Credit Card Arbitrage: The Art of Making Money with Your Credit Cards

It seems that credit card companies are always trying to find new ways to lure people in.

One of the most useful tactics obviously involves the zero interest offer on purchases. How it works is that they basically guarantee you 0% interest with your individual transactions over a fixed period of time.

Nowadays, 30 to 60 days free interest purchases are the norm in the industry. But there are also some credit card providers ready to stretch this commitment for up to a year.

Naturally, people love to take advantage of such generous offers.

The problem is when this stipulated period is up, those grateful credit card holders suddenly find themselves being charged with exorbitant fees!

Given the high-interest rate, the amount to pay to the credit card providers has to be huge, for those who still have a balance by the and of the billing cycle.

So the only way to avoid paying those outrageous fees is to simply settle your balance by the end of the month. To do so, you obviously have to utilize that money from your bank.

Now we are back to square one!

While you are not losing out to the sky-high interest rates, at the same time you do not gain anything at all, at least in the financial perspective.

Making Money from Credit Cards

Let’s now switch our attention to a scenario where it is possible to get the best of both worlds.

Just suppose that you are able to make full use of your credit card without having to revert to your bank account to make the payment, and you can evade those ridiculous interest rates.

This may sound amazing, but it is entirely doable. As you will find out below, there is a way to use your credit cards to create profit rather than debt.

It’s known as credit card arbitrage. And it’s how banks make money.

Here is how it works: You take a free or low-interest loan from a credit card company and deposit that in a high-yield savings account. You then pay the minimum payment required each month and what’s left goes into your pocket. So basically you earn money using the interest rate spread between the money you receive and the money you pay.

There is some amount of risk involved here!

But if you’re a savvy credit card user and prudent on your personal financial management, this strategy could work fabulously!

The key to this strategy is regular spending pattern and a few more simple things that I am going to tell you about.

1. Find Credit Cards with Zero Interest Rate

First and foremost, you need to identify and get those promotional credit cards that come with zero interest rates.

This is elemental in this fast money making strategy.

While you are at that, check out the zero interest duration of the offers from the credit card providers. Obviously, the longer the duration is, the better it is going to be for you, as your chance of making more money is directly proportional to the duration.

If it happens that you can lay your hands onto one such zero interest credit card (for at least a few months) that also comes with zero annual fees, then it is a huge bonus.

Of course, before anything else can proceed, your application for the card has to be approved first. So make sure you keep your credit record decent.

2. Invest the money

Once you’ve obtained your new 0% interest card, you will deposit the borrowed money from the credit card into an interest earning account such as a savings, money market or short term certificate of deposit. (Make sure your CD has a shorter term than your 0% introductory card term).

3. Settle the Monthly Minimum

Fork out just enough money every month to pay for the bare minimum due.

It is imperative that you make the monthly payment before the due date each month.

4. Pay the Card off and Collect Your Profit!

Keep in mind that you need to put an end to the cycle when the zero interest promotional period expires.

Before the end of the  0% interest period, pay off the entire credit card bill with your principle funds in your savings account.

The balance left in your savings account is your profit from this venture.

There’s really not much to it except waiting for the interest to accumulate while maintaining the regular monthly payments.

If done correctly, it can be an easy way to make money.

Takeaway

If you make all the required minimum monthly payments on the credit card (on time each month) and repay the entire balance before the introductory period expires, you will turn a profit from credit card arbitrage.

The critical success factor is, of course, finding that credit card with 0% interest rate for an extended period of time.

As a reminder, whether you are successful in getting that 0% interest credit card will be dependent on your credit score. So keep your credit record unblemished if possible for this strategy to work.

You also have to be extremely diligent in paying that monthly bill on time and be resolved to NOT TOUCH the money you’ve put into the interest earning account.