Not too long ago I came clean about my love affair of ten years. Today, I’m back at you with another confession. Please don’t be too quick to judge me until you read through the details.
I’m a sucker for 0% interest.
There. I said it.
Well, I’m not a sucker for just any 0% interest offer – it has to be the right offer. My first experience with a 0% offer was back in college when I signed up for a credit card that came with 12 months of 0% interest. This was back when my savings account was paying 5%. So for 12 months, I played the arbitrage game and charged everything I could (tuition, books, groceries, gas, etc) to my interest-free credit card. My cash continued earning 5% in my savings account. I didn’t charge anything I wasn’t already planning to buy and could pay for in full with cash. I figured I would do what the banks do and make the spread.
I played this game a few times, rolling balances to new interest-free cards until the rate earned in a savings account eventually went to zero in the depths of The Great Financial Crisis.
More recently there have been a few purchases that Mrs. GYFG and I have financed with 0% interest. We didn’t finance the items because we couldn’t afford to pay cash for them; we financed them because I couldn’t resist an opportunity to make the spread. Why wouldn’t I finance something with 0% interest? If you tell me that I can pay $2,200 today or $2,200 over the next 33 months at 0%, I will take the financing option all day every day, especially on a significant outlay. This is exactly what we have done for the following three purchases in the past 18 months:
(1) The massive couch we bought for our movie room. Labor Day weekend (2017) the furniture store was running a sale for 35% off plus 0% interest for 33 months (if approved). The total cost was $2,200 after the discount and taxes. Hmmm…pay $2,200 upfront or spread it out over 33 months. I think you already know my answer – I took the 0% with payments spread out over 33 months.
(2) A Sleep Number bed. My wife and I like different levels of firmness in our mattress and after 13 years together we decided it was time to invest in a bed that would cater to both of our preferences. This wasn’t a cheap purchase. Anyone who has bought a Sleep Number bed knows what I’m talking about. We ended up spending almost $9,000. We had been thinking about buying one of these beds for about two years before we were finally ready to pull the trigger. Knowing that Labor Day weekend was the best time to buy a mattress, we wanted to time this right to take advantage of their annual sale. We ended up getting 40% off our part of our purchase. On top of this, they were offering 0% financing for 24 months. I was again presented with a decision to pay $9,000 the day of the purchase or to spread it out evenly over the next 24 months for no additional cost. 24 monthly payments please.
(3) Our electric bikes. As I shared in my 2019 goals post, I decided to buy the family electric bikes to start a weekly family bike ride tradition. There is also an added side benefit and that’s the alternative form of transportation to and from work the bikes provide. I’ve wanted to add extra physical activity into my daily routine and an electric bike is perfect for commuting the five miles each way to my office and home. The total cost financed at 0% was $2,800.
The Time Value of Money principle says this is a no-brainer. Even if that cash that I didn’t have to pay up front sits in a savings account earning 2.45% (CIT’s high yield savings account) it makes sense to do this. To be honest, it makes sense to do this as long as you’re earning more than 0%. But I only recommend guaranteed returns when playing this arbitrage game, especially if your monthly cash flow couldn’t pay the debt off in one fell swoop (in fact, do not use credit cards if you cannot to pay in full every month).
The GYFG household has taken advantage of these arbitrage opportunities to continue plowing significant funds into the mortgage in order to have it paid off by July of 2019. We have also been maintaining a minimum cash balance of $30,000 earning 0.5% or greater. That’s not all. We have continued to build our investment in Rich Uncles, which earns a 7% annual dividend, and PeerStreet which is earning us about 7% as well.
All said, we have financed about $14,000 worth of goods over the past 18 months. This currently represents a monthly payment of ~$641/month. Our monthly cash flow at an average of $37,500 per month is more than adequate to not only make this interest-free monthly payment, but also to choose to pay the outstanding debts in full anytime we want (through our monthly cash flow or idle money sitting in our savings account). Instead, we choose to play the arbitrage game on purchases we were going to make anyway.
In a future post, I will dive into how to stack some credit card churning to make this arbitrage activity even sweeter (focusing on our electric bikes purchase mentioned above).
Do you ever take advantage of 0% financing? Do you think I’m crazy to be doing so?
– Gen Y Finance Guy
Not crazy to buy that way, but a $9,000 bed? That makes my head hurt! Yikes.
I know it seems crazy to spend $9,000 on a bed. That said, it has a 25-year warranty and a good mattress will run you $3,000 anyway, and it’s recommended you replace it every 7-10 years. I was very skeptical at first and only took the plunge when I found out it came with a 100-day guarantee. I swear it is one of the best purchases I’ve ever made. Both my wife and I sleep so much better and like I mentioned in the article, we like much different levels of firmness/softness in our mattress. I used to wake up with back pain every day and that no longer happens. I also like to read in bed so the adjustable base makes that much easier and much more comfortable. It’s also been very convenient for my wife who is nursing our newborn. She can just press a button on the side of the bed to have it get into a comfortable position to nurse.
I don’t think it is a bad purchase at all, when you consider you spend more time in your own bed than anywhere else. It just jumped out at me, my wife and I could fall asleep in five minutes on a pile of rocks, but that isn’t a thing for most people. Plus any wife with a newborn needs every convenience because that is a very tiring period of life, we had three and although she did more than me I still remember it as years of sleep deprivation, the horror! In this frugal blogosphere where guys like me, early retired and wealthy drive a $7,000 car somebody had to make some noise about a $9,000 bed, even if it was just for fun!
Hi from the UK,
I play a similar game, I did it with our second hand car purchases (£10,000 & £2,000) – on the larger I got 28 months 0% purchase, then switched the balance to another 24 month balance transfer card, all the while keeping the capital earning at 2 – 3%. Did it with several other purchases as well (such as some white goods for the kitchen, our bed, the kids furniture, Christmas even), the only reason I paid it all off was because the mortgage company stipulated it when we moved house. Of course the underlying cash was there ready and waiting for such an obstacle.
– the cards I was using to do this at the time had cashback incentives on application, so a bonus on top to start with
– I also used ‘TopCashback’, a website that rewards you x% back on eligible purchases, further bonuses
– when you accrue a decent wedge in there you can get a payout with a x% bonus on for taking it on a giftcard (in my case a prepaid Mastercard which is accepted EVERYWHERE anyway), which you can then use on Zeek to buy discounted e-giftcards for purchases you were going to make in the first place, more bonuses!
It’s a bit of a faff, but you are looking at anything from 5 – 20% off the purchase price before doing any haggling whatsoever.
Credit card game is getting harder to play from an availability point of view over here now but for planned, affordable, purchases, it makes perfect sense. In the UK buying on a credit card also affords you extra protections against faulty goods, almost an added free insurance benefit.
Dan, you sound like a seasoned veteran when it comes to stacking 0% offers with credit card balance transfers to not only extend the 0% offer but also double dip with rewards points and additional discounts. If you ever want to write a guest post sharing your experience and tricks let me know.
Haha, I’d love to take the credit but we have a ‘consumer champion’ in the UK called Martin Lewis, I learnt a lot of my ways from his website moneysavingexpert.co.uk before I discovered the various ‘FIRE’ movements, such as this blog and r/UKPersonalFinance!
With each new credit card sign up bonus + cashback on the charges that make up the 0% loan, I earned more than what the loan amount would have earned me in a savings account. Have played this game for several years too and swear by it. Didn’t pay even a penny as financing charges.
MNadig – Very nice!!!
People thought we were CRAZY for doing this 10+ years ago! We used 0% convience checks from credit cards to get us out of debt. At one point we were floating nearly $200k in credit card “debt” to earn between 5%-6% interest. It was a project, no doubt. We also high interest checking accounts (those accounts required 10 transactions a month to earn 5%). We got out of debt doing that and then continued earning money once we were out of debt. Not for the faint at heart, but I love a good challenge. We still take advantage of 0% rates when they come along.
Jennifer – Sounds like you are a master Juggler. Wow! $200K at 0% and earning 5-6%? Where did you park the money to earn the 5-6%? Where did you have your checking account earning 5% if you had at least 10 transactions? Thanks for sharing.
We parked it a few banks. Capital One and a local credit union (United Heritage Credit Union). At the time everyone was offering higher interest rates….we might see more of that soon. UHCU required 10 transactions a month. I kept post it notes on the debit cards (we had 4 accounts). I made sure to ring up groceries separately or make smaller payments at the pump to get those totals. We also bought Ibonds to earn interest. I read alot about “credit card arbitrage” when I started doing it. We opened numerous cards on the same day because they got approved if you did them all at the same time. We still are creative. We get free sign up bonuses for new credit cards (although it’s harder to find new ones since we have more than a few). We earn points thru our business and on the personal side. Our goal starting 2 years ago is to furnish our house with points (yes, I’m aware travel points are worth more than gift card redemption, but we work a lot, so we need to be home!). We have furnished most of our house. It’s a fun game my husband and I enjoy playing and we have been doing it for almost 15 years. I keep thinking it’s going to end, but as long as consumers continue to carry debt, credit cards are making money. So they are okay with losing money to those of us who can follow the rules and win big 🙂
I just can’t wait until I have a monthly cash flow like that. Lord have mercy…
Zac – it didn’t happen overnight!
I have used 0% purchase offers with success, but the 0% balance transfer deals that I’ve been receiving for the past few years all have transfer fees of at least 3%. Any suggestions on where to find those 0% transfer deals? We have a high credit score, and pay off our balances every month.
By the way, I read lots of blogs and I’m always impressed by those who have worked hard, saved and retired early by using high incomes or a frugal lifestyle. I’m only envious of one, Steveark, who “can fall asleep in five minutes on a pile of rocks”. Oh, to be so blessed…
I’d love to see those, too, but it’s been many years since there was 0% no fee offer. I have seen 0% on purchases every few years. We end up charging everything on that card up to the limit and letting it carry a balance til the rate expires. Once in a blue moon, we will get a low interest rate like 1.9% for 12-18 months. If I can make money on that offer, I will take it.
I guess I’m remembering “the good old days” 🙂. Jen, thank you for responding.
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