We live in a suburb of Los Angeles and if you know anything about Los Angeles you’d know it’s super expensive! Maybe not New York City or San Francisco expensive, but compared to average salaries, L.A. is actually the most overpriced city in America. (According to Forbes, I think.) So it’s no surprise that it’s quite difficult to save a ton of cash when rent is soaring and salaries are stagnant. But, we were able to save $25,000 in 18-months by doing something completely crazy.

[box type=”warning”] DO NOT ATTEMPT! Not for the faint of heart! **I’m not suggesting doing this at all.**[/box]

How’d we do it on a very average salary in an expensive city? Credit card arbitrage. (I can already visualize jaws dropping, but bear with me here).

Now, we also saved any extra income we earned along the way, but the biggest increase to our savings was through credit card arbitrage. I feel like I have to put another warning here and say, “DO NOT ATTEMPT!” Credit card arbitrage is incredibly risky. It just so happened to work for us and here’s how:

About 18-months ago we had earned some extra cash and decided we’d make the most money with our money by investing it in a growing stock, Netflix. If you know anything about Netflix, you know it grew tremendously over the past two years up until early April of this year. (We chose Netflix wisely). We noticed Netflix growing by leaps and bounds in late 2014 and really wanted to invest more money into this stock, but we didn’t have the cash. What we did have was great credit scores and credit cards with high credit limits and zero-balance transfer offers that gave us a time-frame of 18-months at zero-percent interest. Basically, we could use the creditor’s money for free for 18-months.

We decided that we’d take a risk and use a small zero-balance transfer check (that we deposited as cash) to invest the money into this growing stock. Our first investment of $4,000 earned us 50% on the dollar, so we paid back the arbitrage before it was due and kept the profit in the stock. That wet our whistle, so of course we decided to try another zero-balance offer of $7,500. Again, we earned money on our borrowed money and paid back the arbitrage. In the end, we used a total of three zero-balance transfers to boost our savings. We also paid back each arbitrage before it was due because this borrowing made me a little nervous (as you can imagine).

Credit card arbitrage is not for the faint of heart. (Nor is it for people who can’t manage their finances). We knew that if we didn’t make any money or lost money on the stock, we’d have to pay back the borrowed amounts before the due date so that we wouldn’t have to pay any interest. Since our goal was to buy a house, we wanted to keep our credit scores in tact and that meant paying every dollar back no matter what happened with the stock.

Would I do this again? I don’t know. I feel that we really timed our arbitrage just right and chose the right stock at the time. We were also super motivated by the idea of saving enough for a down payment. Had our first attempt gone south, we obviously wouldn’t have continued playing with fire and we probably wouldn’t be in the process of buying a manufactured home right now.

As a side note, all of our down payment was earned through hard work, this crazy scheme, and determination to save. No where along the way were we “gifted” the down payment (I just wanted to make that clear because I read a similarly titled article and it said their parents gave them money. That’s not crazy at all, that’s bordering on typical.)

Was our decision crazy or brilliant? You decide.

Disease Called Debt

8 Comments

  1. Oh wow, that’s kind of scary. It’s great that it worked out for you, but the market is getting really choppy now. It’s probably not a good idea to borrow money to invest at this point. I’m much more conservative now. Great to hear that you’re getting your own home, though. Nice job.

    • @Joe – It was definitely a risk, but when we started this crazy scheme, the market wasn’t as volatile (late 2014/early 2015). We lucked out on timing and choosing the right stock!

  2. Gary @ Super Saving Tips Reply

    Definitely risky and a little bit crazy, but I’m glad it worked out for you. Best of luck with your new home!

  3. Tia @ FinanciallyFitandFab Reply

    Wow! Honestly, I had never heard of this concept with credit cards. I had to call me boyfriend, who studied finance in school, to see his point of view. We had a long talk about it!

    I am super glad it worked out for you all. I think I am too afraid of risk to take a similar leap.

    • @Tia – It’s definitely risky. We just happened to time the stock market correctly and we started off small – making sure that the first arbitrage actually worked! Not a strategy I’d recommend, but as a last resort and with a person who is completely on top of their finances, a possibility.

  4. Very risky! Glad it worked out for you, but I wouldn’t recommend it to others.

    • @Tre – I agree that for most people, I definitely wouldn’t recommend doing this. It was something I had read about a couple of years ago and decided the risk was worth it in small steps. We just happened to choose the right stock at the right time when the market was not as volatile as it is now.

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