Budget Freak

I’d like to nominate myself for ‘Idiot of the Year.’ After explaining all the pitfalls of 0% balance transfers, how dangerous it can be, and how careful you need to track your due dates… I miss a payment. I was reconciling my checking account and my bank showed I had $148 more than my records, exactly one payment on my Citi Professional card. Panic sunk in, and I rushed over to Citi’s website, to realize my worst fears - I had missed May’s payment. Now well into June, I now had 2 minimum monthly payments, a $102 finance charge, and a $39 late fee starring at me. Worst of all, my 0% promotional rate had ended, and I was defaulted to the standard 12.99%.

After I calmed down a bit I made the $390 minimum payment and gave Citi a call. I explained the situation, how my records show I had made the payment, but neither Citi nor my bank showed the payment. He told me they might be able to give me back the 0% promotional offer, but I would have to call back the next day, after my payment had posted.

The next day, I made another call to Citi and explained again. The payment had gone through, and I asked about returning to my 0% rate. He put me on hold to talk with a manager. After about a minute of the most intense telephone on-hold experience of my life, the service rep came back and told me that, only this once, they could restore my 0% rate. Thank God. I asked about the finance charges or the late fee, and he basically said, ‘Too bad.’
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So, please let this be a lesson to everybody out there. Don’t forget to make your minimum monthly payments!! I think I got VERY lucky this time, and I only escaped with $140 in finance charges and penalties. That will cut into my profits this round, but I’ll still end up positive, so long as there aren’t any more mistakes.

As you may know, I’ve been making money taking advantage of 0% balance transfers offered by many credit cards. So far, I’ve made over $90, and I’ll be getting another interest payout of $75 by the end of the month. When taking advantage of these offers, it’s critical to keep up with payments. Any late payments, and the 0% offer is revoked and you’re stuck paying interest. I’ve paid 3 bills so far on my two different cards, and it’s been pretty smooth. I’ve also helped myself by setting up reminders that go off at various times the week before the payment is due. If you try something like this, I highly suggest you do the same.

Things are going so well, I decided to push my luck and apply for more cards. Over the weekend, I applied for 4 more cards offering 0% balance transfers, a Chase, American Express, a WaMu card, and another Discover card. I heard back right away from WaMu (only a $1,000 limit ), I was rejected by American Express, and I’m still waiting from Chase and Discover. Looking back, I’m pretty sure I screwed this one up. My credit score right now is probably in the toilet. If I had done these applications when I originally started the arbitrage game, I’m sure I would have been approved, no problem. Now, I’m around a 60% debt to credit line ratio, and I have a few recent hard credit pulls in the last 3 months. To a credit card company, that’s a huge risk, and they’re unlikely to hand out a large credit limit, if they’ll even hand out a card at all.

The smart thing would have been to wait until my balances were lower and the old credit pulls had fallen off (at least 6 months). I guess I got a little impatient. Lucky for me, I’m not too worried about my credit score right now. I’m not planning any large purchases for at least another year, if not 2 or 3 more years. Even still, these inquiries will disappear in a few months, and as soon as I pay off the balance transfers, I’ll have a clean slate.

Then again, maybe I’ll get lucky and Chase and Discover will approve me. Who knows.

One more thing to note, the WaMu card I applied for did have a 0% balance transfer offer, but it also had free access to your FICO credit score. This alone, is worth applying for the card, and I’m really glad it’s the one card I did get approved for. Most companies will charge $10 a month or so to check your credit score, so I had to jump when I saw it for free. Now I can actually watch my credit score take it’s nose dive!

My experiment with earning free money from 0% balance transfers is going just fine. I got my first interest payout a couple weeks ago, $26 for about a week and a half’s worth of interest. Right on target with what I expected. I paid my first monthly minimum payment on the Citi Premier card this week. I linked my credit card to my checking account, so it transfers the money electronically. I also decided to make the payments from another checking account, not the account the 0% money is in. My reasoning being the more money is in the high interest account, the more money it will make. The minimum payment was $102 for the balance of $6,800, or 1.5% of the balance. I also just recieved my first statement for the Citi Professional card, with a minimum payment of $150, for a $10,000 balance. Who knew you could borrow $16,800 for a mere $252 per month?!?! I’m expecting my next interest payout to be around $70 on the 26th, so stay tuned.

Washington Mutual is offering a 5.0% APY savings account if you sign up for a free checking account online. (Direct Link to sign up page: here) There’s a $1 minimum to open and no monthly fees. I decided to apply for an account last week to hold my 0% balance transfer money. Even though I already had a Washington Mutual Checking account, I still needed to apply for a new one to get the savings account offer. Unfortunately, this means they’ll be sending me an ATM card for the savings account, a MasterCard Debit Card for the checking, and two books of checks. I’m pretty sure I’ll never use them, but I guess that’s the price you pay for 5% interest rate. The application took about 10 minutes to fill out, and the account was created immediately. I transferred $50 from my old checking account to the new one to take care of the minimum balance.

The next day, after my balance transfer checks cleared, I moved the $16,800 into the new savings account and started earning some interest. I had originally planned to move the money to my ING savings account, but after some thought, opened the wamu account instead. One reason was the interest rate. The extra half percent over ING will work out to about $85 extra throughout the year. Also, after the headache trying to cash the checks, I figured it would be easier and quicker to transfer within Washington Mutual accounts. The transfer from checking to savings was immediate, where if I transferred to ING, it would have taken 2-3 days. Not a huge deal, but it would have cost me another $5-$8 in interest waiting for the transfer to take place. I really enjoy my ING accounts, but it just made more sense to stick with Washington Mutual.

All is well with the world again. After depositing the checks on Monday and being told they would take 11 days to clear, I was a little ticked. I called the Washington Mutual Branch today to see if I could expedite the checks clearing. The conversation went something like this…

WaMu: It’s our policy to hold credit card checks for 11 days because most of them bounce due to insufficient funds. It’s also an out of state check so we have to hold it for 11 days. The best I can do is release $4,900 tomorrow, and the rest of it in 11 days.
Me: That’s not good enough. Let me talk to your manager.
WaMu: Hi sir, as a courtesy to you, I can release $2,000 right now, $5,000 tomorrow, and the rest in 11 days.
Me: That’s not a courtesy. I don’t want any courtesies. I gave you two checks for $16,800, and I want my money.
WaMu: Well, how much to you want right now?
Me: I want all of it right now.
WaMu: I’m sorry I can’t do that.
Me: You’re holding my money hostage. Please stop treating me like a criminal and assuming my checks won’t cash. I’ve been a customer for 8 years and never had a problem.
WaMu: I can try and call the credit card company to check the funds. Do you have a copy of the check?
Me: No, I don’t have a copy of the checks, I gave them to YOU to cash!
WaMu: Hold on a second, let me talk to the teller.
(On hold for 5 Minutes)
WaMu: I found a copy of your check, I’ll call them and then call you right back.
Me: Thank you.
(15 minutes later)
WaMu: I got a hold of the credit card company and the checks are OK. You’re money is available.
Me: THANK YOU!

And just like that, all $16,800 was available immediately. It’s important to note I never got mad or yelled at the supervisor, that wouldn’t have gotten me anywhere. I stayed calm and they eventually were able to help me out. My faith is now restored in Washington Mutual. I can now rest a little easier knowing my money isn’t in limbo and I’m finally earning some interest.

My two 0% balance transfer checks came in the mail over the weekend. $16,800. My mind was racing thinking about what I could buy with all this money, but luckily, I had a little self control. The plan was to deposit the checks to my WaMu checking account, and then transfer over to ING to start earning interest. I went to the WaMu yesterday to make the deposit, and ran into a bit trouble. The funds wouldn’t be available for 11 business days!! I couldn’t believe it. I’d never heard of a check taking 11 days to clear.

They gave me a whole list of reasons for this: the balance of my account (I only had $150 or so since I switched over to ING checking), I’d never deposited this much money before, the checks were out of state (Citi is based in South Dakota), all checks over $5,000 have to be put on hold. Needless to say, I was a bit upset. I could maybe understand a 48 hour delay while they check with Citi Bank, but 11 days?? This is 2007, is it not?? I felt like they were treating me like a criminal trying to cash bogus checks.

I talked to a supervisor at the branch, and then called their customer service line when I got home, but both gave me the same story. The only hope I have to getting the money any earlier is to plead with the branch manager. They told me to call back in 2 days to check on the status of the checks, and then they could possibly expedite things.

I think my mistake was trying to go through Washington Mutual. I should have just mailed the checks direct to ING to cash. Even if they had to hold the checks, the money would be in the right place. I guess that is the problem with an online bank: there’s no easy way to deposit money. By my calculations, I’m losing just over $2.00 a day waiting for the checks to clear.

I just requested a free credit report from www.annualcreditreport.com. You’re entitled to 3 free credit reports a year (I think it was a law that was passed a couple years ago), from each of the major credit reporting companies. They don’t include your FICO score, but it will list all your open accounts and if there are any late or missing payments. It’s a good idea to make sure everything is in order every now and again.

My report was all intact. They did misspell my company name (swapped one letter), but I don’t care enough to fix it. Hopefully that won’t hurt anything. Also, I noticed that Capital One noted that for 4 months in 2006, my account information was “Unknown.” How the heck don’t they know what my credit status was? The other 44 months on the report are all “OK,” but for some reason, those are missing. Strange.

I’m getting more and more concerned with my Capital One card. Part of the reason I wanted my report right now, is because of this article about Capital One hurting your credit score. It seems they record your credit limit as your highest balance, thus hurting your credit balance to credit limit ratio. On my report, Capital One doesn’t even have my credit limit listed, where every other card I have does. Lord only knows what that means.

Anywho, it’s good practice to check your credit report every couple months, especially now that it’s free. The way I’m going to handle it is just to get one report every 4 months from each of the 3 companies. Since I just got this one in March, I’ll set up a reminder in my calendar to request one again in July, and another one in November.

By the way, if you ever do need to check your FICO score, golbguru has posted a great tutorial on getting your credit score on the cheap. Check it out.

If you missed my first posts about credit card arbitrage, please check out the introduction to making money with 0% balance transfers and the card selection and application process.

When I left off, I had just applied for a Citi credit card with a 0% balance transfer rate, and was preapproved for $6,800. It was a bit lower than I had hoped, but it would get me started. The next day, I got an email from Citi asking me to call them. At first I was a little scared they had caught on to me and were calling to bust me, but I decided to call anyways. It was the standard “thanks for applying”, would you like to enroll in our “credit protection” service where we’ll hold your bills you become sick or injured… blah blah blah. I’ve heard it before and I wasn’t interested.

Then, out of the blue, she says I also qualify for the Citi Business card. I’m half paying attention, and say I’m not interested. She continues to explain it saying it has the same 0% balance transfer terms. Again, not really paying attention, I politely decline. She then asks if I have any other questions, and I ask about raising the credit limit. She says they’d have to do another credit check, but, if I take the business card, they can offer me an additional $8,800. Whoa. I had to go back and ask her again about the terms of the card. They were identical to the Platinum card I applied for, there was an additional $8,800 limit, and they wouldn’t have to run another credit check. It was a win, win, win situation, so I took the card. I’m now up to a combined $15,600 limit. I can work with that.

About a week later, I finally got the cards in the mail. When I was calling to activate them, I noticed the Business card had actually raised my limit to $10,000!! Didn’t even have to request it or anything. Now I’m up to $16,800 in credit limits. Very cool. Anywho, two quick phone calls activated the cards, and I was ready to request the balance transfer.

I signed up for through their website for online access to my accounts. I prefer working online, but you can also call and talk to a customer service representative to request the transfers. The website was a breeze to use. There’s a menu at the top where you go to ‘Card Services’, then ‘Balance Transfers’, then ‘Request Balance Transfer.’ From this point, it let me select the 0% offer, and request a transfer. I had the option to transfer to another credit card, or to request a check for myself. From my research, Citi was the only company that lets you balance transfer to yourself. That’s a huge plus. For each card, it took two clicks to have my full credit limit mailed to me in a check.

That was it. I was actually suprised at how easy it was to request the money. Kudos to Citi’s website. Now, I’m playing the waiting game for my checks. I requested the transfers on February 27th and they were approved (you can check the status on the website) on March 1st. Somewhere deep within the postal service, $16,800 is on it’s way to my apartment. I’m both excited and a little scared at what happens next. On the one hand, I’m looking at about $60 in free money each month, and on the other, a huge overage and interest penalties if I miss or am late on a payment. I’m hoping to get the checks in the next day or two, so I’ll keep you posted…

If you missed the first post on making money from 0% balance transfers, please see my Introduction to Credit Card Arbitrage for a little background.

Once your ready to try making money with 0% balance transfers, you need to select a card. Luckily, there’s a wonderful personal finance community out there that has done all the work for you. My Money Blog has the Best Pre Screened 0% Offers, Five Cent Nickel keeps an updated 0% balance transfer list, and Blueprint has a nice list of 0% balance transfer cards.

When you’re searching, it’s important to look at the interest rate (obviously) and the length of the 0%, but also to look at any associated fees. Almost all cards will charge you a balance transfer fee, usually around 3%, usually with a maximum amount of $250. A few cards (the cards you should be using for this process) will waive the balance transfer fee when you initially sign up. Some offers say you need to specify a balance transfer during the applicaton, and some offers will give you up to a month (or longer) to use the free balance transfer. It’s important to read the fine print! Sometimes it could be worth paying a small fee if you can borrow a large amount, but with all the offers out there, it shouldn’t be hard to find one that offers no fee. Annual fees can also cut into profits. Again, it might be worth the fee if the card has a high balance, and some cards even waive fees for the first year, but with all the options out there, this doesn’t seem worth it to me.

After perusing through the lists, a couple companies stick out. Discover and Citi seem to be at the top of every list. Since I already have a Discover Card, I decided to try a Citi Platinum Select. They have a one year 0% offer with no balance transfer fees on any initial transfers. Turns out the 0% and no fee promotion is good for any balance transfers within the first year, so I may take advantage of that in the future. More on that in a later post. Citi also allows you to request a check (made out to you) as a balance transfer. You can even request it through their website with no hassle. The Discover card, and most others, requre you to transfer the balance to another account. To actually get the cash, you would have to transfer the balance to another card with no balance, and then request a refund from that card. It’s still possible, but by requesting a check through Citi, I’ll get my money quicker.

I filled out the application online in about 10 minutes. The only gray area on the form is a field called “Annual Household Income.” I have no idea what that legally means, but my intreptation, is that they want to know the annual income of ALL people living in your household. In my case, that would be myself and my roommate. I think the credit cards intentionally leave this field ambiguous so they can stretch your credit limit as far as possible. In this case, that works out in our favor, but be careful not to get in over your head.

After I verified my information and submitted the application, they gave me an initial approval immediately. The credit limit was $6,800, which was a bit lower than I had hoped, but it would be a good start. The next step is to wait for the card in the mail to activate and begin the balance transfers. Stay tuned!

As one of my goals for this year (a post I swear I’ll write someday), I decided to give credit card arbitrage a try. A couple months ago, I had no idea what that term even meant, but thanks to posts at Blueprint for Financial Prosperity, Five Cent Nickel, and most importantly the tutorial at My Money Blog, I decided to go for it.

Simply put, credit card arbitrage is borrowing money from a credit card company using a 0% balance transfer offer, putting that money into a high yield savings account for the length of the 0% promotion, then paying off the original loan and pocketing the interest. Taking out $10,000 with 0% interest for a year and putting that into an account earning 4.5% APY, you’ll earn (before taxes) about $450. Now, there are a TON of issues to consider, and this scheme is NOT FOR EVERYBODY.

First, for the length of the 0% promotion, you must still pay your minimum payments every month. If you miss a payment or are late, you can kiss the 0% APR goodbye and you’ll start paying around a 30% APR. It’s VERY important to stay on top of payments. It’s also important to pay off the entire balance before the end of your promotional terms. Any interest you gain could quickly get eaten up with finance charges at a regular interest rate. Also, the other major drawback is your credit score. Opening up the cards, plus maxing out your limits will put a strain on your credit score that could potentially impact any loans in the near future. In my case, I’m not looking to take out any new loans in the next 12-18 months, so it’s not an issue.

That said, if you’re on top of your finances and don’t mind a dent in your credit score, there’s a pretty easy way to earn some free money. I’ve applied for a couple cards and have requested some balance transfers already, so please stay tuned as I’ll give you all the details along the way.

Just a quick update on my cash back bonus award snafu. If you’ll recall, Discover card sent me two Borders gift cards that turned out to be inactive. After a quick call to customer service, they told me they’d refund my cash back, and send me out two new gift cards.

Well, that almost happened. I’ve been following my account activity through the Discover Card website, and they did indeed refund $40 to my cash back bonus award. However, they only resent one of the Borders gift cards. I recieved the gift card in the mail yesterday and immediately called the gift card hotline to check the balance. This card was active and had the correct balance of $25.

At the end of the day, I got the correct amount of rewards back, and I’m satisfied. It was probably just a miscommunication between myself and the customer service rep that lead to them only sending one gift card, and the initial problem of the inactive cards was the fault of the gift card processing center, and not Discover Card.

It’s amazing what a simple phone call can accomplish. I’ve always read and heard that credit card companies will raise limits and lower rates just by giving them a phone call. I decided to try it out with my Discover Card. I called up the number on the back of my card, eventually got to a customer service representative, and asked for both a credit limit increase and a interest rate deduction. She was able to get me both. I now have $1,500 extra limit and a 2% lower rate. All told, took about 5 minutes on the phone. Now I’ve never actually carried a balance on this card, so the interest rate doesn’t help all that much, but this could potentially save you a couple hundred bucks a year if you are carrying a balance.

I was so excited after calling Discover, I tried to pull the same trick on my Capital One card. After about 10 minutes with their automated service, I finally found an automated option to request a credit increase. After selecting it, I got a very unfriendly message that my card wasn’t eligible for a limit increase, “either though the automated service or through a customer service representative.” By that point, I was so fed up with automated menus and that rude message, I just hung up without bother trying to ask for a interest rate decrease. Two thumbs down to Capital One.

I guess this trick is really dependent on your credit card company, but it’s worth a shot.

Let me preface this post by saying I absolutely love my Discover Card. I’ve had mine for over 7 years now, use it for nearly all my purchases, and, up until Saturday night, I’ve never had a single problem with it.

Last week I decided to cash in some of my Discover Card Cash Back Bonus Award for Borders gift certificate. You can turn $20 cash back into a $25 gift card. I’ve done this a few times over the years (they used to offer a $40 gift card for $20, but that was short lived), so this time, I traded in for two gift cards. This past Saturday, I went to Borders to purchase some books, went to checkout with my new gift cards, and was told the cards were inactive! The store tried calling the gift card hot line, but they were closed until Tuesday. So I was a little ticked off and a little embarrassed, but they offered to hold my books until I got the issue resolved.

As soon as I got home, I called up Discover to find out what’s going on. I got an account representative immediately and explained my situation. He was helpful and told me it was probably the the company that administers the gift cards. “Occasionally” they send the cards out without activating them. He said he’d credit the $40 cash back bonus, back to my account, and then resend out two new gift cards.

All told, I was fairly pleased with their response. I’m a little upset I had to go through with this at all (imagine if I had given these away as gifts!), but they handled it well. The gift cards should have gone out in the mail today, so it’ll be another week before I get the cards, so I’ll keep you updated. I guess the moral of this story is to call and check the balance before you drive to the store and spend an hour picking out books.

As promised, here’s a little background on me.

Personal
I’m 25 years old and live in Los Angeles. I graduated from UCSB in 2003 with a BS in computer science. Now almost 4 years out of college, I’m in my 4th job in a data management consulting company. I don’t like the fact I’ve had to switch jobs so many times, but I suppose I’m still at that age where I’m trying to find where I best fit in.

Right after college, I moved back home with my parents. I didn’t have a job right away, so it was really the only option I had. I was there for more than 2 years, and it really allowed me to save some money (although my spending habits were much worse so I didn’t save as much as I could have). This past September, I finally moved out on my own. I switched jobs and my commute was too long from where I was living. Now, I’m renting an apartment with a good friend and having to deal with grocery shopping and cooking once again.

Financial
Here’s a quick rundown of my personal finances. I have a WaMu checking account (which is slowly being phased out), an ING Savings account, and the incredible ING Electric Orange Checking account. In a nutshell, paychecks are deposited to the ING Checking, bills are paid, and whatever is left (hopefully) goes into the ING Savings.

I have an employee matched (50% match, up to 3% of income) 401(k) program, to which I currently contribute 12% of my pre-tax income. I have an IRA account through Smith Barney with a few thousand dollars I’ve rolled in from my previous employers 401(k) programs.

I have 5 credit cards: Discover, Capital One Visa, Sears Card, Express Card, and a Gap Card. It seems like a lot, but I’ve never carried a balance (a balance that earned interest anyway) on any of my cards. I like the cashback program at Discover, so that’s my main card. I just switched to their Gas Card, which earns 5% back on all gas purchases. The rewards are nice, in that a lot of times you can turn $20 worth of rewards into a $25-$40 gift card. I few months back, I turned $180 cash back into a $225 Crutchfield gift card and bought a digital camera. My Capital One Visa is only used when businesses don’t take Discover. The specialty cards are strictly used at their respective locations. By having those cards, I routinely get invitations to 10-50% off or 0% financing events.

That should give you a little background on where I’m coming from. Soon, I’ll be posting my goals for the upcoming months and quarters to hopefully give you an idea of where I’d like to go. Thanks for reading!

I’ll talk more about my personal budget in a later post, but just to give you an example of how much I’ve curbed my spending, here are the balances on my last 6 credit card statements.

August 2006 - $1,639.50
September 2006 - $1,049.64
October 2006 - $3,386.41
November 2006 - $1,145.76
December 2006 - $1,529.13
January 2007 - $387.26

I generally put all my expenses on my credit card and I always pay my balance in full every month, so these balances are a fairly good indication of how much I actually spend each month. Now, as a disclaimer, I moved into an new apartment in September, thus the unusually high balance in October, but I had been averaging well over $1,000 per month. I’m quite happy with about a two-thirds decrease in spending.