Come inside and tell me what's wrong with my something-for-nothing scheme

February 6, 2005 8:32 PM

Come inside and tell me what's wrong with my something-for-nothing scheme [more inside].

Lets say I have an excellent credit history and can get any credit card I apply for. I obtain two credit cards with no annual fees; 1 credit card bills on the 1st of the month (Card A) and the other (Card B) bills on the 15th of the month. On January 2nd, I buy a large screen TV. On January 28th, I pay off Card A with Card B. On February 13th, I pay of Card B with Card A, and so on - paying off one credit card with the other before each due date.

If interest is charged at the end of the billing period, I would be accruing no interest, since I'm paying off each bill before the end of the period. Each card has no annual fee, so I don't have to pay that either. Although the TV's not technically free, it's basically like having a loan with an interest rate below the rate of inflation, isn't it? I feel like there's a flaw in my logic, but I can't see it.

posted by muddgirl to Work & Money (15 answers total)

I think the flaw is that cash advances, as opposed to purchases, generally acrue interest daily instead of monthly. You might be able to do it with balance transfers, but I bet they put those in a special box to keep you from doing what you are describing.
posted by mzurer at 8:36 PM on February 6, 2005

Best answer: It depends on the company, but a lot of times, you can't pay off one credit card directly with another- you'd have to get a cash advance, and the interest rules on cash advances are often different from regular charge amounts.
posted by headspace at 8:37 PM on February 6, 2005

Well, you will eventually have to pay for the TV, so you're just postponing the inevitable. It's like those furniture companies that offer "make no payments until 2007!" You still bought the thing, whether you pay for it the moment it first comes into your possession or a year or two later.

Also, if you're mailing the bills, you'll have to pay for stamps. Even if you're doing this all online, what is your time worth?
posted by bonheur at 8:38 PM on February 6, 2005

Best answer: Balance transfers generally accrue interest like cash advances not like purchases.

I once had a similar idea to try to get air miles/points etc., so I read the agreements carefully. Oh...and before you run off to try it this way: Getting paypal involved doesn't help either.
posted by duck at 8:42 PM on February 6, 2005

This only works if you move the balance from card A to card B to card C to card D, each time using a one-time promotional interest-free balance transfer. The hard part is finding new credit cards to use, since you need a new one each month.

OTOH, it is possible to move a sizeable amount of debt around between cards that have introductory 6-month 0% APRs.
posted by smackfu at 8:43 PM on February 6, 2005

Response by poster: Well, you will eventually have to pay for the TV, so you're just postponing the inevitable.

I thought that too, but if you keep this up for a few years, and monetary inflation increases, then you're technically saving like 3% a year.

Balance transfers generally accrue interest like cash advances not like purchases.

Ah, thanks mzurer et al. I figured something like that was the case.
posted by muddgirl at 9:13 PM on February 6, 2005

Also, I imagine opening all those new lines of credit would eventually hurt your credit rating, and prevent you from getting new cards with favourable terms.
posted by kickingtheground at 9:33 PM on February 6, 2005

Balance transfers generally accrue interest like cash advances not like purchases.

And they often hit you for 3% or so right up front (typically with a minimum and a maximum -- could be $50). So, no, this is almost always not a way to save money. The banks thought of this and made it so you can't do it.

Just get a card that has a promotional interest rate of 0% for some set period, like a year, buy your TV, and pay it off before the promotional rate runs out. Better yet, make sure the card's one that gives you cash back or some other reward, and doubles the manufacturer's warranty.

You'll be glad you got the extra warranty if you buy an HDTV set; most people I know with HDTV have had to have theirs exchanged or serviced at least once. One guy had to send his back, and then there weren't any more of that model left in the entire U.S., and he was without a TV for months until he bitched and made Best Buy give him the new model.

So my advice on the specific purchase of a large-screen TV is:

1) Don't buy an HDTV; they are too expensive (plasma, LCD) and/or the technology is too immature and unreliable (DLP).

2) Don't buy a standard-def set; they are obsolete.

3) If you ignore #1, get a damn good warranty.
posted by kindall at 9:34 PM on February 6, 2005

If muddgirl shouldn't buy an HDTV, and shouldn't buy an SDTV, what should she buy? There's not many other D's of TV out there to buy unless you count the EDTV plasmas.

Or have I accidentally dislodged my humor module again?
posted by ROU_Xenophobe at 10:34 PM on February 6, 2005

"Balance transfers generally accrue interest like cash advances not like purchases."

Just about every credit card issuer will offer balance transfers at 0% APR if you're in good standing.

Keep in mind, though, that you can only do this for so long. They'll wise up if you keep lobbing the balance between even 4 or 5 credit accounts over the course of a year or two.

Yeah, you can beat inflation taking advantage of this, but that's hardly "something for nothing." Inflation is a negative effect; beating it gets you toward breaking even, disregarding the depreciation of your purchase.
posted by majick at 10:55 PM on February 6, 2005

Just to add (hopefully) some clarification - if you read the fine print for balance transfers, you'll probably see something about a transfer fee, which typically is 3% (in my experience, although also capped at some fixed dollar amount, like $50). For convenience checks, there always is such a fee (in my experience).

Also, zero percent APR offers (which occasionally do show up) are normally limited to a fixed period (like six months) - again, read the fine print.

Finally, whenever I've considered a balance transfer, I've always been put off by another bit of fine print - transfers can take some number of weeks. (I've not been willing to pay high interest charges while I wait for the balance transfer to take place.)
posted by WestCoaster at 11:05 PM on February 6, 2005

FYI, the prices of large screen LCDs are expected to drop by 50% or so in the next year. You might find that buying the TV now doesn't look so sensible then.
posted by ikkyu2 at 11:15 PM on February 6, 2005

My advice, ROU, is not to buy a big-screen TV for at least another year, possibly two. Buy a cheap smaller unit (e.g. 25" or 27") to tide you over until HD sets stop sucking and there's more programming available in the format.
posted by kindall at 11:15 PM on February 6, 2005

Supposedly the trick works. The way to do it is to take one of those "0% for a year" cards and transfer the balance (make sure 0% is for transfers, too). Do this once a year and you can carry a balance forever, assuming you keep getting offers.
posted by knave at 2:14 AM on February 7, 2005

It would work if you intend to make a payment on the principal every month and get it paid off within a year. But it's not really a good idea to keep deferring debt, especially if you plan to keep spending and your principal is just getting larger. Sooner or later you will have to pay the principal, and probably at least some interest.

Pay as you go. It's far less stressful and inexpensive in the end.
posted by orange swan at 6:08 AM on February 7, 2005