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I got "offers" to do balance transfers for US$8000 or US$16,000 for an upfront rate of 2% or 3%, but after 1 year or 18 months, the rate would go up to 22% APR.

However, during this one year, since if we save money and keep in the bank, the rate is only about 2%, so I may invest extra money into stock, and when it is 1 year or 18 months, I may either have to sell the stock and pay tax on it, or sell the stock for a loss, which I try to avoid for either case.

Is there any method to save and pay back that amount so that we are not subject to the high interest rate of 22% or more?

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  • 21
    Taking loans to gamble on the stock market is a recipe for disaster.
    – littleadv
    Dec 29, 2022 at 5:59
  • I am not saying taking loan to gamble on stock market. It may be just expenses we need to pay for but don't have the money for, so we take the balance transfer Dec 29, 2022 at 9:21
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    “Expenses we need to pay for but don’t have the money for” are loans, even if you don’t think they are. And where do you get the money to invest in the stock market, if you don’t have the money to pay for expenses???
    – RonJohn
    Dec 29, 2022 at 13:54
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    Instead of risking your life like this, you might want to consider I-bonds, TIPS, or just plain high-yield savings accounts. I don't know where you're getting 2% but there are bank accounts giving > 4% right now.
    – user541686
    Dec 30, 2022 at 0:43
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    "sell the stock for a loss, which I try to avoid" not a good reason to avoid selling. You should avoid selling if you think the stock will increase in value. Dec 30, 2022 at 3:41

4 Answers 4

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I got "offers" to do balance transfers for US$8000 or US$16,000 for an upfront rate of 2% or 3%, but after 1 year or 18 months, the rate would go up to 22% APR.

Assuming that the fee is 2% and that they will not charge any interest for 12 months. Lats also assume they can put the $16,000 into your bank account. Lets also assume that you don't have to make any payments during that first year.

Is there any method to save and pay back that amount so that we are not subject to the high interest rate of 22% or more?

If you can get open a CD or purchase a treasury bill that will pay more than that, you can make a little money. My credit union has a 7 month CD that will pay 4.4% for those 7 months. Though there are conditions on this program. T-bills in December 2022 are paying more than 4%.

So lets assume you can:

  • Get a 4% CD for a year.
  • Get a balance transfer of 16K with a 2% fee.
  • Pay it back in 12 months exactly before getting hit with interested charges.

The 16K balance transfer would have a fee of $320, leaving you $15,680 to put into the CD. Which would turn into $16,307.20 in a year leaving you with a profit of $307.20 before taxes.

so I may invest extra money into stock, and when it is 1 year or 18 months, I may either have to sell the stock and pay tax on it, or sell the stock for a loss, which I try to avoid for either case.

In that short of a time period, there is a real chance that you would lose money in the market, or make less than the $307.20 a CD would get you.

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There is no risk-free way to take the cash advance and do anything with it that would be guaranteed to come out ahead in the end.

What I have done in the past (I am not recommending you do this, just offering an example) is to use the balance transfer to pay off high-interest debt (e.g. a credit card or car loan), then save enough money in the bank each month to ensure that I could pay off the balance transfer before the interest bomb hits.

But even that is not fool-proof. It requires the cash flow to be able to save each month, and the discipline to save that excess cash rather than spending it. And if something disastrous were to happen (illness, lost job), then it's a real possibility that you wouldn't be able to pay off the balance transfer, costing you mush more in interest than what you saved with the cash.

So it's possible, but you're definitely playing with fire.

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The only leveraged investment (which is what investing borrowed money is called) I would recommend considering is the one I took: Take out a larger mortgage when I was buying my house than I needed to, as a fixed-rate loan, at historically low interest rates which I was darned near certain I could get better returns on in the market than I was paying for the loan.

Given the potential for being bitten by the insane rates credit cards charge, I consider using them as leverage excessively risky. One month's interest at 22%, if you slip, could be a huge amount (if you've borrowed enough that the potential gain is significant). Carrying a balance is how credit card debt drives people into bankruptcy. If you have any least doubt -- if you don't have the cash SAFELY on hand to pay off before they start charging you interest, or can't absolutely guarantee that you will not miss that deadline -- I have to say "don't".

(I've helped rescue more than one person who thought they knew better...)

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  • I know... drive people into bankruptcy and getting rich themselves... that's why it is like loan "sharks"... some country limit the interest rate to be 15% but still it was making young people poor, as they borrow money to buy their new smartphones. I suppose house loan is a good investment, say, if it is 20% down payment, then 3% increase in the price of house per year is like 5x leverage and it is like 15% return, which is hard to get on average in the stock market consistently Jan 4, 2023 at 15:43
  • See past answers for reasons that house can be an investment or a residence but not both at once; In brief, every other house is appreciating too so when you move out that growth is mostly a wash. I got the profit because the loan was at 3.25% and investments were returning over 8%; subtracting yields about 5% growth on money I would have otherwise spent and seen no return from.
    – keshlam
    Jan 4, 2023 at 16:28
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Credit card arbitrage is possible and potentially profitable again (first time since ~2010) so this is at least theoretically possible. The theory is pretty simple 0% interest for 18 months and a 2% balance transfer fee. Current savings rates (or CDs) are a little above 4%. Simple math says 4 * 1.5 is greater than 2 so there is potential profit in the arbitrage.

The devil is in the details your max profit is 4% (%4*1.5 years -%2) of 16000 or $640. Not terrible but not amazing either, I am intentionally simplifying the math here your actual profits will be lower.

Considerations:

  • Investing in the stock market for such a short period of time is just gambling. There isn't much more to say about it.
  • Creating 100% utilization on a single card is highly likely to result in adverse action from every bank you have an account with. You will see limits slashed and accounts closed because you will be viewed as very risky.
  • Because of adverse action if you intend to do this with multiple cards it is best to do a bunch at the same time.
  • Plan on repaying your accounts 1-2 months before making a major credit purchase such as a house or car because until your utilization comes down your credit will be very bad.
  • Back when I played these games I would limit utilization to ~50% to limit adverse action
  • Consider minimum payments in your profit calculations which are typically ~2%
  • Taxes are bit weird in that you can't generally write off Credit Card interest but an argument can be made about interest/balance transfer fees from CC arbitrage.

An important note is that while I did a bunch of credit card arbitrage from 2000-2010 I haven't played the game in a long time and I may be out of touch with current best practices.

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    I don't think getting 100% utilization on a single card (out of multiple, at least) is risky in any way. I've done it myself with 0% APR cards and if anything it triggered my other cards to increase my credit limit that they haven't done before in years. Obviously if that's the only card then it is most definitely a problem and the credit score will tank.
    – littleadv
    Dec 29, 2022 at 21:08
  • @littleadv Times have likely changed although that is a surprising data point, 100% utilization on a card used to be the kiss of death and cause a spiral of adverse action on other accounts.
    – stoj
    Dec 30, 2022 at 14:02

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