Monday, September 24, 2007

How to profit off your credit card

I know in the near future, I am going to have a few large expenses. One, I may be moving, and two, I want to get a nice sized LCD for the new place. While I have the money to spent, there are also really nice short-term rates out there in the form of high-yield CDs that many banks are offering.

How do I take advantage of this?

Well, consider that the total expenditures I expect to make are about $5000 (shocking that this is the same amount as the minimum at most banks for said high-yield CD). Instead of spending it, I went out and got a high limit credit card with a 0% APR offer for 6 months.

That way, I can charge the expenses to the credit card, paying the minimum balance to avoid any fees, and since there is no interest involved, by the time I have to pay, the balance would be $5000 - 5 x minimum payments. Considering a minimum payment of 2%, that's about $100 a month. So I would have to pay a lump sum of $4500 by the sixth month.

At the same time as the purchase, I put the $5000 in cash into a 6-month CD at about 5.30% APR. That's about $22 a month in interest, or by the end of 6-months, about $134!

And there you go, if you plan it correctly, you can eat your cake and keep it too!


Anonymous said...

Are you even remotely serious about hitting a million in liquid assets? If you are, you should strongly consider not spending thousands of dollars on frivolous discretionary items and instead focus on growing your portfolio. It's fine if you're just daydreaming, but you should be honest with yourself.

How about instead of buying the TV and moving to swankier digs, you take a $5k cash advance (or use a balance transfer check) on that new credit card and put that in a high interest CD. Now you've earned some "free" money.

Even better, you get to keep your non-squandered $5k in your brokerage account and put it to good use. Better yet, you could beef up that IRA for your retirement, a period of your life for which you have largely neglected to prepare.

But hey, millionaires drive fancy cars and watch the market on big TVs in lavish homes, so after this purchase your almost there. Better get packing!

AS said...

Anonymous is totally right. You may want to read "The Millionaire Next Door" and look at the spending habits of actual millionaires.