Are 0% Transfers Dead?

The Wall Street Journal had an article the other day on 0% credit card transfers, i.e. transferring money from credit cards offering 0% interest rates and profiting off of the interest (also called credit card arbitrage).

This practice was well known in the personal finance community, and several pf bloggers had great posts about how to exploit it.

The problem is that credit card arbitrage is becoming a victim of its own success; the Wall Street Journal articles and other publicity it is garnering is causing banks to take some protections, which if they become widespread might well kill the practice.

I'm pretty disappointed. I was hesitant to get involved with credit card arbitrage because of the risks to my credit score, but lately I've started to think that the damage wouldn't be permanent and it might be worth the thousand dollars of interest a year. It appears that I have waited too long.

Get Rich Slick's blog has announced that he will be abandoning credit card arbitrage and instead will be pursuing other arbitrage opportunities. I am not sure what that means, but if I figure it out, I'll be sure to share it!

Paying Back Family Loans

My mom lent my wife and I $5K to help with the down payment for our home. She didn't draw up any kind of documents, discuss any interest, or even bring up when I should repay her.

She certainly isn't hard up for money. The disparity between me and my parents does a good job of showing the age-wealth gap in this country (more on this later) My parents have basically 20 times my net worth and even in their late 60's are making more than me in income.

Yet despite the ultra-foolhardiness of paying my mom back sooner rather than later, that is what I plan on doing.

Here's my reasons why:

1. She's my mom: I feel bad not paying her back her money.


2. I owe them a lot more than $5K- My parents raised me to be the person I am today, none of what I hope to achieve in my life would be possible without them. Additionally, they paid a lot of my college and grad school


3. Being your own man- Sometimes I think the reason why a generation of my friends in their late 20's have never really grown up is that they are still financially or otherwise tied to their parents (this has a lot to do with the Age-wealth gap and the high costs of college). Even after they turned 18 (the magical adulthood number) they were still financially and socially tethered to their parents for support. Its time for me to finally cut the cord.


4. It pays to engender good will- While I intend to set out on my own and do it without their help, in life it never pays to burn any bridges you might need later on (this is why I never do the "screw you boss, I'm leaving" speech when I quit a job). Who knows what the future will bring and what kind of help I might need?

When Good Debt Goes Bad...

So right now, my wife and I are trying to pay off some "bad" debt, before we start rapidly accumulating post-tax investment capital. What's interesting is that the tax deductibility of the debt makes a HUGE difference in whether debt is good or bad....

Here's a run-down of our debt:
1. Mortgage debt, 30 year fixed rate at 5.75%, this works out to an after-tax return of around 4%. Bloggers and "financial gurus" who tell you to pay down your mortgage at these interest rates are fools. We could earn a better rate of return on a treasury bond (almost), plus the mortgage allows us to enjoy a great return on the leveraged appreciation of the house.
2. Ultra-low interest federal student loans- Always be suspicious if someone tells you they need to borrow money to pay down federal student loans, as these are usually ultra-low interest rates, but are one of the few loans which survive bankruptcy.
3. Second Mortgage at 8%- While this is pretty high, it is tax deductible, so it is lower than the long-run return on the market, though many would jump at the chance to earn a guaranteed 8%. I will probably split my money between the market and paying this loan down.
4. Private Student Loans at 7.035%. The thing to note here is that because of taxes these student loans are actually higher than the second mortgage. The non-deductible 7.035% is equivalent to a market return of 11.5%. A guaranteed no-brainer.