Take the free money or not?

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White Coat Investor
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Take the free money or not?

Post by White Coat Investor » Tue Jan 19, 2010 8:13 pm

I've been offered free money. Here's how it works.

My credit card company sent me an offer for 0% for a check if I use it in the next few weeks. It is 0% through January 2011, 8.9% after that. No transfer fee. I can write the check to me and put it in my bank account tonight, transferring it to my high yield savings account within days. I have a $25K credit limit. I don't use the card regularly, have nothing on it now, and don't need to ever use it. I have several other cards with similar limits with nothing on them, aside from the cash-back card I put all my purchases on each month.

Free money, right? Even with rates at only 1.5% there's a risk-free ~$400 there. I have done this before with this card, have read the fine print, and am convinced there is no catch. I also plan to buy a home in 9-12 months. So my only concern is whether this will impact my credit rating sufficiently that I shouldn't take the free money. I imagine my credit rating is pretty darn near maximal at this time, so it would have to be a pretty significant hit to impact my future mortgage I would think. If nothing else, I could pay it back a month before taking out a mortgage I suppose.

What would you do?
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grunel
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Post by grunel » Tue Jan 19, 2010 8:24 pm

I would do the transfer for $12,500. Staying under 50% utilization on the card will limit the credit rating hit.

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Post by rock_marmot3 » Tue Jan 19, 2010 8:33 pm

If you pay it back before you buy the house, it shouldn't affect your credit rating at all, right?

Also, you should try running a hypothetical credit score check assuming you take the loan using the fico score estimator on bankrate.com (or elsewhere), just so you can get a sense of how much your credit score will actually be affected.

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Sammy_M
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Post by Sammy_M » Tue Jan 19, 2010 8:33 pm

I'd take it. Maybe buy 1 year CD. Credit score hit will be minimal.

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Re: Take the free money or not?

Post by tinscale » Tue Jan 19, 2010 8:34 pm

EmergDoc wrote:I've been offered free money. Here's how it works.

My credit card company sent me an offer for 0% for a check if I use it in the next few weeks. It is 0% through January 2011, 8.9% after that. No transfer fee. I can write the check to me and put it in my bank account tonight, transferring it to my high yield savings account within days. I have a $25K credit limit. I don't use the card regularly, have nothing on it now, and don't need to ever use it. I have several other cards with similar limits with nothing on them, aside from the cash-back card I put all my purchases on each month.

Free money, right? Even with rates at only 1.5% there's a risk-free ~$400 there. I have done this before with this card, have read the fine print, and am convinced there is no catch. I also plan to buy a home in 9-12 months. So my only concern is whether this will impact my credit rating sufficiently that I shouldn't take the free money. I imagine my credit rating is pretty darn near maximal at this time, so it would have to be a pretty significant hit to impact my future mortgage I would think. If nothing else, I could pay it back a month before taking out a mortgage I suppose.

What would you do?
You didn't say where you would deposit it but an ING savings acct pays 1.25% -- so you will earn somewhere around $280 in taxable interest over the 11 months.

I don't know about the credit rating stuff, but it hardly seems worth it in case there is a catch or something goes wrong. Just my 2 cents.

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canucknyc
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Post by canucknyc » Tue Jan 19, 2010 8:45 pm

Plop the whole $25K into a triple-leveraged Emerging-Markets fund - you'll be able to buy the house in cash in a year! :wink:

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Post by chaz » Tue Jan 19, 2010 8:45 pm

Nothing wrong with free money since your plan isn't illegal.
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Re: Take the free money or not?

Post by White Coat Investor » Tue Jan 19, 2010 8:47 pm

tinscale wrote:
EmergDoc wrote:I've been offered free money. Here's how it works.

My credit card company sent me an offer for 0% for a check if I use it in the next few weeks. It is 0% through January 2011, 8.9% after that. No transfer fee. I can write the check to me and put it in my bank account tonight, transferring it to my high yield savings account within days. I have a $25K credit limit. I don't use the card regularly, have nothing on it now, and don't need to ever use it. I have several other cards with similar limits with nothing on them, aside from the cash-back card I put all my purchases on each month.

Free money, right? Even with rates at only 1.5% there's a risk-free ~$400 there. I have done this before with this card, have read the fine print, and am convinced there is no catch. I also plan to buy a home in 9-12 months. So my only concern is whether this will impact my credit rating sufficiently that I shouldn't take the free money. I imagine my credit rating is pretty darn near maximal at this time, so it would have to be a pretty significant hit to impact my future mortgage I would think. If nothing else, I could pay it back a month before taking out a mortgage I suppose.

What would you do?
You didn't say where you would deposit it but an ING savings acct pays 1.25% -- so you will earn somewhere around $280 in taxable interest over the 11 months.

I don't know about the credit rating stuff, but it hardly seems worth it in case there is a catch or something goes wrong. Just my 2 cents.
My ally bank pays 1.49% currently, I'd put it there. So $400, $300 after-tax. More if rates go up. Plus the convenience for cash-flow purposes.
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Post by dkdoy » Tue Jan 19, 2010 8:52 pm

canucknyc wrote:Plop the whole $25K into a triple-leveraged Emerging-Markets fund - you'll be able to buy the house in cash in a year! :wink:
Or maybe 12.5 in Emerging and 12.5 in Frontier markets. Seriously, I would probably take 50% of limit and put in ING or similar account.

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Post by DTSC » Tue Jan 19, 2010 9:08 pm

Do it immediately, if indeed you're not being charged any fees and have read all the fine print. I love being able to stick it to a bank!

I used to do what you are offered all the time. In fact, since I bought a house already and don't care much too about my credit score, I'd call the bank to raise my credit limit to as much as $40K. Then I'd use their check and park it in a high yield savings account for 6 months (their limit before interest is charged) and make a few hundred dollars.

However, they have since wised up. Often they have a 3% transfer fee, right off the top. They used to cap the fee at $75 (so I could borrow $40K for only $75). Now there's no maximum limit on the fee, so I won't make any money paying 3% to put the money in a 2% yield account anymore.

BTW, you might want to look into Alliant Credit Union. Yield is 2.0%

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Post by White Coat Investor » Tue Jan 19, 2010 9:28 pm

rock_marmot3 wrote:If you pay it back before you buy the house, it shouldn't affect your credit rating at all, right?

Also, you should try running a hypothetical credit score check assuming you take the loan using the fico score estimator on bankrate.com (or elsewhere), just so you can get a sense of how much your credit score will actually be affected.
That's pretty cool, I like it. This calculator can be found here for those interested:

http://www.bankrate.com/calculators/cre ... lator.aspx

According to this my score would immediately drop from 760-810 to 720-770.

Is that good enough? Don't know, but found this:
If I’m forced to throw out a number, which I believe I am, I would say 760 is an “excellent credit score.”

Why 760? Well, from my experience in the credit industry, I’ve seen pricing adjustments and credit score requirements across the board.

But I’ve never seen any lender ask for more than a 760 credit score, and I’ve never seen anything extra offered to those with credit scores beyond 760.

In fact, most consumers who have 720 credit scores are usually golden, meaning credit score alone won’t hold them back from credit approval, and it usually won’t lead to a higher rate.

But it’s hard to call a 720 credit score excellent, especially since the average credit score hovers around that number.
http://www.thetruthaboutcreditcards.com ... dit-score/

This site also suggests that anything over 720 is just fine:

http://www.creditscoring.com/pages/bar.htm
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Post by livesoft » Tue Jan 19, 2010 9:56 pm

I've done this 3 years in a row. I took the whole amount and put it into Vanguard GNMA. Average annual return for the 3 years is about 6% per year during the Great Recession.

My credit score was above 800 when I refinanced several years ago. I think it has dropped to 720 or so (but I cannot be sure since I won't pay for a FICO score) due to this maxed out credit card.

When you get ready to buy the home, pay off the card in full at least 45 days before you apply for a loan.

At least that's what I would do.

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Post by linuxizer » Tue Jan 19, 2010 10:12 pm

EmergDoc wrote:
rock_marmot3 wrote:If you pay it back before you buy the house, it shouldn't affect your credit rating at all, right?

Also, you should try running a hypothetical credit score check assuming you take the loan using the fico score estimator on bankrate.com (or elsewhere), just so you can get a sense of how much your credit score will actually be affected.
That's pretty cool, I like it. This calculator can be found here for those interested:

http://www.bankrate.com/calculators/cre ... lator.aspx

According to this my score would immediately drop from 760-810 to 720-770.

Is that good enough? Don't know, but found this:
If I’m forced to throw out a number, which I believe I am, I would say 760 is an “excellent credit score.”

Why 760? Well, from my experience in the credit industry, I’ve seen pricing adjustments and credit score requirements across the board.

But I’ve never seen any lender ask for more than a 760 credit score, and I’ve never seen anything extra offered to those with credit scores beyond 760.

In fact, most consumers who have 720 credit scores are usually golden, meaning credit score alone won’t hold them back from credit approval, and it usually won’t lead to a higher rate.

But it’s hard to call a 720 credit score excellent, especially since the average credit score hovers around that number.
http://www.thetruthaboutcreditcards.com ... dit-score/

This site also suggests that anything over 720 is just fine:

http://www.creditscoring.com/pages/bar.htm
If you're buying a house, 720 is no longer enough to get the absolute best rate. Refi'd last year and it was more of a pain than I was expecting to eke out that last point. Aim for >760.

On the other hand, when you decrease your utilization I believe that updates immediately. www.creditboards.com has a bunch of credit score gurus, although many of their tactics go overboard.

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Post by avalpert » Tue Jan 19, 2010 10:25 pm

I've been rolling over 0% balances for years. Credit scores are complicated but in terms of utilization, it is the aggregate that they look at - so if you have $25k balance on this card and another card with 0 balance and $25k limit you won't get hurt at all.

In any case, you can run a siulation but it likely won't impact your score much if you have a healthy credit history.

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Post by tetractys » Tue Jan 19, 2010 10:44 pm

Arbitrage/float opportunities are out there. I've utilized them myself on occasions. I've always followed the rules, and have never been nicked from it on my credit or otherwise. On the other hand I wouldn't play games with a business' expectations either. That doesn't even stand up to common sense. Utilizing the statistics is one thing, jerking entities around is another. -- Tet
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Post by eurowizard » Tue Jan 19, 2010 11:03 pm

Doc,

Thanks again for the Private Message help earlier today.

Based on what you wrote, it sounds like my advice is NOT to do it. It's probably going to be fine, but for $400 which is $300 after tax, is it really worth the stress of worrying about it?

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Post by detifoss » Wed Jan 20, 2010 1:17 am

I used to play this game, back when the banks were giving out free cash on credit lines like it was candy, and back when I could get 4-6% with ease on my money.

Now, with rates as low as they are, and with state+federal rates taking 40+% of my interest earnings, it just isn't worth it to me anymore.

There is a wealth of information about this tactic on fatwallet (App-O-Rama, or AOR is the preferred term for those who do it with large numbers of credit cards all at once).

I made around $5000 after tax one year doing this (had about $60,000 in 'free money' and had a huge number of signup bonuses also). It was definitely a headache.

For under $500, after tax, it is no longer worth the hassle IMHO.

If rates go back up, and if the credit card offers (with no BT fees, very low monthly min payments) come back again, I'll get back in the game too.

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Post by White Coat Investor » Wed Jan 20, 2010 9:04 am

Well, I called and got the credit card limit increased to $30K, they didn't even do a hard credit pull. Aside from a little (very little) work, I see no downside to doing this and paying it back 45 days before needing a mortgage, if I need to. I suppose I could pay $8 for my credit score then and see exactly where I'm at before deciding. I just wish bank accounts/MMFs were paying 5+% again.
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Post by dphmd » Wed Jan 20, 2010 10:17 am

EmergDoc wrote:Well, I called and got the credit card limit increased to $30K, they didn't even do a hard credit pull. Aside from a little (very little) work, I see no downside to doing this and paying it back 45 days before needing a mortgage, if I need to. I suppose I could pay $8 for my credit score then and see exactly where I'm at before deciding. I just wish bank accounts/MMFs were paying 5+% again.
I would suggest paying back a little more than 45 days before. It should update immediately, but the balances shown on my credit report are always about two months behind.
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Post by Justin618 » Wed Jan 20, 2010 10:48 am

I've never played this game myself, but from time to time I've taken a look at those checks I get in the mail.

My only question would be can you write the check to yourself to keep the 0% rate for the first year. I thought the check could only be used for balance transfers from another card or for purchases, and that writing it to yourself would be deemed a cash advance and would carry interest at the normal rates. In short, read all of the fine print.

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Post by bottlecap » Wed Jan 20, 2010 11:14 am

EmergDoc:

I wouldn't do it. Who knows what will happen to your credit score, but if it takes a hit, you'll be paying higher interest for perhaps 15 or 30 years with your new home loan, assuming rates rise or you can't refi in the near future. It may also affect your insurance rates, as those are now becoming linked to credit scores.

You're a doctor, a saver and a savvy investor. Given the unknown consequences on your credit score, taking a gamble to make $375 (before taxes) in interest - essentially a pittance given your circumstances and financial/investing outlook - seems to be taking a risk you don't need to take. Paying it back before taking a mortgage may or may not repair your credit score to its original position.

Either way, this decision not going to ruin you. To me, it just seems like quite a bit of hassle that will ding your credit for a couple hundred bucks after taxes.

JT

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Post by Dagwood » Wed Jan 20, 2010 11:20 am

What JT wrote pretty much encapsulated my reaction: why take any chances with your credit score in advance of a home purchase when you don't need the money? Less than $400 after tax? And for the trouble involved? Not worth it to me.

And are you sure you won't use it at all? I don't doubt that you are savvy and disciplined, but the person who can ignore an extra $25k sitting around and not find anything to buy that he or she otherwise wouldn't have bought is really quite rare. It's in recognition of this reality -- human nature -- that the bank is willing to take the bet that most people, even those with the excellent credit history to which offers like this are targeted, will find a way to spend at least some of the money.

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Post by JasonP » Wed Jan 20, 2010 11:31 am

Personally, I wouldn't risk such an important thing like a home purchase for such a small reward. It sure would suck to find out your credit rating took a hit for some reason. I don't trust credit ratings very much and do as little as possible to tempt fate.

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Post by livesoft » Wed Jan 20, 2010 11:40 am

Justin618 wrote:My only question would be can you write the check to yourself to keep the 0% rate for the first year. I thought the check could only be used for balance transfers from another card or for purchases, and that writing it to yourself would be deemed a cash advance and would carry interest at the normal rates. In short, read all of the fine print.

Justin
Balance transfers are not a hindrance. I balanced transfered to another active credit card. Then that card shows a huge credit, so I call up and get that CC company to issue me a check for that credit which I then invest in something conservative, but more risky than a money market fund or FDIC insured account.

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Post by Chuck » Wed Jan 20, 2010 12:32 pm

What bank offers a 0% interest balance transfer without a 3% transfer fee??? I want to sign up for an account.

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Post by White Coat Investor » Wed Jan 20, 2010 1:15 pm

Chuck wrote:What bank offers a 0% interest balance transfer without a 3% transfer fee??? I want to sign up for an account.
USAA. Hope you qualify.
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Post by White Coat Investor » Wed Jan 20, 2010 1:26 pm

Justin618 wrote:I've never played this game myself, but from time to time I've taken a look at those checks I get in the mail.

My only question would be can you write the check to yourself to keep the 0% rate for the first year. I thought the check could only be used for balance transfers from another card or for purchases, and that writing it to yourself would be deemed a cash advance and would carry interest at the normal rates. In short, read all of the fine print.

Justin
Yes, you can write it to yourself. I might not have mentioned this above, but I've done this before. I paid it off last October when it came due and 3 months later this check shows up in the mail again tempting me. Don't know why they do it, but hey, that's their business, not mine. I had the discipline to not spend it before, don't know why that would change. And even if I did spend it, it's 8.9% after a year, not 30%. I could even use it for bridge loan/downpayment on the house. I borrowed money from my parents at 6 or 7% for part of my downpayment (ssshhhh don't tell anyone) when I bought this place, paid it off in 3 or 4 months. Money is fungible.

Speaking of fungible, this might be a good time to adopt the whole "emergency fund in tax-protected" philosophy. I have a great cash equivalent available to me in my 401K-the G fund. Maybe I'll buy the FTSE Intl fund in taxable, swap out my I fund in the TSP for the G fund, and in 6-12 months go back. The G fund is up to 3.5% currently. 3.5%*$30K=$1050. Just sitting there on the ground waiting for me to pick it up. If a lender doesn't want to lend money to me they're crackheads anyway. I mean, seriously, who do they save their best rates for if not Bogleheads. Long credit history, never missed a payment, low utilization ratio (even with this loan) etc. So what if my credit score drops from 790 to 750? If someone actually cares, I'll just pay off the loan.

The key to all this is you have to get a check without the 3% fee. I look at all the ones that come in the mail, and the only ones I've seen without the fee are the ones from USAA (and not even all of those.)
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interesting livesoft

Post by smileartist » Wed Jan 20, 2010 1:31 pm

Balance transfers are not a hindrance. I balanced transfered to another active credit card. Then that card shows a huge credit, so I call up and get that CC company to issue me a check for that credit which I then invest in something conservative, but more risky than a money market fund or FDIC insured account.

Did you use the enclosed checks and then deposit them into your account and then pay the account with a personal check or did you have the cc company transfer the money directly to the account to be paid off?

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Re: interesting livesoft

Post by livesoft » Wed Jan 20, 2010 6:38 pm

smileartist wrote:Did you use the enclosed checks and then deposit them into your account and then pay the account with a personal check or did you have the cc company transfer the money directly to the account to be paid off?
Read the fine print. When they say balance transfer, they mean balance transfer which is have the cc company transfer the money directly to a different cc account to receive it. The different cc account to receive it could have a current balance of $0, so the words "to be paid off" do not really apply.

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Post by White Coat Investor » Wed Jan 20, 2010 6:45 pm

These checks are for either balance transfers, cash advances, or purchases. No fee. So I wrote it out to myself, signed it on the back, and mailed it in (couldn't scan it in as its over $10K.)
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Post by Sunny Sarkar » Wed Jan 20, 2010 7:21 pm

Take it. Customers who will pay the money back are factored in to their calculations. They are counting on making a profit out of those who won't.

p.s. I'd trust but verify the no transfer fee aspect.

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Post by tim1999 » Wed Jan 20, 2010 8:05 pm

Make sure you read the fine print. I have received similar checks from my credit card company. They say 0% interest, no "transfer" fee, but all balances are subject to a 4% "activation" fee.

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Post by Toons » Wed Jan 20, 2010 8:19 pm

For what its worth for a few hundred bucks I think Id focus my energies on something else :D
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Post by market timer » Wed Jan 20, 2010 8:48 pm

Aren't you paying 6% on a mortgage right now? Paying down your mortgage by $25K increases your carry from $400 to $1500. Pay off the CC next year using a short term 401k loan, which I believe does not show up on a credit report, or from savings/emergency fund.

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Post by DTSC » Wed Jan 20, 2010 9:00 pm

Cherokee8215 wrote:Make sure you read the fine print. I have received similar checks from my credit card company. They say 0% interest, no "transfer" fee, but all balances are subject to a 4% "activation" fee.

Yes, they can be extremely sneaky. Also, be sure not to write the check for the full amount of your credit limit. Even if they charge a small fee, the extra fee will put you over your credit limit, causing you to incur an over limit fee as well.

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Post by White Coat Investor » Wed Jan 20, 2010 9:01 pm

market timer wrote:Aren't you paying 6% on a mortgage right now? Paying down your mortgage by $25K increases your carry from $400 to $1500. Pay off the CC next year using a short term 401k loan, which I believe does not show up on a credit report, or from savings/emergency fund.
Hey! Good idea. Why didn't I think about that? I sell in 6 months, but I can get 4.6% after-tax by paying down my mortgage until then.

P.S. I told my wife, "Guess what market-timer thinks we should do with the money?" She said, "I don't even want to know." :)
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Post by stevenst » Wed Jan 20, 2010 9:34 pm

I guess I'm paranoid. My concern would be that they would somehow change the terms after the transaction. I'd get something that looked like junk mail informing me of the change, and I'd miss it. Then, 'something bad' would happen.

I don't trust credit card terms. Imagine that.

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Post by KyleAAA » Wed Jan 20, 2010 9:41 pm

Do it. The credit hit will be almost non-existent if you pay it back before applying for a mortgage.

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Post by Tyrobi » Thu Jan 21, 2010 12:20 pm

I would say take it and put it in a high-yield account to earn the interest and return the money when the time is up. Make sure to schedule the minimum payment automatically.

We also moved $14,000 to a high-yield checking account with 4% APY (used to be 5.25%) when my wife applied for a 0% with no-fee balance transfer for 12 months. In my household, my wife would apply for this kind of deal since she's a stay-at-home mom while I keep the pristine credit.

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Post by Scorpion » Thu Jan 21, 2010 12:45 pm

Tyrobi,

On your point about your wife vs. your credit- is that right? Does my wife have a different credit report from me? I just kind of assumed we had the same credit report. She is a stay at home mom. We applied for PenFed using her name just because she handled the application, and I was disappointed that they gave us only a 25K credit limit. They needed lots of info about my salary, etc., and they assured me it made no difference who the applicant was for the card. Thoughts?

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Post by avalpert » Thu Jan 21, 2010 12:53 pm

Scorpion wrote:Tyrobi,

On your point about your wife vs. your credit- is that right? Does my wife have a different credit report from me? I just kind of assumed we had the same credit report. She is a stay at home mom. We applied for PenFed using her name just because she handled the application, and I was disappointed that they gave us only a 25K credit limit. They needed lots of info about my salary, etc., and they assured me it made no difference who the applicant was for the card. Thoughts?
Yes you each have separate credit scores. Depending on how co-mingled your credit historeis are they can be very similar or very different.

starhusker
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Re: Take the free money or not?

Post by starhusker » Thu Jan 21, 2010 2:54 pm

I used to do that a lot until one day I forgot to pay the minimum balance.. As the interest rate is so low, it doesn't worth it. Don't forget you need to pay tax on that interest too..
EmergDoc wrote:I've been offered free money. Here's how it works.

My credit card company sent me an offer for 0% for a check if I use it in the next few weeks. It is 0% through January 2011, 8.9% after that. No transfer fee. I can write the check to me and put it in my bank account tonight, transferring it to my high yield savings account within days. I have a $25K credit limit. I don't use the card regularly, have nothing on it now, and don't need to ever use it. I have several other cards with similar limits with nothing on them, aside from the cash-back card I put all my purchases on each month.

Free money, right? Even with rates at only 1.5% there's a risk-free ~$400 there. I have done this before with this card, have read the fine print, and am convinced there is no catch. I also plan to buy a home in 9-12 months. So my only concern is whether this will impact my credit rating sufficiently that I shouldn't take the free money. I imagine my credit rating is pretty darn near maximal at this time, so it would have to be a pretty significant hit to impact my future mortgage I would think. If nothing else, I could pay it back a month before taking out a mortgage I suppose.

What would you do?

eas
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Post by eas » Thu Jan 21, 2010 3:18 pm

Toons wrote:For what its worth for a few hundred bucks I think Id focus my energies on something else :D
The total amount of time devoted simply to this thread alone is more than the cumulative time it would take to write the check out to himself, deposit it, and move it to whatever account he has paying him the most. Scheduling 12 payments via a billpay system is quick and easy as well. For several hundred dollars, it is well worth my couple hours.

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Re: Take the free money or not?

Post by livesoft » Thu Jan 21, 2010 9:16 pm

starhusker wrote:I used to do that a lot until one day I forgot to pay the minimum balance..
You mean on the first day, you forgot to put this thing on automatic pilot with auto online billpay for the minimum payment.

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Post by pjstack » Thu Jan 21, 2010 11:05 pm

I have a USAA MasterCard and they send me "convenience checks" from time to time, but they always say,"Each check may be subject to a cash advance/balance transfer fee of 3% of $75, whichever is less.[/b]
pjstack

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Post by White Coat Investor » Fri Jan 22, 2010 6:40 am

eas wrote:
Toons wrote:For what its worth for a few hundred bucks I think Id focus my energies on something else :D
The total amount of time devoted simply to this thread alone is more than the cumulative time it would take to write the check out to himself, deposit it, and move it to whatever account he has paying him the most. Scheduling 12 payments via a billpay system is quick and easy as well. For several hundred dollars, it is well worth my couple hours.
It takes you two hours to write a check, put it in an envelope, drop it in the mail, and do about 10 clicks online? I have a pretty good hourly rate at work, but it's nowhere near $5K/hour, which is about what this pays (but only for about 12 minutes.)
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by jeffyscott » Fri Jan 22, 2010 2:23 pm

EmergDoc wrote:Speaking of fungible, this might be a good time to adopt the whole "emergency fund in tax-protected" philosophy. I have a great cash equivalent available to me in my 401K-the G fund. Maybe I'll buy the FTSE Intl fund in taxable, swap out my I fund in the TSP for the G fund, and in 6-12 months go back.
Won't that be a problem if FTSE Int'l drops by, say, 50%, leaving you without enough outside the 401K to pay off the credit card?

Not related to any credit card gambit, but this is what keeps me from consolidating cash in retirement accounts, under the fungible theory. I've got taxable money that we can spend if and when we want to, it is earning under 2%. Meanwhile I have a stable value fund paying 4.6% in my retirement account. But if I put my taxable money in stocks and they drop 50%, suddenly I only have 1/2 as much spendable money.
Time is your friend; impulse is your enemy. - John C. Bogle

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Post by grabiner » Sat Jan 23, 2010 12:13 pm

jeffyscott wrote:
EmergDoc wrote:Speaking of fungible, this might be a good time to adopt the whole "emergency fund in tax-protected" philosophy. I have a great cash equivalent available to me in my 401K-the G fund. Maybe I'll buy the FTSE Intl fund in taxable, swap out my I fund in the TSP for the G fund, and in 6-12 months go back.
Won't that be a problem if FTSE Int'l drops by, say, 50%, leaving you without enough outside the 401K to pay off the credit card?

Not related to any credit card gambit, but this is what keeps me from consolidating cash in retirement accounts, under the fungible theory. I've got taxable money that we can spend if and when we want to, it is earning under 2%. Meanwhile I have a stable value fund paying 4.6% in my retirement account. But if I put my taxable money in stocks and they drop 50%, suddenly I only have 1/2 as much spendable money.
You understand the key point: in order to place your cash needs in a tax-advantaged account, you need to have twice as much in taxable stock as the cash needs you are trying to cover, so that you can still cover the needs even if the stock market drops 50%.
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Post by wshang » Sat Jan 23, 2010 9:46 pm

EmergDoc wrote:. . . . it's nowhere near $5K/hour, which is about what this pays (but only for about 12 minutes.)
Not to mention the entertainment value little vicarious financial decisions like this give the rest of us. Do you suppose BH's would enjoy hearing about my monthly my options trading as much? Probably NOT!

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TJAJ9
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Post by TJAJ9 » Mon Jan 25, 2010 12:41 am

Total waste of time and effort, IMO.

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