the 0% balance transfer goes defunct. too many variables for very little gain here. its not as simple as saying make the minimum payment each month and you'll come out ahead.
With all that being said if you're so wildly confident in this why arent you running up 250k - 500k in 0% debt like secondcor did - the answer is b/c there isnt a secure enough investment vehicle to make it worth it right now. you're playing with fire to make pennies, if you arent willing to scale it for fear of losing it all then its probably not a sound long term strategy.
Well the main reason I don't take out $250k to a half mill in 0% cc debt is because I don't have the credit rating/income/borrowing power to qualify for those amounts. I'm keeping this (necessarily) in the realm of what I can pull off, which makes sense at my income level and wealth. By utilizing this strategy I lowered our federal tax to $0 (zero dollars) and received a tax refund of $1100 from the state. Maybe in your world this is small potatoes (congrats to you) but this is a major win in my insignificant situation.
But none of that would have been possible without the 0% cc debt.
And, BTW, in addition to raising our retirement balances, we've managed to sock away enough in "emergency" funds to pay off the balances at a moment's notice if needed. So I count our risk at almost nothing.
if you're storing enough "emergency" funds to pay this off i cant imagine this is close to worth the risk - vs just investing your emergency fund which would create the exact same situation. you're keeping a large enough sum of money on the sidelines to pay off all the debt you have - so you're not actually leveraged at all. you're just choosing to not pay down credit cards with money you have sitting around b/c you dont have to.
if i have 20k in disposable income to invest and 20k in credit card debt available to me and i do
1. invest my 20k and keep my CC debt as my E fund
or
2. keep 20k in an "e Fund" and run up 20k in CC debt at 0% - and invest that 20k
i have the same networth and same ability to pay for an upcoming events in either situation.
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Clearly you're not grokking what I'm saying.
I will ask, though, what is the "risk" you keep harping on?
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Clearly you're not grokking what I'm saying.
I will ask, though, what is the "risk" you keep harping on?
you said you have enough money in an EFund to pay off your cards - yet you're claiming you have all of this "leverage" out there that allowed you to max all these accounts and get these great tax breaks - thru this CC debt. which could be how you got there but if your EFund is large enough to cover the CC debt you could have just as easily allocated that money towards it - what is gained by keeping money in you Efund over paying down these debts. and the risk is for some reason your bank F's up and you're stuck with a bill for all that interest thats been running up all so you could arbitrage maybe 1% interest on 20k sitting in an efund earning some minimal bank interest?
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Bonus points if you read this in "Gru voice" in your head
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that sums up what i had read pretty well.
OPs strategy works in very minute situations
you arent going to max tax advantaged space this year - but you're going to have some major windfall or increase in earnings next year that can allow for you to cover this year's max and next years. i dont really see any other way that this is actually advantageous in the long run. esp if you're keeping the cash sidelined to pay off the debt.
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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.
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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.
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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.
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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.
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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.
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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?
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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.
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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. ;)
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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@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.
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@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.
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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
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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?
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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
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@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.
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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.
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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...
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This whole thing sounds like a really, really bad idea.
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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.
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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.
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@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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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I love that you added "It's genius." at the end. I'm considering making that my auto signature. With your permission of course.
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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...
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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
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You're paying 3% in fees
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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.
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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.
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Yep lots of costs and optimization missed due to not running the real numbers and putting blinders on for the future.
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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!"
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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.
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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.
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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.
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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.
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.
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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...
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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.
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The general principle of borrowing 0% money is simple. You could take the loan, turn it into cash, bury it in your back yard and 15 months later dig it up and repay the loan. You'd be no worse off than before. But as we're smart clever folks we can figure out more profitable ways to use that money, no? I happen to be at the exact income level that it makes sense to lower our AGI to eliminate our tax. The 0% money allows us to eat and pay our mortgage while we put almost all our pay into retirement accounts.I'm probably an edge case for this particular scenario. But under any circumstance you can figure out how to profit from a 0% loan.
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1. It's not a 0% loan
2. At some point you have to pay them back.
You're just racking up debt unless you somehow have a large increase in income or stop contributions to your retirement accounts.
Youve failed to explain how any of that works. Youre acting like you've found free money that doesn't need to be paid back. At some point you'll have to pay the Piper.
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1. I've answered this one several times already and don't feel like doing it again.
2. I've never said I thought the cc debt was exempt from being paid back. At the point I can no longer kick the can down the road I'll stop the retirement funding to pay the piper. In the meantime I'll have 2 or 3 years of tax savings in the neighborhood of $6k/year while having front-loaded the retirement accounts.
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The general principle of borrowing 0% money is simple. You could take the loan, turn it into cash, bury it in your back yard and 15 months later dig it up and repay the loan. You'd be no worse off than before. But as we're smart clever folks we can figure out more profitable ways to use that money, no? I happen to be at the exact income level that it makes sense to lower our AGI to eliminate our tax. The 0% money allows us to eat and pay our mortgage while we put almost all our pay into retirement accounts.I'm probably an edge case for this particular scenario. But under any circumstance you can figure out how to profit from a 0% loan.
You are putting borrowed to money into your retirement accounts but you are also borrowing from your 401(k)--and that money goes where? This makes no sense to me. Borrowing from your 401(k) is almost always a terrible idea. What would possibly motivate you to borrow from your 401(k)? That's something you should only do in desperation, and probably not even then.
As nick663 points out, at 0% you probably don't want to be maxing retirement contributions anyway. Your tax savings very well could be an illusion.
I've said before and I'll say it again: The 0% balance transfers won't last forever. If the cash was in your backyard you'd be fine. But it is in your IRAs and your 401(k) (or owed to your 401(k)??). What's your plan when the gravy train stops? And it will stop, that part is guaranteed.
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It wasn't an illusion on our 2017 tax return. It was thousands of cold, hard dollars. Plus the state, which I hadn't originally even considered, sent us an $1100 refund thanks to my tax-lowering strategy.
If you look at my previous post you'll see this isn't a perpetual strategy. 2017 already happened, 2018 for sure, 2019 possibly.
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You haven't shown any math or actual numbers other than a single year. You haven't shown how you expect to repay this debt.
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1. I've answered this one several times already and don't feel like doing it again.
2. I've never said I thought the cc debt was exempt from being paid back. At the point I can no longer kick the can down the road I'll stop the retirement funding to pay the piper. In the meantime I'll have 2 or 3 years of tax savings in the neighborhood of $6k/year while having front-loaded the retirement accounts.
I would love to see a breakdown of how you have 6k/year tax savings while having a total $0 income tax liability. I don't see how both of those could be true without huge amounts of credit card debt.
2017 tax brackets (married filing jointly):
10% Up to $18,650
15% $18,651 - $75,900
For simplicity sake, let's just say you're putting the full 48k (2017 max 401k contributions for you and your wife if 55 and older) on the credit card. The maximum federal tax impact that could have is 18650*.1+((48,000-18650)*.15)=$6267.5
It wasn't an illusion on our 2017 tax return. It was thousands of cold, hard dollars. Plus the state, which I hadn't originally even considered, sent us an $1100 refund thanks to my tax-lowering strategy.
Just because you saved money doesn't mean it was the best strategy available. You can "save" 100s of dollars every time you go into Kohl's but you probably could have gotten every item cheaper elsewhere.
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You can "save" 100s of dollars every time you go into Kohl's but you probably could have gotten every item cheaper elsewhere.
I disagree with this completely. Kohl's is pretty solid. About 3 years back, my fiancèe needed some t-shirts. It was winter and we were at Kohl's. We went through the clearance racks and found 10 or so shirts that she was able to get for less than $3 each (many were $1.xx) after the clearance discount stacked with our 30% off. They were solid shirts too...Frozen and other various Disney/character branded shirts. Even the check out person was like...whaaa??!?!! when she rung up our stuff.
So don't tell me Kohl's is a rip off... blasphemy I tell you! 10 shirts for ~$20...you would have a hard time beating that at Goodwill! (Disclaimer - I can't back that statement up since I have never actually shopped for shirts at Goodwill).
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It seems as though Pizzabrewer is advocating:
- owning your assets earlier, and
- reducing tax liability now.
The issue with #1 is simply price. I disagree that a weak economy would cause the ability to find cheap credit card space to dry up. I think the opposite would happen: a strong economy--with higher inflation--will change the effective cost of borrowing from 3% to 5%-9%.
With regard to reducing tax liability now, a massive upward tax increase between now a retirement could affect that. Republicans are in power today, but during the course of a multi-decade period, there's bound to be a backlash that provokes right-sizing Social Security via new revenue.
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but he doesnt own his assets he's borrowing against them.
at some point the money has to be paid. and if you're getting to 0 income tax then you're sacraficing 12% and 10% tax dollars at the sake of 22% tax dollars or higher in the future.
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It seems as though Pizzabrewer is advocating:
- owning your assets earlier, and
- reducing tax liability now.
The issue with #1 is simply price. I disagree that a weak economy would cause the ability to find cheap credit card space to dry up. I think the opposite would happen: a strong economy--with higher inflation--will change the effective cost of borrowing from 3% to 5%-9%.
With regard to reducing tax liability now, a massive upward tax increase between now a retirement could affect that. Republicans are in power today, but during the course of a multi-decade period, there's bound to be a backlash that provokes right-sizing Social Security via new revenue.
Indeed, interest rates tend to decline as the economy weakens. But I'm talking about the availability of credit, which also declines when the economy weakens. Banks simply don't like to lend money in weak economies and go into self-preservation mode instead. We saw that in spades beginning in 2008 and the next few years when even secured loans were hard to get, regardless of credit. Right now those 0% teaser rates are plentiful but when economy weakens, those will vanish just like they did in 2008. When that happens, all that 0% debt will become 28% (or whatever the credit card interest is). Because the money is either in retirement accounts or has been spent on every day expenses, the OP cannot pay off that high interest debt all at once. Or at least can't do it without withdrawal penalties. He did mention when he can't get the teaser rates anymore he intends to pay off the loans by reducing his retirement contributions. That implies he intends to pay off the unsecured debt over time. At 28% that might be painful. And of course, reducing retirement contributions means higher tax rates in the future too.
I also agree that lowering your tax burden right now is generally good policy (a bird in the hand and all that). But as nick663 points out, the benefits are pretty marginal once you get below about 10% tax bracket because you'll be withdrawing at ordinary income rates, instead of the more favorable capital gains rates. Again, bird in the hand, so maybe it is a wash. But it certainly seems prudent to at least do the calculation instead of just guessing.
Also, the OP is also borrowing heavily against his 401(k) for reason ($30,000, I believe). For one, there is the opportunity cost because you aren't participating in the market while the money withdrawn. That cost is hard to account for, but should be considered. But another problem is that interest on the 401(k) is paid with after-tax dollars, but goes into the 401(k) where it is taxed again at the time of withdrawal. The OP is definitely not including that double taxation cost.
And there is the risk of job loss. No one expects to lose their job, but I've seen some strange things happen in the employment world and those things can happen out of the blue. In that event, 401(k) loans typically have to be paid back fairly quickly. Where will that money come from?
I see some potential time bombs with this approach.
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PB the thing that we are all responding to that we don't see accounted for here is risk. You speak of "kicking the can down the road" and paying off the debt eventually. The big risk is how big the debt will be, when you will be called to account, and the conditions you'll be operating under when its time to pay it off. It just seems a lot easier to live on less than what you make and save the difference.
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For those that are not maximizing their 401k contribution, they should be getting a 401k loan and increasing their 401k contribution. This is a no brainer, especially if you are in a higher tax bracket.
For others, if you can't find investment opportunities that pay great than 10%, then you are not trying very hard. Taking advantage of 3% zero interest 18 month loans is a windfall.
I get multiple opportunities per month to invest in opportunities that pay out 20% or more per year. Figuring the highest ROI is the hardest part. Most are very positive.
This past month, I have an opportunity to invest $75k and be paid back within 2 years at $195k. This is not unusual if you are looking out for investments. Credit card advances, 401k loans, LOC, and other debt can turbo charge your FIRE date if used smartly. In some cases, I don't hit my projected return, but I have never hit less than a 10% return on my investment.
There are so many friends, family, acquaintances, and others that want people to invest or buy their property that it is ridiculous to think that you can borrow for 3% and get 10%++ year after year.
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For those that are not maximizing their 401k contribution, they should be getting a 401k loan and increasing their 401k contribution. This is a no brainer, especially if you are in a higher tax bracket.
For others, if you can't find investment opportunities that pay great than 10%, then you are not trying very hard. Taking advantage of 3% zero interest 18 month loans is a windfall.
I get multiple opportunities per month to invest in opportunities that pay out 20% or more per year. Figuring the highest ROI is the hardest part. Most are very positive.
This past month, I have an opportunity to invest $75k and be paid back within 2 years at $195k. This is not unusual if you are looking out for investments. Credit card advances, 401k loans, LOC, and other debt can turbo charge your FIRE date if used smartly. In some cases, I don't hit my projected return, but I have never hit less than a 10% return on my investment.
There are so many friends, family, acquaintances, and others that want people to invest or buy their property that it is ridiculous to think that you can borrow for 3% and get 10%++ year after year.
if you're in a higher tax bracket you should be able to max your 401k without a loan.
i'm more interested in your 75k - 195k what is this opportunity and how it is rock solid b/c if those were easily available everyone would jump on them.
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All right, someone who "gets it".
Even without your ability to find good investments, the 0% money is a no-brainer. I've already turned it into one $150 Discover savings bonus and another $150 pending (didn't have time to turn the money around often enough for the $200 bonuses). So the 3% is now down to 0.5%. With the next bonus I'll be in positive territory.
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All right, someone who "gets it".
Even without your ability to find good investments, the 0% money is a no-brainer. I've already turned it into one $150 Discover savings bonus and another $150 pending (didn't have time to turn the money around often enough for the $200 bonuses). So the 3% is now down to 0.5%. With the next bonus I'll be in positive territory.
you're not in a higher tax bracket you're getting your taxes to 0. Selectively choosing words with out the classifiers doesnt help you. you dont fit either of the situations Tomsang proposed.
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For those that are not maximizing their 401k contribution, they should be getting a 401k loan and increasing their 401k contribution. This is a no brainer, especially if you are in a higher tax bracket.
For others, if you can't find investment opportunities that pay great than 10%, then you are not trying very hard. Taking advantage of 3% zero interest 18 month loans is a windfall.
I get multiple opportunities per month to invest in opportunities that pay out 20% or more per year. Figuring the highest ROI is the hardest part. Most are very positive.
This past month, I have an opportunity to invest $75k and be paid back within 2 years at $195k. This is not unusual if you are looking out for investments. Credit card advances, 401k loans, LOC, and other debt can turbo charge your FIRE date if used smartly. In some cases, I don't hit my projected return, but I have never hit less than a 10% return on my investment.
There are so many friends, family, acquaintances, and others that want people to invest or buy their property that it is ridiculous to think that you can borrow for 3% and get 10%++ year after year.
if you're in a higher tax bracket you should be able to max your 401k without a loan.
i'm more interested in your 75k - 195k what is this opportunity and how it is rock solid b/c if those were easily available everyone would jump on them.
Sounds like hard money lending to me, which is not low risk despite tomsang's experience. I'm not sure if he's gotten lucky or is good or not done it long enough to get bitten or what.
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i'm more interested in your 75k - 195k what is this opportunity and how it is rock solid b/c if those were easily available everyone would jump on them.
You are right. Most of the opportunities that I invest in relate to something that I have knowledge about. Many of the opportunities are there because I have specific knowledge and access to immediate capital(Credit Cards, LOC, Savings, etc.)
Smaller ones:
IE people don't like storing a 17 foot kayak in their garage all winter. You can buy a good used one for $500-$600 in December and sell it for $800-$1,200 in May. Found out because I wanted a kayak, bought one in November, played with it over the winter, sold it for a profit. These type of opportunities are all over the place. If you have a passion for something, then you should be able to spot a bargain, when to buy, when to sell, etc. Power tools are another one that clog up garages. Small dollar, small risk.
Concert tickets to my favorite band. Buy four at pre-sale hoping friends could come. Sold out in minutes. Some times friends are not interested attending. Sell the tickets for double; pays for our tickets and dinner. I have done this a dozen times over the years not as an investment, but desire to have friends join us. We tend to go to a half a dozen or so concerts a year with friends if you are all wondering why we can't find a friend :) The knowledge that the worst case scenario is that we resell the tickets for a profit has given me the confidence to buy extra tickets. Obviously, people make a living out of scalping tickets.
Store closing out something that is valuable at 90% off. Buy and sell online. There are people that do this for a six figure living. I have not done much of this.
Larger ones:
Bought a for sale by owner rental house for $150k below market(Knew the market for a view house-Zillow did not understand the contours of the land). Since then it has doubled in price. $75k down-payment after all fees during closing would net me $450k profit six years later. When opportunity came about we had less than $1k in our checking/savings accounts. Credit card, 401k loans were used if I recall.
Bought a semi passive operating business that was consistently making $65k a year for the prior five years for $35k(Owners were passive and wanted to retire). That was five years ago. So over 10 year track record of making $65kish. Requires 5-10 hours a week of oversight. If someone spent 20+ hours it would generate $100k or more.
This latest opportunity is a tuck in acquisition for another passive business. First position money return is return of the $75k capital + $90k profit within two years. The other $105k profit, is if the entity hits the very conservative projections that we have established. We have done three other acquisitions similar to this meeting our projections. We have more conservative projections on this one, so the upside here is much greater than $195k profit as listed in the previous post. LOC used for this one.
Friend grew up in a poor part of the state: He lives on the opposite side of the state now, but he visits family/friends often. He is an engineer, but has learned about real estate and timber based on opportunities. On a very regular basis someone in his hometown is desperate for money but they have 20+ acres that has some timber on it. In most situations he can purchase the land, thin the timber and sell it for more than what he paid for the land. I think he said he is up to 1,200 acres or something. He is doing much bigger deals now that he has the knowledge and capital. People call him out of the blue throughout the year. He has conservatively made millions as a side hobby. Those selling are desperate, don't know the value of the timber, and are too lazy to hire someone to appraise the timber and land.
The point is that there are tons of opportunities out there. If you live in an area where people are bad with money, uneducated, lazy or want to retire somewhere else then these types of transactions can be had on a daily basis. They can be as small as buying an extra set of tickets to your favorite band that sells out immediately, waiting six months then selling them closer to the concert date to someone who did not plan ahead, or as large as investing in something that you know a lot about.
Is there risk? Yes. Can the risk be minimized for huge gains, Yes! Usually these windfalls are the result of curiosity and education. There are tons of people that don't want to jump through some perceived huge hoop, when it is pretty straightforward and simple if you have the knowledge. Start small and build your way up.
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yeah what you're describing is completely different than what the OP is doing. you're using smart leverage to invest in an opportunity when it comes up many of the things you do are things i do. using 0% interest credit cards to max a 401k and get your taxable income to 0 i still have yet to see a benefit of. and thats what this thread is about. at some point you have to pay the piper. and you'll be doing so at a higher tax rate.
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yeah what you're describing is completely different than what the OP is doing. you're using smart leverage to invest in an opportunity when it comes up many of the things you do are things i do. using 0% interest credit cards to max a 401k and get your taxable income to 0 i still have yet to see a benefit of. and thats what this thread is about. at some point you have to pay the piper. and you'll be doing so at a higher tax rate.
You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
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yeah what you're describing is completely different than what the OP is doing. you're using smart leverage to invest in an opportunity when it comes up many of the things you do are things i do. using 0% interest credit cards to max a 401k and get your taxable income to 0 i still have yet to see a benefit of. and thats what this thread is about. at some point you have to pay the piper. and you'll be doing so at a higher tax rate.
You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
b/c what you're doing with the money isnt actually benefitting you and you'd rather put blinders on and cherry pick the posts that remotely mention something positive rather than put pen to paper and see the likely HIGH damage you're actually doing to your long term financial situation - you havent answered a single fucking question about your exit strategy or shown actual numbers to how taking 401k loans to max a 401k at a 0% tax rate while compounding 3% interest on "0%" balance transfers on credit cards actually doesnt cause harm.
you've shown a vacuum of one year
like if i went out today and ran up 2MM in credit card debt at 0% and invested it and said look i can retire check out this awesome amount of money i've got invested. I'm not going to give it a rest b/c what you're doing with your 0% 3% interest isnt beneficial to you long term its most likely determental.
so if you'd like me to stop dumping on you please post long term numbers and your strategy for how these 401k loans to invest in your 401k at a 0% tax rate and 3% credit card interest hacks are going to play out over the next 20 years. not the stupid shit you're attempting to do now and talking about a single year. b/c i and many others here are quite positive you havent looked at this.
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Dude. I've addressed all your concerns but you clearly don't listen.
If saving $1000s in taxes while hypercharging our retirement accounts doesn't sound smart to you then I don't know what else to say.
Yes I understand the risks and implications of what I'm doing.
Give it a rest.
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You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
Everyone is in favor of zero interest loans. What you do with it though, is by far the very most important thing. tomsang, for example, is doing the temporal arbitrage thing with concert tickets and the kayak. I understand people do that with convertibles and motorcycles as well. In fact, I was kind of inspired by the kayak story. My next door neighbor kayaks about three times a week all year round. I could get one in the fall, and if I didn't like it/use it, I could just sell it in the spring. Got me thinking enough that I spent a few minutes on Craigslist today. Maybe make a couple bucks, and zero interest is all the better.
However, you used your zero interest loans for normal consumer spending, not for investing. You don't have the option of making money selling the metaphorical kayak and making a couple extra bucks. You just have a pile of credit card debt sitting there like a time bomb waiting to go off and no strategy (that you've shared) how you plan to retire that debt. That sounds really scary to me.
Another thing that I truly cannot comprehend is why you are borrowing money to max your 401(k)s, and then borrowing that money back from your 401(k). A 401(k) loan is one of the worst financial mistakes you can make. Something that only should be done in a hair on fire emergency and maybe not even then. You are taking a blowtorch to your financial future with this scheme.
You've made up your mind that this is "genius," and that's fine with me. I'm just here to point out the horrific financial consequences of what you are doing just in case someone is reading along and considers doing the same thing.
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Dude. I've addressed all your concerns but you clearly don't listen.
If saving $1000s in taxes while hypercharging our retirement accounts doesn't sound smart to you then I don't know what else to say.
Yes I understand the risks and implications of what I'm doing.
Give it a rest.
you've saved "1000's" in taxes THIS year at the sacrafice of FUTURE years and if youre at 0 taxes then you're actually really hurting yourself b/c its better to pay some tax now at 10% and probably 12% than the 22%+ you'll be paying in the future.
please point out where you have once addressed future implications of what you're doing b/c you havent b/c you cant see past 2018 tax year.
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You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
You've made up your mind that this is "genius," and that's fine with me. I'm just here to point out the horrific financial consequences of what you are doing just in case someone is reading along and considers doing the same thing.
yep while i'll never quit posting here.
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You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
You've made up your mind that this is "genius," and that's fine with me. I'm just here to point out the horrific financial consequences of what you are doing just in case someone is reading along and considers doing the same thing.
yep while i'll never quit posting here.
Well the simple fact you keep throwing "3%" at me shows you haven't read or comprehended what I've said.
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Well the simple fact you keep throwing "3%" at me shows you haven't read or comprehended what I've said.
Or you are not explaining it properly. Here's one part I need some clarification on:
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.
If you have a 3% fee, then your costs are 3%. Now, you might be able to use that money to make more than 3% then more power to you. But you still have to include the fee when calculating your costs, otherwise your numbers won't make sense.
You also need to include the opportunity costs of the 401(K) loans. You are borrowing against your credit cards to get the tax break now (fair enough, but hold that thought), but then borrowing against the 401(k), so you not only miss out on the market returns (not good), you also lose the tax break on the dollars you use to pay off the loan (really not good).
And of course the money is taxed when it comes out, so you are being taxed on the original money you borrowed to contribute to the 401(k) in the first place. Being taxed on borrowed money is officially Not Good.
And at your tax bracket, it isn't clear to me that maxing out your 401(k) makes financial sense anyway. You very likely financially better off just paying the long term capital gains taxes. Which for you (and for me) would likely be zero. So you are paying 3% which allows you to pay zero tax now in order to avoid paying 0% in taxes in the future. That doesn't look good from here.
Again, not posting for you. But if there is a noob who comes across this, they'll know enough to run screaming away from schemes like this one. Or at least know the questions to ask.
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You are a hard nut, aren't you? That's not at all what this thread is about.
It's about the fact, that despite all the (well-deserved) hatred for cc companies, if you're smart you can borrow money from them for free.
What you do with it is secondary. Clearly tomsang has mastered the art. That's what I was hoping to get from posting this thread, useful and creative ideas. Instead it's turned into you dumping on me every chance you get.
Give it a rest.
You've made up your mind that this is "genius," and that's fine with me. I'm just here to point out the horrific financial consequences of what you are doing just in case someone is reading along and considers doing the same thing.
yep while i'll never quit posting here.
Well the simple fact you keep throwing "3%" at me shows you haven't read or comprehended what I've said.
See post above where you said 3%. Man it's tough to make things up when you state them yourself then call it 0% the rest of the post. So it's clear you're not running numbers.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
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Yes, pizzzabrewer, I have to agree with above posts: Seeing actual numbers would be beneficial here. I am interested in thinking more about your argument for using 0% APRs, but I see too much risk to justify it.
If I'm missing something, I'd like to see it. Comprehensive numerical data, please?
Thanks very much.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
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Yes, pizzzabrewer, I have to agree with above posts: Seeing actual numbers would be beneficial here. I am interested in thinking more about your argument for using 0% APRs, but I see too much risk to justify it.
If I'm missing something, I'd like to see it. Comprehensive numerical data, please?
Thanks very much.
Why would you need actual numbers? It's genius.
\sarcasm
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making LOSING 1% doing this. i can MS on cards for better returns with little to no risk to me.
sorry i made a fatal error here this actually loses you 1% it doesnt make you shit.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making 1% doing this. i can MS on cards for better returns with little to no risk to me.
Agree 100%... not defending it in any way, shape or form. Just pointing out that is why he is borrowing money to churn bank accounts... OP doesn't have it saved up.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making 1% doing this. i can MS on cards for better returns with little to no risk to me.
Agree 100%... not defending it in any way, shape or form. Just pointing out that is why he is borrowing money to churn bank accounts... OP doesn't have it saved up.
I should have been more clear... that is a credit card sign up bonus I am referring to. Why is 0% for 15 months on a credit card better than getting a similar (and usually larger) bonus directly from a credit card sign up bonus, with less work to boot? It seems there would also be less risk and your credit score would be higher.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making 1% doing this. i can MS on cards for better returns with little to no risk to me.
Agree 100%... not defending it in any way, shape or form. Just pointing out that is why he is borrowing money to churn bank accounts... OP doesn't have it saved up.
I should have been more clear... that is a credit card sign up bonus I am referring to. Why is 0% for 15 months on a credit card better than getting a similar (and usually larger) bonus directly from a credit card sign up bonus, with less work to boot? It seems there would also be less risk and your credit score would be higher.
Yeah, I can't figure that out either.
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I should have been more clear... that is a credit card sign up bonus I am referring to. Why is 0% for 15 months on a credit card better than getting a similar (and usually larger) bonus directly from a credit card sign up bonus, with less work to boot? It seems there would also be less risk and your credit score would be higher.
Yeah, I can't figure that out either.
Sometimes you can eat your cake and have it too. Chase Ink Cash --> 50k UR points, 0% for 15 months, a business card. I have some credit I can float right now that won't impact my credit score for 0%, but I didn't sign up for the card for that reason...just saying.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making LOSING 1% doing this. i can MS on cards for better returns with little to no risk to me.
sorry i made a fatal error here this actually loses you 1% it doesnt make you shit.
It takes ~90 days to earn that bonus on a Chase account so you could repeat this 3-4x a year with various bank signup offers.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making LOSING 1% doing this. i can MS on cards for better returns with little to no risk to me.
sorry i made a fatal error here this actually loses you 1% it doesnt make you shit.
It takes ~90 days to earn that bonus on a Chase account so you could repeat this 3-4x a year with various bank signup offers.
so now not only do you need the credit card 0% balance transfers to stay in place you must have mulitple different banks to sign up with over a one year period - i assume these can just be churned as easily as a credit card either. stepping over dollars to pick up pennies. and increasing risk is all i really see here.
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I am confused. Why is this better than the usual sign up bonus chasing? Suppose you get the US Bank card that returns 300 dollars cash plus a percentage after $2000 dollars spend. Does this not give a larger return on your money in a shorter time with less risk? Borrowing at 0% and then accepting market risk or very low 2% safe return seems worse to me.
The only benefit I can think of is that you can do it without actually having the money saved up to get the savings bonuses. (e.g. $300 bonus for opening Chase savings account with $15,000 deposit)
300/15k is 2% if you're borrowing at 3% (this is a cost no matter how much the OP wants to ignore it) then you're making LOSING 1% doing this. i can MS on cards for better returns with little to no risk to me.
sorry i made a fatal error here this actually loses you 1% it doesnt make you shit.
It takes ~90 days to earn that bonus on a Chase account so you could repeat this 3-4x a year with various bank signup offers.
so now not only do you need the credit card 0% balance transfers to stay in place you must have mulitple different banks to sign up with over a one year period - i assume these can just be churned as easily as a credit card either. stepping over dollars to pick up pennies. and increasing risk is all i really see here.
Agree completely that it's not the optimal method (you could make more on a single CC sign up bonus). I was just pointing out that it is possible to turn a small profit doing it instead of being in the red.
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Sigh. Y'all's reading comprehension is poor.
As I've already stated I have already turned this cash into 2 x $150 Discover savings bonuses. They're fast. Days. One more from any bank (even with a 3 month hold) and the 3% is more than covered. But by all means keep hammering at me that it's costing me 3%.
Also, y'all keep ignoring the big payoff: tax savings. TAX SAVINGS. The whole fucking point. Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future. Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future. We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards. The saver's credit is a big inflection point that is relevant to someone at my earning level. Hitting that alone is worth about $1600 in tax savings. So no, nick663, one cc bonus is not a better deal.
But we keep going around in circles with you guys harping on the same points that I keep answering. I think I'm done here unless this thread gets back on track: creative ways to leverage 0% money.
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Sigh. Y'all's reading comprehension is poor.
As I've already stated I have already turned this cash into 2 x $150 Discover savings bonuses. They're fast. Days. One more from any bank (even with a 3 month hold) and the 3% is more than covered. But by all means keep hammering at me that it's costing me 3%.
Also, y'all keep ignoring the big payoff: tax savings. TAX SAVINGS. The whole fucking point. Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future. Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future. We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards. The saver's credit is a big inflection point that is relevant to someone at my earning level. Hitting that alone is worth about $1600 in tax savings. So no, nick663, one cc bonus is not a better deal.
But we keep going around in circles with you guys harping on the same points that I keep answering. I think I'm done here unless this thread gets back on track: creative ways to leverage 0% money.
1. You don't have 0% money
2. Youve still shown no math
Putting things in all caps doesn't actually make them more true.
You're repeating yourself bc you have not answered the basic question that's been asked. It's like if I asked you to show me a rock and you're like here's a cucumber I don't get what you don't understand. It's a fucking CUCUMBER.
Then you move on to insulting our intelligence.
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There are multiple readers on this thread who genuinely want(ed) to understand what you are proposing, pizzabrewer. When so many people fail to understand your intent, it may be that your presentation method is still unclear and/or your information provided is still incomplete.
And resorting to insults is completely unnecessary. I'm done with this thread.
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1. You don't have 0% money
No? How so??
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1. You don't have 0% money
No? How so??
Because it cost you 3%. Just because you can use the money to earn the 3% back doesn't mean it didn't cost you 3%.
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1. You don't have 0% money
No? How so??
You've stated it multiple times yourself. Your balance transfers and checks charge you a fee. To get to the 0%. By this logic I'll offer you a -3% loan for 18months all you have to do is pay me 1000000% today on the beginning balcance. You'll have -3% money right? How could you pass that up.
Also you still ignored the question everyone wants to undersand. The math. Not this years math the entirety of the schemes math.
Esp now that youre doing 401k loans.
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1. You don't have 0% money
No? How so??
Because it cost you 3%. Just because you can use the money to earn the 3% back doesn't mean it didn't cost you 3%.
It nets out to 0% or better. Works in my book.
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1. You don't have 0% money
No? How so??
Because it cost you 3%. Just because you can use the money to earn the 3% back doesn't mean it didn't cost you 3%.
It nets out to 0% or better. Works in my book.
It's like talking to a brick wall.
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1. You don't have 0% money
No? How so??
You've stated it multiple times yourself. Your balance transfers and checks charge you a fee. To get to the 0%. By this logic I'll offer you a -3% loan for 18months all you have to do is pay me 1000000% today on the beginning balcance. You'll have -3% money right? How could you pass that up.
Also you still ignored the question everyone wants to undersand. The math. Not this years math the entirety of the schemes math.
Esp now that youre doing 401k loans.
I screwed up in answering you one more time. I'm done. You don't get it. Feel free to fire away, I'm sure you will.
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This is an analytical site provide analytical data.
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The entire thread blows bc you're not sharing numbers.
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It nets out to 0% or better. Works in my book.
The problem is when you say "cost" everyone thinks you mean "cost" but in your mind "cost means "net." I can see why there might be confusion.
Based on what you've posted here, you are on the fast track to bankruptcy. You have placed a large amount of consumer debt on credit cards (BTW, you put consumer spending on credit cards! WTLF?!?) and never explained how you intend to pay it back. You have also taken 401(k) loans. You never said what happened to that money. Those 401(k) loans are costing you one whole helluva lot more than 3%. You permanently screwed yourself on taxes with that one.
You've crowed about the tax savings this year, but you've never mentioned how this plays out in the future. You claim the tax savings issue has been ignored, but in reality quite a number have posters have asked you specifically how you think you will save on taxes overall, and you've responded to none of them. Retirement accounts defer taxes, they don't eliminate them. You need to look at the end point as well as the beginning point. You've never responded to a number valid questions on this tax issue. The tax issue has been ignored, but only by you.
You've created enormous unsecured, callable debt and robbed your retirement savings. If you can't transfer that CC debt--which will happen eventually--then it all becomes high interest with no way to pay it back. If you lose or change jobs, those 401(k) loans will need to be paid back in fairly short order--using post-tax dollars. You are one small step away from disaster.
People come here and post case studies after they've gotten themselves into financial jams. This is a real time case study how people get themselves into financial jams.
I sincerely, honestly wish you the best of luck and financial success. But I also sincerely and honestly wish you would tone down the hubris long enough to look at the mess you've made of your financial future. The thing about finances is that while mistakes are forever (Odin knows I've made my share) it is never too late to change your trajectory. You are heading straight into the volcano. You might not get to FIRE, but if you pull out now, you might not be eating Alpo in retirement. Best wishes, and again I mean that sincerely.
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Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?
Also, y'all keep ignoring the big payoff: tax savings. TAX SAVINGS. The whole fucking point. Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future. Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future. We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards. The saver's credit is a big inflection point that is relevant to someone at my earning level. Hitting that alone is worth about $1600 in tax savings. So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1. Saver's tax credit is a max of $1,000. (Edit: 1,000 for single. 2,000 for married filing jointly. Missed that)
2. It's a nonrefundable tax credit so it only offsets taxes owed. Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.
You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy. You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%. I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.
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Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?
Also, y'all keep ignoring the big payoff: tax savings. TAX SAVINGS. The whole fucking point. Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future. Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future. We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards. The saver's credit is a big inflection point that is relevant to someone at my earning level. Hitting that alone is worth about $1600 in tax savings. So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1. Saver's tax credit is a max of $1,000.
2. It's a nonrefundable tax credit so it only offsets taxes owed. Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.
You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy. You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%. I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.
Man y'all are making it hard to refrain from answering. Yes, I'm fully aware bank bonuses are taxable. I'm not an idiot. 1. Married filing jointly. Look it up. 2. I'm USING the savers credit to get to $0.
Seriously, this level of stupidity willful misunderstanding is getting aggravating.
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Who is going to ruin Pizzabrewer's day and tell him that savings account signup bonuses are taxable income and he'll be getting a 1099 at the end of the year for them?
Also, y'all keep ignoring the big payoff: tax savings. TAX SAVINGS. The whole fucking point. Boarder keeps harping that I'm trading 10 or 12% tax rate for 22% tax rate in the future. Sorry, but I'm not in your tax bracket/earning power and likely won't be in the future. We are lower income than most of you high-fliers. I'm trading 10 or 12% tax rate for 0% in current years. 22% ain't in our cards. The saver's credit is a big inflection point that is relevant to someone at my earning level. Hitting that alone is worth about $1600 in tax savings. So no, nick663, one cc bonus is not a better deal.
2 problems with this claim:
1. Saver's tax credit is a max of $1,000.
2. It's a nonrefundable tax credit so it only offsets taxes owed. Based on your "I owed $0 in income tax line" you're either line on line perfect or getting less than $1,000 in benefit out of this.
You know, I rarely say this but I think you should talk to a financial adviser about your investment/tax strategy. You don't seem to understand the nuances of the tax code and if your claim of paying $0 in taxes is true I have a strong suspicion that you're putting money in a pre-tax account at an income tax rate of 0%. I would gladly pay a little bit of 10% income tax in your situation to avoid doing that.
Man y'all are making it hard to refrain from answering. Yes, I'm fully aware bank bonuses are taxable. I'm not an idiot. 1. Married filing jointly. Look it up. 2. I'm USING the savers credit to get to $0.
Seriously, this level of stupidity willful misunderstanding is getting aggravating.
I was looking in the wrong spot, my bad.
My point about the pre tax investing still stands though.
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My point about the pre tax investing still stands though.
Well then you clearly don't understand the tax implications of going over the $38000 AGI savers credit cliff.
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It's like if I asked you to show me a rock and you're like here's a cucumber I don't get what you don't understand. It's a fucking CUCUMBER.
I laughed, you got me.
Pizza, I've been tempted by this sort of thing, but the window is too small (effectively it has a call on it), the availability of future loans is not guaranteed, and the gains can be duplicated without the risk for the same effort. Using a loan for a signup bonus only puts you ahead in net worth for the year by the return/time difference between the instant loan opening an account with bonus and the time it would take you to save the money instead (which you only need to do once and can keep recycling thereafter), further capped by how many bank account bonuses you engage in and how many are available to you in said year. In other words, 300 bucks today invested for 10% APR over 4 months? 6 months? You're up $10-15 on it IF you get close to the 30-year US-market-average, when you get it by loan instead of saving whatever balance you need.
As for a double-gain from taxes, the savers credit is capped at 50% of 4k in contributions for married couples filing jointly. Working back from your posts, your gross is in the ballpark of 109k annually (the average of your and your wife's contribution amounts being 65%, 100-65=35%*109k= about 38k, the cutoff for savers credit. If you WERE ahead by the amount of the saver's credit to start with on the 401k jiggering, that lead is reduced by any taxes you pay on 401k amounts deposited now from a 0% liability and withdrawn at any liability in retirement. So, if you have no tax liability for 401k dollars today for the full amount of those loans, and had to pay some taxes on your 401k withdrawals when you retire, deduct it from what you should calculate as a lead from the 2k savers credit you pocket, in addition to any fees.
You could be up hundreds. You could be down more. If you had no tax liability, and we assume it's possible you have a 0% bracket in retirement (no one has a crystal ball), you won a bit, but any other scenario where it's not 0% taxes in retirement means your potential gain is less than alternative activities (and may be a loss), where none of the alternatives (tradelines, churning, signup bonuses without loans) have a loss downside. None are instantly a massive liability in the event of, say, a medical problem or sudden job loss leaving you to get called by the end of a promo offer.
If you only did CC loans for a year and then paid off the cards in, say, 6 months, assuming you got an 18-month transfer, you're probably at peak benefit. You can't realize the benefit for longer than that because your outstanding CC debt can't just keep ballooning - the process caps out at a low balance (respective to the size of a large retirement account) in a short time horizon (9-18 months, the rough range of transfer offers and a VERY short time in the stock market) with no guarantee you can keep kiting the loans because lenders will stop giving you the loans if your balance just keeps going up. Even if they did give you the loans, and you grow it for years, you're building a sizeable call against your finances to do it for only a few hundred bucks IF your future tax liability is 0% (otherwise you're probably losing money). It's worth knowing the real benefit for that risk.
The reward is capped in many ways. The risk is way more than similar activities with better rewards, unless there's something here many of us simply don't understand.
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https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.
Let's check farther. We'll generously assume that the $18K you saved at 0% interest went entirely to a 401k and that it precisely lowered your marginal tax rate by 10% (ie. 25% to 15% or 22% to 12%). Let's compare cash-back credit card bonuses from DOC on $18k. Analysis period of one year. https://www.doctorofcredit.com/best-cash-credit-card-sign-up-bonuses/ and https://www.doctorofcredit.com/best-bank-account-bonuses/. Includes standard % cash back on spend. Bank bonuses after 12% tax loss.
0% 12 month loan and bank account bonuses
$1,800 tax savings (10% on $18,000) (optimistic)
Chase Ink Cash $680 on $18,000 spend, 0% for 12 months
Discover bank bonus $132 on $15,00 for 1 mo
Discover bank bonus $132 on $15,00 for 1 mo (again)
Citi bank bonus $352 on $5,000 for 2 mo
Citi bank bonus $264 on $5,000 for 2 mo
$528 in other bonuses assumed
(Chase has not minimum and thus works wither either strategy and not counted here)
Total Bonus $3,888
Credit Card Cash Signup Bonus
Chase Sapphire Preferred: $590 on $4,000 spend
Chase INK Preferred: $955 on $5,000 spend
Chase Ink Cash: $530 on $3,000 spend
Barclaycard CashForward: $220 on $1,000 spend
Chase AARP: $210 on $500 Spend
U.S. Bank Altitude Reserve: $460 on $4,500 spend
Total Bonus: $2,965
So you are coming out ahead by $1,000 because of the tax savings, which I assumed worked greatly in your favor with the full amount changing exactly from one bracket to the next. Also many of the credit cards have travel options, gift card options, and other perks which might be far more valuable than cash but I neglected them completely, again in your favor. Also I neglected a 3% fee you mentioned because I assumed the entire amount went to the Chase card. I don't understand 401k loans and ignored costs and risks with those. FinallyYou've created enormous unsecured, callable debt
which is a huge risk and not at all comparable to a mortgage.
So you are getting similar or slightly higher returns to the cash-back credit card signup bonus only strategy, but taking more risk in the process. I'm not and expert and these are not the actual numbers, feel free to correct me.
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Thanks @Hargrove and @Radagast this was in my mind as a next step here glad you guys went back thru this to show the lack of value in what the op is doing. I'm sure we won't here back.
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Thanks @Hargrove and @Radagast this was in my mind as a next step here glad you guys went back thru this to show the lack of value in what the op is doing. I'm sure we won't here back.
Yup great work except their numbers and assumptions are wrong. Radagast posted an IRS link then immediately proved he doesn't understand how the savers credit works (here's a hint: $4000).
I am truly done. You won't "here" more from me here. Please stop trolling my other thread.
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https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.
Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works. The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual. So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000. If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.
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https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.
Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works. The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual. So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000. If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.
man i love numbers its amazing how collaborative a conversation about money can be when we apply numbers.
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unless there's something here many of us simply don't understand.
It's a cucumber.
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unless there's something here many of us simply don't understand.
It's a cucumber.
Now we have gotten ourselves into quite a pickle
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unless there's something here many of us simply don't understand.
It's a cucumber.
Now we have gotten ourselves into quite a pickle
yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!
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unless there's something here many of us simply don't understand.
It's a cucumber.
Now we have gotten ourselves into quite a pickle
yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!
I'm the same way... hate cucumbers, but enjoy pickles.
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So, is there any kind of summary to this?
From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?
What are those numbers and what are the assumptions? Where is/are the break points (ie what future tax bracket would/could kill any gains?)
Yes, I guess I'm alos asking for the math...
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math ... you wont find no math here. just good ole rocks and pickles. unless you like cucumbers then you can just see yourself out.
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So, is there any kind of summary to this?
From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?
What are those numbers and what are the assumptions? Where is/are the break points (ie what future tax bracket would/could kill any gains?)
Yes, I guess I'm alos asking for the math...
This plus sprinkle in some 401K loans.
(https://i.imgflip.com/2aq369.jpg)
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Every time I get antsy and feel like I'm not doing enough to get ahead as fast as possible, I need to remember this thread. This feels a lot like what happens when the desire to be doing something gets ahead of the math. As evinced by the complete lack of math in this thread.
So, thanks for that!
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https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit There is no $38,000 savers credit cliff, at least not as far as it applies to your situation. If you max out one 401k and one IRA you get the full $2,000 credit up to $63,000 AGI. If you are currently maxing two IRAs and two 401ks, you can cut those contributions in half and still get the full credit (10% of $23,000 is more than $2,000). So the saver's credit does not impact your decision either way. I don't know your state tax situation, but if you remain within that state it is quite possible that state tax savings also do not impact your decision either way.
Yeah, I'm actually with Pizzabrewer on this one... that's not how the Saver's Credit works. The percentage listed (e.g. 10%, 20%, 50%) is the percentage of your contribution amount, the most contribution you can apply the percentage to is $2,000 per individual. So if you are contributing $2,000 for you and $2,000 for your spouse ($4,000 total) and your AGI is under $38,000, then you get a credit of 50% of $4,000 or $2,000. If you both contributed $5,000 to ($10,000 total) and your AGI was $62,000 you would get a credit of 10% of $4,000, or $400.
Ok, I won't argue. In fact I just got this stupid credit thee months ago and as I recall it was actually $400. Just before I clicked post I thought "something isn't right here" but it was late and I was too tired change it. So I could either save the text and figure out today, or just post anyway. I decided repudiated bad math was better than no math at all. So, this will add $3,600 to the "0% credit card" column.
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unless there's something here many of us simply don't understand.
It's a cucumber.
Now we have gotten ourselves into quite a pickle
yummy i just made a batch of homegrown pickles last night - i hate cucumbers but when you turn them into pickles they're amazing!
I'm the same way... hate cucumbers, but enjoy pickles.
I was recently in China. I've spent around 2 years there, but apparently until now never in the summer. People in China only ever drink boiling hot water, but there are an inexplicable number (by Western standards) of cucumber vendors. Like people actually walk around with boxes and baskets and carts of cucumbers for sale. I never figured out why. So it was 90 degrees Fahrenheit, 90% humidity, I was pulling my very spicy meal directly from a boiling pot of water, and the only drink was shots of water at 90 degrees centigrade. After a few days I was getting pretty dehydrated how can people live like this?. Then I realized.... a cucumber is basically a glass of water. If the water is only safe after boiling, suddenly cucumbers look pretty attractive. I munched 4 cucumbers within 10 minutes of that realization. If you won't eat cucumbers, it's cause you've never been thirsty enough.
For the record, watermelon is better though.
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So, is there any kind of summary to this?
From what I gleaned, perhaps there's a narrow range of household AGI where the Saver's tax credit might cover all future costs (ie 401k loan, etc.) and provide some return?
What are those numbers and what are the assumptions? Where is/are the break points (ie what future tax bracket would/could kill any gains?)
Yes, I guess I'm alos asking for the math...
Not yet, but we're getting there ;). So far what we know is it depends entirely on tax returns for success (versus credit card sign up bonuses and no carried balance), and it will be optimized if you lower your AGI to as close as possible to $38k in 2018. We still haven't figured out how to repay the credit card debt.
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math ... you wont find no math here. just good ole rocks and pickles. unless you like cucumbers then you can just see yourself out.
ROFL. Glad I wasn't drinking anything when I read this.