A "unique" approach to those with CoA limits

[Habeed]

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I, like many of you, have a small problem. My CoA doesn't quite cover all of my anticipated expenses. I estimate that I might need $10,000 for my MS1 year, and $5000 for travel expenses a bit before that.

Well, I found a way : credit card "special offers". I know, I know...its like jumping in a snake pit to borrow money using credit cards. But I found some better deals than I thought possible.

For instance : the Amazon "Business Rewards" card from Chase offers 2.99% LIFETIME APR on Balance transfers, with a 3% transfer fee capped at $75. This rate isn't advertised anywhere, it's a special offer for current cardholders as near as I can tell. In addition, with my meager student income, the credit card company happily set my credit limit at $10,000.

To take full advantage of this offer, you have to get a little creative, and rack up $10,000 in charges on other cards. Those 0% introductory rate cards are perfect for this. Then, after about 6 months, transfer it all to the Chase card.

2.99% interest on the entire transferred balance are ridiculously favorable terms. Just set the minimum payment to come out of your primary bank account, and you're set! As near as I can tell, at this low an interest rate, I would have to pay about $6000 in payments of $10000 borrowed during the 4 years of medical school. Plus, the payments are spread out over the 4 years, rather than me paying $10,000 up front. Total interest charges would be about $1300 over the theoretical maximum 18 years of repayment...and 2.99% interest is less than the rate of inflation.

Why is this offer so much better than anything offered by standard lending? Because the credit card company is trying to screw you over. Miss a payment, and they jack up the rates to some ridiculous level of 20% APR. Use this balance transfer offer, and you better not charge anything else to the card, because they'll charge 14% APR on purchases, and you cannot pay back that debt until you pay off the transferred balance. I'm sure other "screw you over" conditions apply.

Anyways, if there's no other way to pay the bills, consider this method. If you pay careful attention to the rules and take advantage of automatic payment features and so forth, it seems like you could come out ahead.

 

[BirkChick]

Well, I'm not sure how I feel about you approach, but I do have a small piece of advice for you:

If you go through with this, whatever you do, don't do a balance transfer for the whole $10,000!

Remember that interest is added to the balance at each statement time. So, if you transfer $10,000 onto the card, when statement #1 hits, the interest will be added and your balance will be ~$10,025. And, guess what? You're going to get hit with other-the-limit penalties. And, your promotional rate may be voided, meaning your interest rate could increase to 20 or 30%.

Bottom Line: If you go through with this approach, make sure you give yourself a more-than-adequate buffer to support any interest or fee charges.

 

[Habeed]

Thanks for the tip. And I'm not sure how I feel about this approach as well. But, the numbers do work out, so I'm going to put my immediate expenses that I could pay with cash on credit cards instead, and use this offer. In effect, I'll have about $5000 in credit card debt at 2.99%...and $5000 in the bank earning 3.5% interest....I should come out ahead, and more important, it improves my liquidity. I could spend $4000 out that $5000 in the bank if I needed to.

 

[TMP-SMX]

This screams of a bad idea and something going wrong. In general, cards have a low balance transfer limit compared to your credit limit. Plus, maybe you should rethink your budget if it seems so difficult to stay within your CoA.

Plus, you are posting like your MS1 year is a long time away. When does your school start and when are you going to do this traveling?

One thing you can do is charge your credit cards the month before you get your loan disbursement then pay them off entirely when you get the bill. That buys you extra time. However, what you are suggesting is just risky.

 

[LADoc00]

you will have such a high usage of your avail credit lines your credit score will be crap.

But maybe you dont care atm.

 

[foster033]

This is a fairly common practice, maybe not for paying for med school but usually for putting the 0% money in savings accounts and collecting the interest. I have $5000 sitting on a 0% card myself (was a bit more when I started). Works well if you have excellent organization (have to keep track of payments, some cards require minimum purchases, etc) and have a good credit score.

Google credit card arbitrage or apporama, you'll get a lot of hits. Just be careful and read up on it before you commit, the reason they still let people do this is because more people fail than come out ahead.

Also for most cards you don't need to go through the extra step of spending the money on another card, you can either have a BT check written in your name that you can deposit at the bank (Chase, Citi), written out to a friend (that you trust) and they pay you back (Amex), or have them direct deposit straight into your account (BoA). Here's a good thread on various ways to get BT money out.

 

[kami333]

the problem is that carrying a balance even on 0% card will kill your credit score.

go to fatwallet.com to learn more about app o rama. its not as great as you think.

What's the point of having a great credit score if you never use it?

 

[TMP-SMX]

Because having a good score turn to crap is much more difficult to improve than it was to screw up. So when you actually need to use it for something like a mortgage or car you are out of luck.

 

[nogolfinsnow]

What's the point of having a great credit score if you never use it?

I believe you also need at least decent credit to qualify for Grad Plus loans.

 

[Habeed]

I believe you also need at least decent credit to qualify for Grad Plus loans.

This is incorrect. You need a credit history with no adverse events (any bill unpaid more than 90 days, bankruptcies, write-offs, and so forth). As long as you pay the bill, you can leverage balance transfer cards to the max.

 

[vesalius2008]

This is incorrect. You need a credit history with no adverse events (any bill unpaid more than 90 days, bankruptcies, write-offs, and so forth). As long as you pay the bill, you can leverage balance transfer cards to the max.

Is this true? I've often wondered how much damage my credit card balances would affect my Gradplus loan.

Do private loans affect your credit for Gradplus or Stafford?

 

[TMP-SMX]

You can take out stafford loans regardless of your credit history. For gradplus, as said previously, you just need to not have any delinquent history.

 

[SketchLazy]

Thanks for the tip. And I'm not sure how I feel about this approach as well. But, the numbers do work out, so I'm going to put my immediate expenses that I could pay with cash on credit cards instead, and use this offer. In effect, I'll have about $5000 in credit card debt at 2.99%...and $5000 in the bank earning 3.5% interest....I should come out ahead, and more important, it improves my liquidity. I could spend $4000 out that $5000 in the bank if I needed to.

This might be something to do in desparation, but it is an atrociously bad idea. I think the most important question is: where are you getting the money to pay the minimums? For the interest rate you mentioned, the minimum monthly payment is probably $5-$10 for every $1000 you owe. Starting out, your monthlies could be up to $100 per month on that $10,000. You'll likely be paying this the entire four years while in school because the minimum monthly payments are calculated so that you mostly pay interest accrued and no prinicpal. And if you have to borrow this money in the first place, you will be paying this off with your Stafford or Gradplus loan money while in school. Once you take into account that the money you're using to pay off the credit card interest will have it's own interest rate too, you should be able to see that this is a horrible idea.

Borrowing money when you need it is always better than trying to take out a large loan and trying to offset the loan interest by placing the money into a savings account with a lower interest rate. (that's a good idea if you already have to take out the money like in the case of Gradplus and Stafford loans, but not in this case) If liquidity is your issue, you should have no problems with liquidity if you have a $10,000 limit on a credit card. Most of the time you can charge as much as you want up to your limit, when you want on credit cards.