For those of you who don’t have a grip on your finances, owning a credit card would be a huge mistake. However, if you already own one I don’t have to remind you of the mountain of debt that accompanies it. In today’s society, credit card debt has become an important issue for families struggling with their finances. Credit card companies have managed to make use of the compound interest rates to enslave you, making getting out of the debt seemingly impossible. However, there are the few out there who have managed to make use of the idea of credit card arbitrage to benefit from the interest gained on their cards.
The idea behind credit card arbitrage is to invest the money drawn from a low interest credit card in something that would hopefully generate a higher return or at least help you pay of the interest. Some daring cardholders also make use of zero interest promotional cards (usually the promotional period is about a year) to turn a profit. One way to do this would be to invest the money from the card into a savings account, which offers a high interest rate. This will allow you to make each monthly credit card payment on time. When there is a change in the rate of interest or the end of the payment period is reached the money withdrawn from the bank can be used to pay of the balance.
This may all seem very easy at first. But do keep in mind that the interest rates may change with little or no warning. However this usually happens as a result of late or missed payments. As a result this may hamper any chance of making a profit.
The profitability through credit card arbitrage depends on the line of credit available. The more money can be borrowed, the higher will be the return once the borrowed amount is invested in an account that yields a reasonable interest.
Credit card arbitrage can really hurt your credit score. The credit score usually goes down in the beginning because a large chunk of the credit line is borrowed for investment into other accounts. Late payments or missed payments could damage your score even further.
Credit card arbitrage is not for everyone. Due to its risky nature it should be employed by only those few consumers who rake in a substantial income and who are good at managing their finances.