Balance Transfer Arbitrage

Each balance offer has five (and a half) core parts, each of which are crucial for the balance transfer arbitrager (or someone looking for a break in interest payments):

• 1. (Promotional) Interest rate
• 2. Period of (promotional) interest rate
• 3. Payment methods
• 4. Universal default clause
• 5. Balance transfer fees
• 5.5. Application bonuses

Interest Rate is a bit of a no brainer, if you’re a balance transfer arbitrager then I would argue that if it’s not 0% then you don’t want to deal with it. There are a ton of 0% balance transfer cards out there and if you’ve exhausted each and every one of them, then kudos to you because that’s a lot of credit cards. If you are taking a break from interest and you’re carrying credit card debt, then anything less than what you’re paying now is a win for you. However, if it’s not zero, keep that number in mind.

Period of promotional interest rate is another key point for arbitragers, 12 months is again really the best minimum number of months for it to be worth your while. You don’t want to get a 6 month offer and deal with such a short time period unless you’ve tapped out all the year long offers. If you’re paying off debt and want a breather, I would offer up the same advice that 12 is better (duh) unless you’ve gone through all those offers.

Payment methods is something that bears mentioning because there are a lot of companies offering these balance transfer terms and some are larger than others. This isn’t a concern for the likes of Discover, Citi, Bank of America, Chase, or Capital One because they let you link up a bank or otherwise make online/electronic billpay a cinch. It’s those smaller companies you have to double check, having to mail out a 41 cent envelope with a check only adds to your costs and introduces ways you can mess up.

Universal default clause was popular with cards and then suddenly unpopular. Universal default is when they change your credit terms because you missed a payment elsewhere, even if it was not credit related in the traditional sense. Miss a cell phone bill? Company might jack up your rates. You want a card without this clause. Most major card issuers have dropped it but it pays to check.

Balance transfer fees, especially when you’re an arbitrager, only adds to the interest rate. If the fee is 3% and the promotional period is one year with 0% APY, you’re essentially paying 3% interest on the loan (it’s actually more because you’re paying it up front instead of spread out over 12 months on a balance that’s slowly shrinking). The no fee balance transfer has fallen out of favor lately but there are still a few left out there if you look card enough. Some issuers cap the fees at a dollar amount, say $75, so it’s not truly a % number but potentially less.

Application promotions are those promotions where you can get a gift card with your first purchase. I call it half a part because it’s really like icing on the cake and only serves to bubble that offer up to the top. If you do make a purchase, pay it off entirely before you start the balance transfer because companies will apply your payments to the lowest interest rate first. That means you could be carrying a $5 sandwich for twelve months at the prevailing interest rate if you’re not careful. It won’t cost you a lot but it’ll eat into those bank interest profits you’re after.