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

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White Coat Investor
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

Tanelorn wrote: Fri Nov 18, 2022 1:25 am
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.
Good luck getting $500K credit card limits. These things usually top out at a certain amount for a reason. It's like those high yield checking accounts. Yes, they pay a great rate, but only on the first $25K. Not everything scales.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Tanelorn »

White Coat Investor wrote: Fri Nov 18, 2022 8:50 am Good luck getting $500K credit card limits. These things usually top out at a certain amount for a reason.
Sure, but you could get $25-50k, maybe up to $100k per card with good credit. And there are lots and lots of banks.
exodusNH
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Re: "Borrowing" money at 3.6%... good idea?

Post by exodusNH »

Tanelorn wrote: Fri Nov 18, 2022 1:25 am 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...
For places that permit it, your credit score can affect your insurance pricing.

There are around 60 different FICO models. Most companies don't use the latest. While using an average balance is a good change, it'll likely be years before it really matters.

Many mortgages use the FICO algorithm from 1998. Credit card and auto lenders use one from 2009.
JackoC
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Re: "Borrowing" money at 3.6%... good idea?

Post by JackoC »

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.
5% ~1 yr CD? I see top one year rate on depositaccounts now as 4.63%, though a 5% 7 month. There could be credit unions I don't qualify for, just curious. Although as later noted CD interest would be taxable, fee that equates to 3.6% is not deductible; that would be an after state/federal tax money loser for me even with a 5% CD.

On bonus chasing more generally, I do it somewhat and harvest $ amounts both a) significant in my relatively fixed 'layman's terms' of what's enough $'s to click a mouse a few times b) 'not enough to move the needle' in my overall financial situation. Though I find ones which involve borrowing to invest at arbitrage rate seldom work for me enough to be worth it. As was mentioned, bank bonuses also have to be discounted because taxable. Credit card opening bonuses I've found generally most fruitful for the effort spent but you don't have to do it a tremendous amount to run into rejections based on having applied for too many cards. I've taken a de facto time out this year for that reason. Also depends whether you count optimizing ongoing credit card cash back by switching which card you use and finding more ways to use CC (for taxes, ulility bills, gift cards etc see various threads here and whole site/communities dedicated to it). CC cashback is the bulk of several $1k's I typically net per year, though I'd get nearly half of it just using one card for typical CC stuff and not bothering further. In case of CC cashback, being relatively better off at least means the gain goes up in $'s as fixed %. But I never did any of this stuff when I had a demanding job and young family.
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

Tanelorn wrote: Fri Nov 18, 2022 8:57 am
White Coat Investor wrote: Fri Nov 18, 2022 8:50 am Good luck getting $500K credit card limits. These things usually top out at a certain amount for a reason.
Sure, but you could get $25-50k, maybe up to $100k per card with good credit. And there are lots and lots of banks.
At a certain point, it becomes a profitable side gig managing all that. Not free money. The first one or two feels like free money.

I can't even handle keeping track of rotating categories on a credit card. I can barely handle remembering which of 3 or 4 cards I've had for years to use at a given establishment when they never change.
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Re: "Borrowing" money at 3.6%... good idea?

Post by whodidntante »

White Coat Investor wrote: Sat Nov 19, 2022 11:37 am
Tanelorn wrote: Fri Nov 18, 2022 8:57 am
White Coat Investor wrote: Fri Nov 18, 2022 8:50 am Good luck getting $500K credit card limits. These things usually top out at a certain amount for a reason.
Sure, but you could get $25-50k, maybe up to $100k per card with good credit. And there are lots and lots of banks.
At a certain point, it becomes a profitable side gig managing all that. Not free money. The first one or two feels like free money.

I can't even handle keeping track of rotating categories on a credit card. I can barely handle remembering which of 3 or 4 cards I've had for years to use at a given establishment when they never change.
I wouldn't call it "free" either, but as you may guess from my handle, I like games that involve money so long as they are profitable. Bonuses, float, and manufactured spending are games that involve money to me. I currently owe 290k at 0% because my HELOC draw period expired and I got a new one with a 0% intro period in addition to my 0% credit card purchase APRs. I have plenty of room to add more if the mood strikes. I guess some people would find what is essentially a self-imposed quarter-million dollar balloon payment stressful, but it can be a profitable game for those wired for it.
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Re: "Borrowing" money at 3.6%... good idea?

Post by whodidntante »

Tanelorn wrote: Fri Nov 18, 2022 1:25 am
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/

Cool. I learn a lot from your posts.

I just opened a HELOC as noted above. My credit history is long and active, meaning there's a party there with inquiries and accounts. The underwriter didn't blink and gave me the best rate they offer. Those who need to get a security clearance might want to avoid what could seem like financial stress to an investigator.

AmEx has been generous lately. They don't do hard inquiries for new cards once you are established, and they seem willing to loan me several new SUVs worth of money at 0% if I want that. Most importantly, they have had some good offers lately. I've been pacing myself but just opened a new AmEx card yesterday.
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Re: "Borrowing" money at 3.6%... good idea?

Post by JBTX »

White Coat Investor wrote: Sat Nov 19, 2022 11:37 am
Tanelorn wrote: Fri Nov 18, 2022 8:57 am
White Coat Investor wrote: Fri Nov 18, 2022 8:50 am Good luck getting $500K credit card limits. These things usually top out at a certain amount for a reason.
Sure, but you could get $25-50k, maybe up to $100k per card with good credit. And there are lots and lots of banks.
At a certain point, it becomes a profitable side gig managing all that. Not free money. The first one or two feels like free money.

I can't even handle keeping track of rotating categories on a credit card. I can barely handle remembering which of 3 or 4 cards I've had for years to use at a given establishment when they never change.
For no other point than to be argumentative, I find the annual $5000 “doesn’t move the needle” argument a bit puzzling. That amount likely exceeds the lifetime tax benefit of any one years Roth IRA, it isn’t much less than upfront tax benefit of a maxed out 401k for most people, it certainly exceeds the benefits of ibonds in any particular year - all of those popular topics on BH.

Having said that I haven’t yet gone down the path of low rate credit card borrowing.
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Re: "Borrowing" money at 3.6%... good idea?

Post by JBTX »

Tanelorn wrote: Fri Nov 18, 2022 1:25 am . 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.
This is a fair point, but it is worth noting that things like auto and home insurance often use independent credit scoring, and minor changes can throw off your semi annual premiums a couple of hundred dollars. That is much less than the benefits of such credit arbitrage or bonus games but it is a real side effect.

Also, if you are one who carries a mortgage it could hamper refinance opportunities a bit.
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Re: "Borrowing" money at 3.6%... good idea?

Post by White Coat Investor »

JBTX wrote: Sat Nov 19, 2022 12:18 pm

For no other point than to be argumentative,
Isn't that why we're all here mostly? At least after our initial financial education?
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 JBTX »

White Coat Investor wrote: Sat Nov 19, 2022 12:31 pm
JBTX wrote: Sat Nov 19, 2022 12:18 pm

For no other point than to be argumentative,
Isn't that why we're all here mostly? At least after our initial financial education?
Yes I concur on this one. I participate in other subject matter forums elsewhere and the back and forth is the stimulation that keeps me going back.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Invictus002 »

Alright - at what spreads will fellow bogleheads call this a good way to make some extra money?

5%, 10%, 15% spreads?

What if someone makes good enough money, even after taxes, one can fill up 2 Roth IRA contributions for the year? Its basically funding the Roth IRA almost free!

Just curious.
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Re: "Borrowing" money at 3.6%... good idea?

Post by Raraculus »

White Coat Investor wrote: Tue Nov 15, 2022 4:17 pmI'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.
At a glance, I would tend to agree with you. For those who have amassed a huge source of wealth, futzing around with CC's seem meaningless. However, I've started reading the Atomic Habits book. It's been great reading so far! In it, the author discusses that tiny changes compound hugely over time. I think that the smart and judicious use of CC's (having 0% APR's) consistently over a period of time will indeed move the needle significantly. It has been a huge boost for me as my income/net worth is small compared to an average Boglehead.
White Coat Investor wrote: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.
I love that book, The Value of Debt. I feel the author missed one huge opportunity in addressing SORR. Using CC's (w/ 0% APR's) over a period of time can help manage cash flow/finances for daily life, mitigating SORR in downturns. This is a huge deal, even for those high net worth individuals whose CC usage may not even move the needle.
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