Balance Transfer Arbitrage

If you want to fully automate your balance transfer arbitrage play, it makes perfect sense to automate the monthly bill payment process. What’s nice about arbitrage is that the monthly payments are relatively static. Credit card companies often will have a calculated minimum payment of 2% or 4% (4% is generally what is used because credit card companies recently increased min. payment rates in a move to placate Congress). This is great because as the months go by, your monthly payment will go down slightly as your balance goes down, so setting your payment at the beginning of the arbitrage play will ensure you always make your minimum payments.

Let me give you an example, let’s say you get a $10,000 balance transfer from Citi. At 4%, that means in the first month your minimum payment will be $400. In month two, your minimum payment will only be $384 (4$ of $9,600). As the months progress, you will have to pay less and less on your debt because your balance is going down. If you set a monthly bill payment in your bank at $400, you are guaranteed to always pay the minimum amount. If you are so inclined, you can adjust your payment amount every quarter to maximize your interest earned while still keeping a lot of the benefits of an automated solution. And, if you decide you don’t want to, that’s okay because you only surrender a little bit in unearned interest.

By automating the payments, you also have the added benefit of never forgetting a payment! Forgetting a payment can be disastrous as the credit card company can use it as an excuse to end the promotional period and increase your interest rates. That’s an arbitrager’s worst case scenario, so that’s another case for automating.