Have you noticed Ben Bernanke in your mailbox lately?
In the past month I’ve received no fewer than 20 zero-interest credit card offers for new cards. At the same time, I’ve also received new balance transfer options from my existing lines of credit. Three of them, to be exact.
These are the available opportunities, in order of their receipt:
- 0% for six months, plus a 3% balance transfer fee. (This one hit the trash can quickly.)
- 0% for 18 months, plus a 3% balance transfer fee. (This one got used.)
- 3.99% for 24 months, plus 3% balance transfer fee. (Trash can.)
So I took advantage of #2. I was able to borrow several thousand dollars (I always write these bad boys for the whole of the credit line) for an effective APR of 2% per year. I mean, you gotta be kidding me! Two percent per year?
Making Use of Cheap Capital
How am I going to deploy this newfound cash? Well…
I have enough saved to pay for college at any given time, and my expenses are equal to about 1/4th of my total income. I’m asset rich, but cash poor, really, since probably 90% of my net worth is tied up in my own business.
Even still, cash flow usually isn’t a problem. But, in borrowing cash for 2% per year, I’m getting a hell of a deal. For one, I get to push off my college expenses, and finance them with credit that can be discharged should worse come to worst.
Stafford loans at 6.2% or private loans at 4% (which usually want a cosigner, F that) or credit card balance transfers at 2%? That’s not a tough decision at all.
Recently, I mentioned that I would be pursuing a new entrepreneurial endeavor, and this cash will come in handy. In the past week I spent $1200 toward that end, and future capital infusions will be certainty.
However, I’m looking at an ROI of at least 300% per year on my $1200 investment, which is way more than 2%. This infusion of cash also allows for long-run cost savings in direct capital investment into my business. It’s a deal made in heaven. Cash flows will pay this credit card off in no time, though I’ll wait until the last month to pay in full.
I told my mom about my finances (bad move) and she Dave Ramsey’d me. Go figure. “OMG YOU USED ONE OF THOSE CHECKS THEY SEND YOU?!?!”
“Hell yeah, mom. It’s free money!”
This is why I dislike the disliking of credit cards. I mean, they’re giving me practically free money after inflation adjustment, and I’m not going to be (entirely) wreckless with the money. So why not borrow capital for 2% per year? The 1-year LIBOR sits at .72%. My credit card company isn’t getting rich giving me this money; they’re hoping I’ll screw up.
Wrong guy, Mr. Credit Card.
Ben Bernanke is in your mailbox, no doubt about it. Are you making use of these low rates?
Or are you passing up one of the best financing opportunities available (no recourse consumer debts) at zero real interest rates?
Even if you don’t earn 2% per year on the money, would you take it for the liquidity?