2arrs, 2ells

The House + Senate both passed a credit card reform bill with quite a few provisions (see the link), including:

Let’s say you’re paying many different interest rates on the debt on a single card, one for a cash advance, another for a balance transfer and a third for a new purchase. Now, when you make a payment over the minimum balance, banks will have to apply it to the highest-interest debt first. I bet you can guess how many banks used to handle this sort of situation.

This is probably a Good Thing. But one of the unintended consequences of this law will be to kill the free money credit card schemers (like myself!) have been enjoying over the past few years.

The scheme was as follows:

Make sure you have a high credit score + sufficient credit history.
Assemble a list of credit cards with “0% balance transfer offers.” If you have a mailbox, you’ve probably trashed junk mail offering you one of these. The way it works is the credit card companies extend you a 0% loan for a given period of time (usually one year), but if you’re not careful (i.e. you’re late on a payment, use the card for a regular purchase, don’t pay the entire loan off in time) you can get stuck with boatloads of interest.
Apply to all of the cards (often 10 or more) with balance transfer offers at the same time. This process is known as the App-O-Rama. Every time you apply for a credit card, your credit score gets “dinged.” Applying for cards simultaneously allows you to get in a bunch of applications before your score goes down.
Put your 0% money in a safe investment. When interest rates were higher, it wasn’t hard to find a one year CD paying 6% or more.
Profit. I “only” made about $500 from this scheme, but others on the internet spent years earning ~6% interest on $100,000 of free money.

Now that payments will have to go to the part of your balance with the highest interest, banks won’t be able to earn enormous fees on people who mess up the balance transfers and thus are unlikely to offer them at all.

And the restrictions placed on 18-21 year olds in the Senate bill are outright absurd… but that’s worth another post.

(h/t to fatwallet finance for teaching me all that I know)

Tagged: content

The End of Free Money →