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[Engineer]

Originally posted by: saymyname
[I'm still waiting for my $100 from Sony.

LOL, me too!

 

[SampSon]

Originally posted by: saymyname

Originally posted by: SampSon

Bank: $25K
CC: -$25K
Interest: $1250

Bank: $0
CC: $0
Interest: $0

That's my logic.

That's not even counting the cc rewards like cash back (which I get very very little of) and points (which I never redeem since it's 200,000 points for a magazine subscription)

Get an interest bearing bank account. Get an interest bearing money market account.
What kind of interest are you getting .05%? Thats less than half of some of the lowest interest bearing checking accounts available.
Obviously do what you feel is right, but I think there are much better ways of going about it

As it stands do you have 25k+ in cash to pay off your CC debts?

I make 5.03% on my money. I have more than the $25K needed to pay off my cc debt in the bank.

You're talking about making interest on the money for the 25 day statement cycle. I'm talking about making interest for the 365 day 0% interest promotional cycle.

So what am I doing wrong? If you have a way I can make more money then I'm all ears. Someone mentioned T-bills, which would effectively push me above 6% so I'd like to figure that out. CD's have lower interest than my money market so that's no good.

Er yea I meant 5%. Though that 5% isn't technically your money right? That's your debt.

You're not doing anything "wrong" persay, but there are just easier ways of making points on your money. I yielded almost 9% on just my mutual funds last year or so. I just think it's easier to invest the money into more traditional investment vehicles than have to go through the trouble of dealing with credit card companies. The credit card companies arn't there to help you make money, obviously. I have a money market account with HSBC at 5.05%, no minimums, no fees.

I have some debt sitting on a 0% card, but I'm not looking at it as an investment.

 

[saymyname]

I don't consider it an investment. I have mutual funds, a roth ira, a sep ira, etc etc for that.

I'm just making money off the bank.

That 5% is my money. It's not really debt if I can pay it off right now.

I take advantage of good credit. Everyone should. Make all big purchases like furniture on a store's 0% financing. Just make sure you have the money to pay it off.

 

[SampSon]

Originally posted by: saymyname
I don't consider it an investment. I have mutual funds, a roth ira, a sep ira, etc etc for that.

I'm just making money off the bank.

That 5% is my money. It's not really debt if I can pay it off right now.

I take advantage of good credit. Everyone should. Make all big purchases like furniture on a store's 0% financing. Just make sure you have the money to pay it off.

Well that money doesn't exists, it's already spent, so it has no buying power. Where as the money in my savings account, making 4.95%, can be taken out and has actual value.

It just seems risky to carry a high credit card balance, spend time playing games with the companies, when you can just as easily have a savings or money market account.

I know how to take advantage of my good credit, to each their own.

 

[saymyname]

Are you pulling my chain after my verbose thread? LOL

Trust me, that money exists. I have it in my bank account. I don't care if it has no buying power since it still makes me interest. I am making $1250 more than if I had paid off my credit card balances in full. There's no getting around that. I'm using the bank's money to make myself money.

You gotta see the beauty in it.

 

[Engineer]

Originally posted by: SampSon

Originally posted by: saymyname
I don't consider it an investment. I have mutual funds, a roth ira, a sep ira, etc etc for that.

I'm just making money off the bank.

That 5% is my money. It's not really debt if I can pay it off right now.

I take advantage of good credit. Everyone should. Make all big purchases like furniture on a store's 0% financing. Just make sure you have the money to pay it off.

Well that money doesn't exists, it's already spent, so it has no buying power. Where as the money in my savings account, making 4.95%, can be taken out and has actual value.

It just seems risky to carry a high credit card balance, spend time playing games with the companies, when you can just as easily have a savings or money market account.

I know how to take advantage of my good credit, to each their own.

I'm still not sure what you're missing on this one.

Example: I have $1,500 in bills each month for gas, groceries, etc. I have the money that I would normally buy these items with. Instead of paying cash, I place them on a credit card (and earn a reward). I then take the minimum payment amount from the $1,500 and pay the card. I take the rest and earn interest on it.

This has nothing to do with my regular investments, etc. I earn interest on the the remaining money of the $1,500 until the balance is due (i.e. zero % runs out). The interest I earn on the money saved is real money and is money that you would NOT have had unless you did the above stragegy.

This has nothing to do with a savings or money market account separate from the above. This is taking your regular purchases and earning interest on the money for a year or so.

Is it risky? Sure is. If you miss a payment or are late, you can get one heck of a big interest charge. That's why you keep the balance in a high liquid account.

 

[dullard]

Originally posted by: saymyname
What's the catch?

There are four catches.

1) If you goof up just once, you will suddenly have ~$25,000 at ~20% interest. Often that interest is retroactive to when you made the mistake. Thus, even if you notice it immediately, you'll still owe a major interest fee. This means paying NO bills late, even utility bills. If you are careful and lucky (ie don't get in a coma) you can avoid this catch completely at least.

2) You may over leverage yourself so that you can't get credit when you need it. Suddenly have an emergency? Too bad, your CC is maxed out. Need a loan? Too bad, the bank denys you. This catch may or may not be avoidable.

3) You pay more for many, many things in life. You pay more for insurance, more for loans, more for your apartment, etc. These extra payments may very well exceed the money you make by investing the money to begin with. After taxes, the $25,000 at 5% interest nets you $937/year*. But you may be paying $2000/year more on all these things combined. You may think you are being smart by saving money, but it is possible this is actually costing you money and you don't even know about it. These companies are not required to notify you that they charge more due to your credit usage, and no one outside the companies knows the formulas they use to determine when they charge you more. See a very recent (last two months) Consumer Reports that describes on this issue in detail. One of several ATOT examples. This catch is unavoidable.

4) You may not get that nice new job you applied for. More and more employers look at credit usage before hiring. This could cost you many thousands or just make you less happy. This catch may or may not be avoidable.

* Varies depending on tax rate.

 

[Engineer]

Originally posted by: dullard

Originally posted by: saymyname
What's the catch?

3) You pay more for many, many things in life. You pay more for insurance, more for loans, more for your apartment, etc. These extra payments may very well exceed the money you make by investing the money to begin with. After taxes, the $25,000 at 5% interest nets you $937/year*. But you may be paying $2000/year more on all these things combined. You may think you are being smart by saving money, but it is possible this is actually costing you money and you don't even know about it. These companies are not required to notify you that they charge more due to your credit usage, and no one outside the companies knows the formulas they use to determine when they charge you more. See a very recent (last two months) Consumer Reports that describes on this issue in detail. One of several ATOT examples. This catch is unavoidable.

Having CC debt doesn't automatically lower your credit score. Store cards (Lowes, etc) lower them upon applying as they are often given to ANYONE that has a pulse. Having a steady payment rate on a credit card sometimes looks better than just having the card at zero balance each month.

But on that note, it's actually to your advantage to monitor your credit reports/scores and not overplay anything that you do.

 

[dullard]

Originally posted by: Engineer
Having CC debt doesn't automatically lower your credit score. Store cards (Lowes, etc) lower them upon applying as they are often given to ANYONE that has a pulse. Having a steady payment rate on a credit card sometimes looks better than just having the card at zero balance each month.

1) I said nothing about credit score.
2) You need to show both (a) several accounts in current use and (b) at least one card with $0 balance monthly to maximize your credit score. Although, part (b) is only a small effect on the score.

But your point is taken. You can do this to a small extent with no harm. But going to $25k or $765k probably isn't a small extent.

 

[Engineer]

Originally posted by: dullard

Originally posted by: Engineer
Having CC debt doesn't automatically lower your credit score. Store cards (Lowes, etc) lower them upon applying as they are often given to ANYONE that has a pulse. Having a steady payment rate on a credit card sometimes looks better than just having the card at zero balance each month.

1) I said nothing about credit score.
2) You need to show both (a) several accounts in current use and (b) at least one card with $0 balance monthly to maximize your credit score. Although, part (b) is only a small effect on the score.

True, you said nothing about score. But having a high score reflects your general credit and useage.

As for 765k, that's beyond my imagination. Actually, you would need excellent credit to keep that much flowing in for balance transfers. Of course, the $20,000 to $25,000 made on the $400,000 BT option anually would most likely outweigh any higher premiums for insurance, etc!

 

[saymyname]

Actually I made one mistake. I lowered my limit on a card and it dropped my score 50 points. So I raised the limit back (plus some). I have above the 760 needed for the best rates. I might bounce below it occasionally though as my balances increase, but I guess it gets offset by having payments made on time and average age of accounts.

My only concern is that I will pay off all these cards before I buy a house. I'm not sure how soon I should do it.

 

[dullard]

Originally posted by: saymyname
Actually I made one mistake. I lowered my limit on a card and it dropped my score 50 points. So I raised the limit back (plus some). I have above the 760 needed for the best rates. I might bounce below it occasionally though as my balances increase, but I guess it gets offset by having payments made on time and average age of accounts.

My only concern is that I will pay off all these cards before I buy a house. I'm not sure how soon I should do it.

I don't understand why anyone at all would ever lower their limit. The only reason to consider it is if you are irresponsible with credit cards and in that case you should cancel them instead.

As for the house, the mortgage brokers typically look at everything in your bank accounts in the last two months. Thus, you'll have to explain why you had $25,000 suddenly disappear. I'd just avoid that complication and pay it off at least two bank statements before you apply for the mortgage.

I looked up the Consumer Reports article for real numbers (Aug 2006 issue). Here are the car insurance differences for a 28-year-old male in Orlando, FL, driving a new Toyota Camry:
[*]AIG: $1589-$4755. The difference can be as high as $3166 between those with perfect credit and those who overexend themselves!
[*]Allstate: $790-$1490.
[*]GEICO: $947-$1468.
[*]Liberty Mutual: $1410-$2361.
[*]Nationwide General: $943-$1706.
[*]Progressive: $782-$1868.
[*]State Farm Mutual: $1109-$2600.
[*]USAA: $1015-$1336.

Of course, just one 0% loan probably wouldn't put a person from the best to the worst. That would be a very extreme example. But it could easilly push you part way in the wrong direction.

I'm just warning you people that if you do the 0% interest thing, just don't overdo it. You could easilly start hurting yourself financially. Sure, you can do it and make money off of it even including possible catches I mentioned above. But just do it a little bit to mitigate the risks. Myself, I currently have just under $2000 on 0% interest on a Sears purchase. So I do it too, just I would avoid going much beyond that.