Five Cents Nickel spotted Same Writer documenting his 0% balance transfer arbitrage and has written a short piece about 0% BT credit card arbitrage in action over at Same Writer.

Nickel noted that Same Writer had applied for the Citi Home Rebate Card and the Discover Platinum Card. While the Citi Home Rebate Card allowed Same Writer to write a balance transfer check, Discover only allowed a balance transfer from another credit card. Hence, he has to make a transfer from his Chase Amazon Visa!

This essentially distorts and potentially wipes out all the gains that could potentially be made. Here’s why. By taking out $25,000 on his Chase Amazon Visa, Same Writer would have to pay interest on that. Let’s assume that he is paying 10%.

Now, we know he has a $25,000 line with Citi Home Rebates Card. He also has a $25,000 with Discover Platinum Card. But he has to “borrow” $25,000 from his Amazon credit card at (let’s assume 10%). He will probably earn 5% on a high interest savings account at this moment (maybe slightly higher than that).

On the $25,000 that he will arbitrage with the Citi Home Rebate Card, he will make about 5% (borrow at 0%, lend at 5%). However, for the Discover Platinum Card, he is borrowing at (let’s assume) 10% and making only 5%!! Without even going through the precise math, he will most likely breakeven on both transactions! What Same Writer should do is just to do the balance transfer on the Citi Home Rebate Card and forget about the Discover Platinum Card.

The reason is simply because Discover does not allow advance checks (or balance transfer checks) to be written!. Hence, if you want to play the 0% BT arbitrage game make sure the credit card allows you to write a balance transfer check. Secondly, make sure there is no balance transfer fee.

The balance transfer fee is a very important thing. If you are given a $10,000 credit line to do a 0% BT arbitrage, you will end up making about $400 thereabouts (if you can invest in a 5% high yielding account). However, many credit cards charge a 3% of balance transfer (but not more than $75) if you do a balance transfer. If you are hit by a $75 fee, that will take away at least 25% of your profits (after tax).

For a more precise calculation of the profits you make, check out article The Math of 0% Balance Transfer Arbitrage. Once again, be very careful which card you choose.

This entry was posted on Thursday, January 25th, 2007 at 02:11 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.