"Borrowing" money at 3.6%... good idea?

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manlymatt83
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"Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

Bank of America is offering me a cash advance up to my credit line ($30k) for only 3% fee with 0% interest for 10 months. I'm debating this, it's like a 3.6% effective APR if I am calculating the minimum payments and time value of money correctly. Could throw this into a CD for 5% or more...

Just curious if anyone has ever had an offer like this and if they'd consider taking it. The APR shoots up to like 27% after 10 months but I would have zero issue watching it and paying it off in month 10.
Makefile
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Re: "Borrowing" money at 3.6%... good idea?

Post by Makefile »

You can do better than that if you open a new credit card rather than taking this offer on an old one. Also, you can avoid the 3% fee if instead of drawing cash on the card, you simply put a bunch of purchases on it and pay the minimum until just before the 0% APR period runs out. I don't play the credit card game this aggressively.
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manlymatt83
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Re: "Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

Makefile wrote: Mon Nov 14, 2022 8:42 pm You can do better than that if you open a new credit card rather than taking this offer on an old one. Also, you can avoid the 3% fee if instead of drawing cash on the card, you simply put a bunch of purchases on it and pay the minimum until just before the 0% APR period runs out. I don't play the credit card game this aggressively.
It is a new card. They don't have a 0% purchase APR promo, just a balance transfer 0% offer for 3% fee which can also go to a checking account.
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whodidntante
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Re: "Borrowing" money at 3.6%... good idea?

Post by whodidntante »

Couple of issues.

High credit utilization will tank your score at least on some models, even if it's just one card. So keep it light. I recommend no more than 30%.

Taxes.

Rate could be zero instead if you just open a new card and use it to buy stuff or do manufactured spending. There are plenty of cards that offer a bonus and a zero percent purchase APR.

Did I mention taxes?
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manlymatt83
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Re: "Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

whodidntante wrote: Mon Nov 14, 2022 8:53 pm Couple of issues.

High credit utilization will tank your score at least on some models, even if it's just one card. So keep it light. I recommend no more than 30%.

Taxes.

Rate could be zero instead if you just open a new card and use it to buy stuff or do manufactured spending. There are plenty of cards that offer a bonus and a zero percent purchase APR.

Did I mention taxes?
Ah... taxes. Good point. I'd pay taxes on the 5% and end up with 4% net. Meh. Maybe a bank bonus instead.
leland
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Re: "Borrowing" money at 3.6%... good idea?

Post by leland »

Most bank bonuses have tax implications too these days.

If it's fun for you would go for it, but don't see it making enough to be worth your time other than fun.
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Re: "Borrowing" money at 3.6%... good idea?

Post by safari »

leland wrote: Mon Nov 14, 2022 10:50 pm Most bank bonuses have tax implications too these days.

If it's fun for you would go for it, but don't see it making enough to be worth your time other than fun.
Credit card bonuses are not taxable, which makes them more valuable than bank bonuses.
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manlymatt83
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Re: "Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

safari wrote: Mon Nov 14, 2022 11:23 pm
leland wrote: Mon Nov 14, 2022 10:50 pm Most bank bonuses have tax implications too these days.

If it's fun for you would go for it, but don't see it making enough to be worth your time other than fun.
Credit card bonuses are not taxable, which makes them more valuable than bank bonuses.
OK but hear me out. E*Trade is offering a $200 bonus for moving $25k. So I move $25k and then invest it in a brokered CD or treasury….? $200 bonus would more than cover the taxes.
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Re: "Borrowing" money at 3.6%... good idea?

Post by safari »

manlymatt83 wrote: Mon Nov 14, 2022 11:25 pm
safari wrote: Mon Nov 14, 2022 11:23 pm
leland wrote: Mon Nov 14, 2022 10:50 pm Most bank bonuses have tax implications too these days.

If it's fun for you would go for it, but don't see it making enough to be worth your time other than fun.
Credit card bonuses are not taxable, which makes them more valuable than bank bonuses.
OK but hear me out. E*Trade is offering a $200 bonus for moving $25k. So I move $25k and then invest it in a brokered CD or treasury….? $200 bonus would more than cover the taxes.
What I meant to say is that when comparing a $200 bonus offered by a credit card with the the same $200 bonus offered by a bank, the credit card bonus is more valuable because it's not taxable, as it's technically a "refund" as opposed to earnings. If you want to buy CDs or treasures and don't mind moving your money to E*Trade, then by all means go for it. Nothing wrong with that.
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JoMoney
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Re: "Borrowing" money at 3.6%... good idea?

Post by JoMoney »

Presuming you could safely make the 1.4% spread (between 3.6% and 5% interest) on $30,000 for 10 months, that's something like $400, but you'd owe taxes on the full 5% ($1,500.) For me, with a 24% federal and 9.3% state tax I would owe more in taxes than on the spread.
Usually when I've seen deals like that there's other "gotchas", like additional fees or requirements that the credit have other transactions/usage over the period, for which there is interest being charged, and is stacked so as to be paid off last. No idea what the specific terms of your deal is, but, no... it does not look like something I'd consider a "good idea", too many possibilities for a costly pitfall.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: "Borrowing" money at 3.6%... good idea?

Post by Valuethinker »

manlymatt83 wrote: Mon Nov 14, 2022 8:37 pm Bank of America is offering me a cash advance up to my credit line ($30k) for only 3% fee with 0% interest for 10 months. I'm debating this, it's like a 3.6% effective APR if I am calculating the minimum payments and time value of money correctly. Could throw this into a CD for 5% or more...

Just curious if anyone has ever had an offer like this and if they'd consider taking it. The APR shoots up to like 27% after 10 months but I would have zero issue watching it and paying it off in month 10.
Are there any implications for your credit score?

Americans (seem to) live and die by their FICO score, and that's more valuable (in terms of future access to cheap credit, when you need it) than anything else. This is the 30,000 foot view from the UK, anyways (we probably do have FICO scores, but we are not generally aware of them).

Limited amounts of consumer credit, paid on time. Other than the mortgage. That's always been my watchword.

If there's cash back on a credit card then it might be worth having.
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Re: "Borrowing" money at 3.6%... good idea?

Post by sunny_socal »

In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Valuethinker »

sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
A system which, in effect, rewards "bad" (or at least sub optimal) behaviour. The optimum is to have perhaps 2 credit cards with reasonable limits. Not huge amounts of unused consumer credit lying around - that is far in excess of your ability to ever repay if it were fully drawn down.

(And if you did have the kind of income to support $150k personal credit, you should never make use of personal credit except for very short term cash flow issues (buying that new $30k kitchen, etc).

What I do suspect is that even people with quite high incomes get over their head on "pay in the never never". Or, as many tech sector employees are finding out, great high paying jobs can become no jobs with shocking speed).
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Re: "Borrowing" money at 3.6%... good idea?

Post by gtrplayer »

Valuethinker wrote: Tue Nov 15, 2022 5:22 am
manlymatt83 wrote: Mon Nov 14, 2022 8:37 pm Bank of America is offering me a cash advance up to my credit line ($30k) for only 3% fee with 0% interest for 10 months. I'm debating this, it's like a 3.6% effective APR if I am calculating the minimum payments and time value of money correctly. Could throw this into a CD for 5% or more...

Just curious if anyone has ever had an offer like this and if they'd consider taking it. The APR shoots up to like 27% after 10 months but I would have zero issue watching it and paying it off in month 10.
Are there any implications for your credit score?

Americans (seem to) live and die by their FICO score, and that's more valuable (in terms of future access to cheap credit, when you need it) than anything else. This is the 30,000 foot view from the UK, anyways (we probably do have FICO scores, but we are not generally aware of them).

Limited amounts of consumer credit, paid on time. Other than the mortgage. That's always been my watchword.

If there's cash back on a credit card then it might be worth having.
Off-topic, but I’m curious what getting credit in the UK is like if you don’t have a credit score, or are unaware of it? Over here, the credit score can impact the ability to get a job or rent an apartment (so literally we do live and die by it…) so keeping a good credit score is a necessary preoccupation for a lot of people
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Re: "Borrowing" money at 3.6%... good idea?

Post by Fpdesignco »

safari wrote: Mon Nov 14, 2022 11:49 pm
manlymatt83 wrote: Mon Nov 14, 2022 11:25 pm
safari wrote: Mon Nov 14, 2022 11:23 pm
leland wrote: Mon Nov 14, 2022 10:50 pm Most bank bonuses have tax implications too these days.

If it's fun for you would go for it, but don't see it making enough to be worth your time other than fun.
Credit card bonuses are not taxable, which makes them more valuable than bank bonuses.
OK but hear me out. E*Trade is offering a $200 bonus for moving $25k. So I move $25k and then invest it in a brokered CD or treasury….? $200 bonus would more than cover the taxes.
What I meant to say is that when comparing a $200 bonus offered by a credit card with the the same $200 bonus offered by a bank, the credit card bonus is more valuable because it's not taxable, as it's technically a "refund" as opposed to earnings. If you want to buy CDs or treasures and don't mind moving your money to E*Trade, then by all means go for it. Nothing wrong with that.
Rebate, not refund. Or discount. That is how it gets treated differently.
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Re: "Borrowing" money at 3.6%... good idea?

Post by exodusNH »

sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
I got dinged for 30-50 points when one card with a 0% offer hit 50% of its limit, even though that amount of credit was 5%ish of my available credit and I was making the required monthly payments. (Only other debt was a mortgage that's less than 1 year's salary.)
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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

I recently took advantage of a similar deal. In October, my Discover credit card offered me a balance trasnfer deal where I wouldn't have to pay back the loan for 12 months with no interest, but there was a 2% transfer fee. I used the proceeds to move funds into my Ally account to take advantage of the 1% bonus they were offering. By January, given the 3.1% rate on my no penalty 11 month CD at Ally, plus the 1% bonus (which is about 7% annualized), I will have already recouped most of the 2% fee. Then after January 16 (once I've satisfied the requirements for the 1% bonus), I will transfer the funds to my Fidelity account to purchase a T-Bill that matures around October 2023 (when the loan matures) and hopefully that will yield about 5%. I expect to make over $1000 from this deal which isn't bad for pressing a few buttons on a keyboard. I realize my credit score will probably take a hit but I don't care because I do not need a loan anytime soon.
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
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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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Raraculus »

I had a similar offer on a current CC - 0% APR for purchases for ten months. I declined the offer because the duration of ten months was too short for my liking. I need more 'runway', as in time to invest the funds and to pay the loan off eventually. My sweet spot is usually around 18 months.
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Re: "Borrowing" money at 3.6%... good idea?

Post by HMSVictory »

Nope not a good idea. Haven't met anyone yet who told me they made fortune borrowing on credit cards to invest.

You do realize they have the Sword of Damocles hanging over your head with 25%+ interest if you miss a single payment, right? :shock:
Stay the course!
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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

HMSVictory wrote: Tue Nov 15, 2022 12:57 pm Nope not a good idea. Haven't met anyone yet who told me they made fortune borrowing on credit cards to invest.

You do realize they have the Sword of Damocles hanging over your head with 25%+ interest if you miss a single payment, right? :shock:
I think generally, these deals work so that there are no monthly payments until maturity.
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Re: "Borrowing" money at 3.6%... good idea?

Post by HMSVictory »

White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
Amen. I would add its building the wrong kind of muscle, ie: let's see what I can get away with and play with fire!
Stay the course!
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Re: "Borrowing" money at 3.6%... good idea?

Post by Chuck »

chillwill120 wrote: Tue Nov 15, 2022 12:58 pm I think generally, these deals work so that there are no monthly payments until maturity.
You have to make monthly minimum payments. They are very small.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Hyperchicken »

Why the quotes around "borrowing"? Looks like straight up borrowing, not "quote-and-quote borrowing".
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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

Chuck wrote: Tue Nov 15, 2022 2:03 pm
chillwill120 wrote: Tue Nov 15, 2022 12:58 pm I think generally, these deals work so that there are no monthly payments until maturity.
You have to make monthly minimum payments. They are very small.
I don’t know the details of OP’s offer but the one I just did with Discover has no payments and no interest until maturity. I just need to remember to pay it off in a year.
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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

Hyperchicken wrote: Tue Nov 15, 2022 2:12 pm Why the quotes around "borrowing"? Looks like straight up borrowing, not "quote-and-quote borrowing".
People use quotation marks incorrectly all the time now. Often they are used in lieu of bold or underline to show emphasis. It’s weird.

https://www.nytimes.com/2022/02/08/opin ... comma.html
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

chillwill120 wrote: Tue Nov 15, 2022 12:29 pm
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
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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Re: "Borrowing" money at 3.6%... good idea?

Post by chillwill120 »

White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm
chillwill120 wrote: Tue Nov 15, 2022 12:29 pm
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.
it’s a fair point.
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Re: "Borrowing" money at 3.6%... good idea?

Post by jmw »

I would save this source of liquidity for a much more profitable opportunity and keep your personal credit pristine rather than simple arbitrage for pocket change from a 5% CD. The same is true for manufactured spending. You can do a lot better with your life in terms of making money on the side.
I'm not saying borrow it all and bet it all on red in the futures market or crypto. You need to find the ideal low risk side hustle where this liquidity could help sometime in the future.

I'd take a pass on this. I think you can do way better.
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Re: "Borrowing" money at 3.6%... good idea?

Post by whodidntante »

White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
For a self-employed person who can produce content and make more money from it, going to work is probably by far the best use of your time.

I think you may also be suggesting that 30k doesn't matter that much in the grand scheme. I agree with that. Borrowing 30k at 0% is a rookie number, though. It's really, really easy to earn bonuses and borrow money at an attractive rate in the United States. Sometimes I'm shocked at how easy it is. It can be a lucrative hobby but my feeling is the current easy pickings cannot last. One reason I say that is I don't see signs of the same level of opportunities in other countries.
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Re: "Borrowing" money at 3.6%... good idea?

Post by JBTX »

White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm
chillwill120 wrote: Tue Nov 15, 2022 12:29 pm
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
Depends on how you look at it. If you collected $5000 a year playing these games a for 20 years, you’d have $100k. If you invested that maybe $150k. That’s not rounding error.

For someone that has a full time 40+ Upwardly mobile career it would probably be better to spend the time on the career. But for someone who views their career more as a job, or are in or near retirement, and this is truly incremental $ activity, it can add up to non trivial sums.
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Re: "Borrowing" money at 3.6%... good idea?

Post by placeholder »

Valuethinker wrote: Tue Nov 15, 2022 7:01 am A system which, in effect, rewards "bad" (or at least sub optimal) behaviour. The optimum is to have perhaps 2 credit cards with reasonable limits. Not huge amounts of unused consumer credit lying around - that is far in excess of your ability to ever repay if it were fully drawn down.
That's not been my experience because I have a number of cards that total somewhere in the 120k+ range and my latest transunion 08 score was 827 so I haven't seen anything that indicated fico cares about unused credit nor do card issuers.
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

JBTX wrote: Tue Nov 15, 2022 10:30 pm
White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm
chillwill120 wrote: Tue Nov 15, 2022 12:29 pm
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
Depends on how you look at it. If you collected $5000 a year playing these games a for 20 years, you’d have $100k. If you invested that maybe $150k. That’s not rounding error.

For someone that has a full time 40+ Upwardly mobile career it would probably be better to spend the time on the career. But for someone who views their career more as a job, or are in or near retirement, and this is truly incremental $ activity, it can add up to non trivial sums.
Depends on your income and income potential and current portfolio size. Even $150K is rounding error for many people on this board. Their portfolios go up and down by more than that every day. 2% of $10 million is $200K.

But let's say you've only got $1 million. And in order to make $5K a year you've got to find and execute 5 or 6 of these kinds of things every year. All to get an extra 0.5% of wealth. Before tax. I just think you're better off spending that time doing something else. Not judging though, because like I said, I've done a handful of these sorts of things over the years. I just think we're doing a disservice if the message going out is that wealthy people build their wealth this way. They don't.
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
csmath
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Re: "Borrowing" money at 3.6%... good idea?

Post by csmath »

exodusNH wrote: Tue Nov 15, 2022 9:50 am
sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
I got dinged for 30-50 points when one card with a 0% offer hit 50% of its limit, even though that amount of credit was 5%ish of my available credit and I was making the required monthly payments. (Only other debt was a mortgage that's less than 1 year's salary.)
Out of curiosity, do you remember how long your credit score took to recover after you paid off the balance?
exodusNH
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Re: "Borrowing" money at 3.6%... good idea?

Post by exodusNH »

csmath wrote: Wed Nov 16, 2022 6:55 pm
exodusNH wrote: Tue Nov 15, 2022 9:50 am
sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
I got dinged for 30-50 points when one card with a 0% offer hit 50% of its limit, even though that amount of credit was 5%ish of my available credit and I was making the required monthly payments. (Only other debt was a mortgage that's less than 1 year's salary.)
Out of curiosity, do you remember how long your credit score took to recover after you paid off the balance?
It's tough to say. I noticed the hit, got it below 50%, then paid it off a two months later. But then I applied for two more credit cards for the spend bonus AND refied my mortgage. So, there was a lot of activity.

I feel like it may have rebounded 8 points in the first month. So, maybe 3-5 months?
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Re: "Borrowing" money at 3.6%... good idea?

Post by csmath »

exodusNH wrote: Wed Nov 16, 2022 8:05 pm
csmath wrote: Wed Nov 16, 2022 6:55 pm
exodusNH wrote: Tue Nov 15, 2022 9:50 am
sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
I got dinged for 30-50 points when one card with a 0% offer hit 50% of its limit, even though that amount of credit was 5%ish of my available credit and I was making the required monthly payments. (Only other debt was a mortgage that's less than 1 year's salary.)
Out of curiosity, do you remember how long your credit score took to recover after you paid off the balance?
It's tough to say. I noticed the hit, got it below 50%, then paid it off a two months later. But then I applied for two more credit cards for the spend bonus AND refied my mortgage. So, there was a lot of activity.

I feel like it may have rebounded 8 points in the first month. So, maybe 3-5 months?
Thanks for the response. I don't normally play games with borrowing/credit but "we" recently opened a new Fidelity 2% card and have 12 billing periods at 0% APR. I'm debating letting the balance pile up and letting it sit for 11 months to make front-loading tax advantaged space a bit faster in 2023.

If anyone is interested, Fidelity has a promo on their card right now for $150 bonus and 12 billing cycles at 0% APR: https://www.fidelity.com/go/visa-signature-rewards-1502
exodusNH
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Re: "Borrowing" money at 3.6%... good idea?

Post by exodusNH »

csmath wrote: Wed Nov 16, 2022 9:46 pm
exodusNH wrote: Wed Nov 16, 2022 8:05 pm
csmath wrote: Wed Nov 16, 2022 6:55 pm
exodusNH wrote: Tue Nov 15, 2022 9:50 am
sunny_socal wrote: Tue Nov 15, 2022 6:45 am In my experience this won't decrease your credit score provided you have other cards on the side sitting unused. Five cards each with $30k = $150k limit. You'd only be utilizing 20% (hypothetical.) My stack of cards would be an inch thick! I open new cards various reasons but seldom close them.
I got dinged for 30-50 points when one card with a 0% offer hit 50% of its limit, even though that amount of credit was 5%ish of my available credit and I was making the required monthly payments. (Only other debt was a mortgage that's less than 1 year's salary.)
Out of curiosity, do you remember how long your credit score took to recover after you paid off the balance?
It's tough to say. I noticed the hit, got it below 50%, then paid it off a two months later. But then I applied for two more credit cards for the spend bonus AND refied my mortgage. So, there was a lot of activity.

I feel like it may have rebounded 8 points in the first month. So, maybe 3-5 months?
Thanks for the response. I don't normally play games with borrowing/credit but "we" recently opened a new Fidelity 2% card and have 12 billing periods at 0% APR. I'm debating letting the balance pile up and letting it sit for 11 months to make front-loading tax advantaged space a bit faster in 2023.

If anyone is interested, Fidelity has a promo on their card right now for $150 bonus and 12 billing cycles at 0% APR: https://www.fidelity.com/go/visa-signature-rewards-1502
That's basically what I did.

I was taking a trip to the UK and needed a second $0 foreign transaction fee card. That happened to have a $150 bonus as well.

Then I saw a 2% with a $200 bonus.

The only thing I would caution is that when you let the balance build up, you have to set aside the money to pay it off. I accumulated about $10k on the card in question when I saw my score drop. That's when I realized I would need to budget about $2k per month to cover the balance. It wasn't an emergency, but I just didn't think about it.

I let it sit for 2-3 more months, then just paid it off so it wasn't sitting over my head.
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Re: "Borrowing" money at 3.6%... good idea?

Post by JBTX »

White Coat Investor wrote: Wed Nov 16, 2022 1:05 pm
JBTX wrote: Tue Nov 15, 2022 10:30 pm
White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm
chillwill120 wrote: Tue Nov 15, 2022 12:29 pm
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
Depends on how you look at it. If you collected $5000 a year playing these games a for 20 years, you’d have $100k. If you invested that maybe $150k. That’s not rounding error.

For someone that has a full time 40+ Upwardly mobile career it would probably be better to spend the time on the career. But for someone who views their career more as a job, or are in or near retirement, and this is truly incremental $ activity, it can add up to non trivial sums.
Depends on your income and income potential and current portfolio size. Even $150K is rounding error for many people on this board. Their portfolios go up and down by more than that every day. 2% of $10 million is $200K.

But let's say you've only got $1 million. And in order to make $5K a year you've got to find and execute 5 or 6 of these kinds of things every year. All to get an extra 0.5% of wealth. Before tax. I just think you're better off spending that time doing something else. Not judging though, because like I said, I've done a handful of these sorts of things over the years. I just think we're doing a disservice if the message going out is that wealthy people build their wealth this way. They don't.
First I think we can agree that someone with $10million net worth has no need to do this.

Second I think someone who has an upwardly mobile high paying career probably doesn’t need to do this and can spend time better elsewhere.

As to $5k on a million portfolio, or 0.5%, see people here freak out over a 0.5% expense ratio. There are lots of discussions about individual IRAs which have modest limits as well as ibonds. I suspect many who do rental homes perhaps net $5k-$15k per year.

For many people, and extra $150k could be 2-3 years additional retirement on top of social security.

There is no right or wrong here, just differing perspectives. Seems like since I’ve been here the last 5 years the assessment of what is material and what isn’t has grown quite a bit, much more than inflation.

For what it’s worth, my wife sees me doing these things and rolls her eyes.
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Re: "Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

JBTX wrote: Thu Nov 17, 2022 2:29 pm
White Coat Investor wrote: Wed Nov 16, 2022 1:05 pm
JBTX wrote: Tue Nov 15, 2022 10:30 pm
White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm
chillwill120 wrote: Tue Nov 15, 2022 12:29 pm

True, it isn't going to make a big difference, but if I see an opportunity to make a $1,000+ with minimal work I'm going to take it. It seems like a lot of bogleheads agree given all the activity in the thread about the Ally recent bonus (which was only a max of $500). That being said I agree one shouldn't obsess about small savings and should generally be more focused on the big picture.
I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
Depends on how you look at it. If you collected $5000 a year playing these games a for 20 years, you’d have $100k. If you invested that maybe $150k. That’s not rounding error.

For someone that has a full time 40+ Upwardly mobile career it would probably be better to spend the time on the career. But for someone who views their career more as a job, or are in or near retirement, and this is truly incremental $ activity, it can add up to non trivial sums.
Depends on your income and income potential and current portfolio size. Even $150K is rounding error for many people on this board. Their portfolios go up and down by more than that every day. 2% of $10 million is $200K.

But let's say you've only got $1 million. And in order to make $5K a year you've got to find and execute 5 or 6 of these kinds of things every year. All to get an extra 0.5% of wealth. Before tax. I just think you're better off spending that time doing something else. Not judging though, because like I said, I've done a handful of these sorts of things over the years. I just think we're doing a disservice if the message going out is that wealthy people build their wealth this way. They don't.
First I think we can agree that someone with $10million net worth has no need to do this.

Second I think someone who has an upwardly mobile high paying career probably doesn’t need to do this and can spend time better elsewhere.

As to $5k on a million portfolio, or 0.5%, see people here freak out over a 0.5% expense ratio. There are lots of discussions about individual IRAs which have modest limits as well as ibonds. I suspect many who do rental homes perhaps net $5k-$15k per year.

For many people, and extra $150k could be 2-3 years additional retirement on top of social security.

There is no right or wrong here, just differing perspectives. Seems like since I’ve been here the last 5 years the assessment of what is material and what isn’t has grown quite a bit, much more than inflation.

For what it’s worth, my wife sees me doing these things and rolls her eyes.
So what would you do in my shoes? Would you take the $30k at 3.6% for 10 months and maybe use it for a bunch of bank bonuses? Try to net a few grand?
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Re: "Borrowing" money at 3.6%... good idea?

Post by Chuck »

manlymatt83 wrote: Thu Nov 17, 2022 3:42 pm So what would you do in my shoes? Would you take the $30k at 3.6% for 10 months and maybe use it for a bunch of bank bonuses? Try to net a few grand?
This is not a unique or special offer. I don't think 3.6% is worth it. There are cards that will give you 0% on purchases for 18 months. Just shift all your expenses to that card until it's maxed out. Chase gave me one with a $24,500 limit.
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Re: "Borrowing" money at 3.6%... good idea?

Post by manlymatt83 »

Chuck wrote: Thu Nov 17, 2022 3:46 pm
manlymatt83 wrote: Thu Nov 17, 2022 3:42 pm So what would you do in my shoes? Would you take the $30k at 3.6% for 10 months and maybe use it for a bunch of bank bonuses? Try to net a few grand?
This is not a unique or special offer. I don't think 3.6% is worth it. There are cards that will give you 0% on purchases for 18 months. Just shift all your expenses to that card until it's maxed out. Chase gave me one with a $24,500 limit.
I don't really want a new card, and my main expenses are groceries and dining, of which I essentially get 6 - 7% cashback on. I wouldn't want to shift that to a new card for 0% APR considering I already pay my bills in full each month.

Borrowing at 3.6% effective is more interesting to me.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Chuck »

manlymatt83 wrote: Thu Nov 17, 2022 3:50 pm Borrowing at 3.6% effective is more interesting to me.
Then do it?
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

JBTX wrote: Thu Nov 17, 2022 2:29 pm As to $5k on a million portfolio, or 0.5%, see people here freak out over a 0.5% expense ratio. There are lots of discussions about individual IRAs which have modest limits as well as ibonds. I suspect many who do rental homes perhaps net $5k-$15k per year.

For what it’s worth, my wife sees me doing these things and rolls her eyes.
I agree they shouldn't freak out about that either, although getting that down to 0.1% takes less work than most bonuses and is a one time task that pays $5K and growing every year. But your point is correct that we do and talk about lots of stuff that shouldn't matter to someone with $10M like Backdoor Roths and Ibonds etc.

If someone is only getting $5-15K they better not have rental HOMES. I'd expect that out of one of them!
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Re: "Borrowing" money at 3.6%... good idea?

Post by secondopinion »

manlymatt83 wrote: Mon Nov 14, 2022 8:37 pm Bank of America is offering me a cash advance up to my credit line ($30k) for only 3% fee with 0% interest for 10 months. I'm debating this, it's like a 3.6% effective APR if I am calculating the minimum payments and time value of money correctly. Could throw this into a CD for 5% or more...

Just curious if anyone has ever had an offer like this and if they'd consider taking it. The APR shoots up to like 27% after 10 months but I would have zero issue watching it and paying it off in month 10.
Be careful with terms; I remember once a personal loan application stating that using it for investments was not allowed. But hey, even treasury bills could yield a profit with 3% cost and 4% yield (net 1%). Just make sure that this is all it costs (there is probably a string attached).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: "Borrowing" money at 3.6%... good idea?

Post by JBTX »

manlymatt83 wrote: Thu Nov 17, 2022 3:42 pm
JBTX wrote: Thu Nov 17, 2022 2:29 pm
White Coat Investor wrote: Wed Nov 16, 2022 1:05 pm
JBTX wrote: Tue Nov 15, 2022 10:30 pm
White Coat Investor wrote: Tue Nov 15, 2022 4:17 pm

I'm not criticizing. I did a bunch of this kind of stuff. I'm just saying that it didn't matter in the long run/big picture. The amount of my wealth that came from this sort of stuff is a rounding error if it can be detected at all.

If you're going to use leverage to build wealth, do it in a meaningful way. Start with a book called The Value of Debt. Basically, the recommendation is to hold debt in a ratio where your total debt is 15-35% of your total assets and is at as low of a rate as possible, tax deductible where possible, non callable where possible, on as good of terms as possible etc. So if your net worth is $50K, messing around with credit cards might make a difference. If your net worth is $5 million, you're going to need home equity loans on rental properties and a margin account.
Depends on how you look at it. If you collected $5000 a year playing these games a for 20 years, you’d have $100k. If you invested that maybe $150k. That’s not rounding error.

For someone that has a full time 40+ Upwardly mobile career it would probably be better to spend the time on the career. But for someone who views their career more as a job, or are in or near retirement, and this is truly incremental $ activity, it can add up to non trivial sums.
Depends on your income and income potential and current portfolio size. Even $150K is rounding error for many people on this board. Their portfolios go up and down by more than that every day. 2% of $10 million is $200K.

But let's say you've only got $1 million. And in order to make $5K a year you've got to find and execute 5 or 6 of these kinds of things every year. All to get an extra 0.5% of wealth. Before tax. I just think you're better off spending that time doing something else. Not judging though, because like I said, I've done a handful of these sorts of things over the years. I just think we're doing a disservice if the message going out is that wealthy people build their wealth this way. They don't.
First I think we can agree that someone with $10million net worth has no need to do this.

Second I think someone who has an upwardly mobile high paying career probably doesn’t need to do this and can spend time better elsewhere.

As to $5k on a million portfolio, or 0.5%, see people here freak out over a 0.5% expense ratio. There are lots of discussions about individual IRAs which have modest limits as well as ibonds. I suspect many who do rental homes perhaps net $5k-$15k per year.

For many people, and extra $150k could be 2-3 years additional retirement on top of social security.

There is no right or wrong here, just differing perspectives. Seems like since I’ve been here the last 5 years the assessment of what is material and what isn’t has grown quite a bit, much more than inflation.

For what it’s worth, my wife sees me doing these things and rolls her eyes.
So what would you do in my shoes? Would you take the $30k at 3.6% for 10 months and maybe use it for a bunch of bank bonuses? Try to net a few grand?
Well I can tell you what I’ve done with multiple offers similar to yours - nothing. I have just not seen the benefit of borrowing at 3+% and investing it after tax at barely higher rates, and at the same time pulling down my credit score, plus having the modest mental burden of carrying debt that I need to make payments on.

I’d consider doing it if the spread were substantially higher.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Tanelorn »

whodidntante wrote: Mon Nov 14, 2022 8:53 pm High credit utilization will tank your score at least on some models, even if it's just one card. So keep it light. I recommend no more than 30%.
I kept it to under 90% back when I did this. Who cares what your FICO is if you’re not buying a house right now? Your good credit exists to pay you, not as some abstract bragging point. Normally you can just fold the whole thing, ie close your bank account and pay off the CC whenever, although I guess if you go for higher yield spreads with CDs or treasuries you have MTM risk.

New FICO models are set to use a 24 month average balance, so this will mean it won’t hurt much if you start, but will take longer to unwind.

https://www.cnbc.com/select/credit-scor ... s-fico-10/

Taxes are a fair point, and you’d typically need to be able to itemize deductions to get the benefit of investment interest expense deduction for the fee. Run the numbers to make sure this makes sense in ones own situation.
White Coat Investor wrote: Tue Nov 15, 2022 10:22 am As a general rule people who build wealth don't do it this way. Focus on the big things rather than the little things. You know, things like:

Increase your income (raise, side gig, self employment etc)
Increase your savings rate
Get your stock:bond ratio right

etc.

Arbitraging leverage for a year on a few thousand dollars probably isn't going to move the needle in meaningful way in reaching your goals.
I disagree. Take care of the pennies, and the pounds will look after themselves. If you don’t think it’s worth it, do it bigger til it is. Plus we all know how good compounding gains are earlier and this jump starts your investment capital.
HMSVictory wrote: Tue Nov 15, 2022 12:57 pm Haven't met anyone yet who told me they made fortune borrowing on credit cards to invest.
You haven’t talked to the right people. I knew a guy who financed his house on teaser rates instead of mortgages for substantial savings. I knew a guy who had over $1M in arbitrage plays like this.
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Re: "Borrowing" money at 3.6%... good idea?

Post by vineviz »

Tanelorn wrote: Fri Nov 18, 2022 1:25 am
HMSVictory wrote: Tue Nov 15, 2022 12:57 pm Haven't met anyone yet who told me they made fortune borrowing on credit cards to invest.
You haven’t talked to the right people. I knew a guy who financed his house on teaser rates instead of mortgages for substantial savings. I knew a guy who had over $1M in arbitrage plays like this.

Without some evidence I won’t believe anyone got a million dollars in credit card cash advances who hadn’t already amassed their wealth some other way first.

I’ve met lots of “guys” who spin stories like this. None of them could prove it or convince anyone of their veracity who wasn’t naive.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: "Borrowing" money at 3.6%... good idea?

Post by Tanelorn »

vineviz wrote: Fri Nov 18, 2022 2:24 am Without some evidence I won’t believe anyone got a million dollars in credit card cash advances who hadn’t already amassed their wealth some other way first.
Not cash advances, those come with fees and very high interest rates. Zero percent (or low rate) balance transfers or low rates for purchase that you could use to extract your credit line for float. I know an unemployed graduate student who got a $100k credit line back then, and that was just from one card issuer. Loose credit conditions pre 2008 made this a lot easier.

The nice thing about making real money off this, or “beating the market” or whatever is you don’t have to care if people like you believe it. The proof is in your bank or brokerage account. You can retire and the rest of the world can believe what they want.

I mention this not for you, since you won’t believe it regardless, but for those few who might see inspiration in knowing what is possible.
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Re: "Borrowing" money at 3.6%... good idea?

Post by HMSVictory »

HMSVictory wrote: Tue Nov 15, 2022 12:57 pm Haven't met anyone yet who told me they made fortune borrowing on credit cards to invest.
You haven’t talked to the right people. I knew a guy who financed his house on teaser rates instead of mortgages for substantial savings. I knew a guy who had over $1M in arbitrage plays like this.
[/quote]

They won't be doing that for long. When you play with snakes, eventually you get bit.

I focus on things that can build long term wealth and allow compounding to work its magic over decades. YMMV.
Stay the course!
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