what are the downsides of rolling credit card debt in this fashion

Question

Suppose a person has $5k in debt from his favorite credit cards. Suppose he signs up for a credit card that has 0% APR and no fees on balance and balance transfers for 15 months. Even though he is able to pay off the debt, he chooses to let 15 months pass while investing his cash in Treasury Bills paying only the minimum due on the 0 APR card. Now when the 15 months run out, he signs up for a new credit card that offers the same perks. So he is essentially borrowing at a zero rate for 30 months and making only minimum payments. I was just wondering about the following

1. Are there any legal concerns for a borrower engaging in this strategy? Specifically, this borrower has the ability to pay off debt but chooses not to do so.

2. Will the borrower be able to close a credit card as soon as the 15 months of 0 APR, 0 Fees on Balance and Transfers expire? Assume here borrower hasn't used the credit card in any way aside from transferring and storing debt.

3. Will the borrower find it difficult after 15 months to be approved for a new similar credit card?

4. Aside from the credit score and the hard pulls when you apply for credit cards, will there be anything else in the credit report of this borrower that will signal lenders about what this borrower did?

EDIT: My previous question wasn't very precise as it didn't specify what I meant by downside and I apologize.

Answer 1

Assuming you can get keep getting credit cards like this forever, you open yourself up to risk in short term losses.

Stock/bond prices fluctuate. If you need to pay the money back for some reason (at the end of the 15 months) your investment may be less than the 5,000 you started with.

Answer 2

Awesome, you are a math guy. Very good for you. In theory, what you are proposing, should work out great as the math works out great. However have you taken a economics or finance coursework? The math that they do in these class will leave a most math guys uncomfortable with the imprecision even when one is comfortable with chaos theory.

Personal finance is worse. If it were about math things like reverse mortgages, payday lenders, and advances on one income tax returns would not exist.

The risk derived from the situation you describe is one born out of behavior. Sometimes it is beyond control of the person attempting your scheme. Suppose one of these happen:

• Guy gets hospitalized or befalls some other tragedy. Misses payment, CC rate now 18% or more.
• Guy's significant other breaks up with him and clears out the investment account. Now only debt, no investment.
• Identity theft. Same thing
• Market tanks because credit has dried up. Now investment is worth half and cannot get a new CC. Now paying 18% with presumably no way to pay it back.
• Guy behaves like most people who consolidate their debt. Assumes another 5k on top of the 5k he already has.

In my opinion the market is risky enough without borrowing money in order to invest. Its one thing to not pay extra principle to a mortgage in order to put that money in play in the market, it is another thing to do what you are suggesting. While their may be late fees associated with a mortgage payment, a fixed rate mortgage will not change if you late on payment(s).

On these balance transfer CC schemes they will jack your rate up for any excuse possible. I read an article that the most common way to end up with a 23%+ credit card was to start out with a 0% balance transfer. One thing that is often overlooked is that the transfer fee paid jacks up the stated rate of the card.

In the end, get out of consumer debt, have an emergency fund, then start investing. Building a firm financial foundation is the best way to go about it. Without one it will be difficult to make headway. With one your net worth will increase faster then you imagined possible.