To understand how you can use credit cards to make money, just think of it in terms of the general rule that any time you can borrow money for less than you’ll receive to lend it out, that difference is your profit.
Credit card companies issue a lot of enticing offers to customers with good credit. Of course they are hoping to tempt you into borrowing money in such a way that you’ll have to pay it back to them with interest and they’ll come out ahead, but often they will make “loss leader” offers that technically put them at a disadvantage in the hopes that you will use more of their services than just that initial offer, much like a store might offer something at such a discount that they lose money on it, because they know it’ll bring people in the door and some of those people will spend money on other, profitable, items.
For example, a credit card company might try to get you to take their card by offering you a low interest rate or even a zero interest rate on purchases and cash advances for the first year. (Be sure to read the fine print and see what the fees are, if any, and not look just at the interest rate.)
Let’s say the card has a $10,000 limit, there’s a 0% interest rate for the first year, and you pay a 3% fee on any cash advance up to a cap of $100. What this does is give you access to $10,000 for a year, at a cost of $100.
So what you can do is take the full $10,000, pay the $100 fee, pay the minimum payment each month, and pay off the remaining balance of $9,000+ after one year when the introductory rate expires.
Then all you have to do is make more than $100 in a year with $10,000 at your disposal. That’s pretty easy. How about an ultra-safe FDIC-insured savings account paying 3%? You can make $300 in interest in a year that way, for a profit of $200.
But needless to say, the vast majority of investments are going to pay you more than 3%. It’s just a matter of how much risk you can handle. You could put the $10,000 in the stock market (or in your business or any number of other places) and likely make a lot more than 3%. But bear in mind that if the market tanks and you turn $10,000 into $7,000, you’re not looking so good.
In any case, let’s say you do make a nice profit in a year on that money. Maybe $200, maybe $500, whatever. One option at that point is to pay it back to the credit card company and be done.
But another factor to consider is while there aren’t all that many credit card company promotions that will let you take cash advances for 0% with little or no fee, there are somewhat more that have promotions that allow that on balance transfers, where they can take your business away from another credit card company. So if you got that first offer and took advantage of it, chances are you can find another credit card company that will entice you to transfer that $10,000 balance to them when the year is up. Maybe it’ll be 0% for a year with a $50 fee, or 0% for six months with no fee, or 1% for a year with no fee.
So if you transfer it to them, you can keep your money in the 3% savings account, or use it in some other way to make money, and keep it going for as long as you have credit cards willing to offer you these promotions.
There’s always the risk-which is what they’re counting on-that you’ll lose discipline and spend some or all of the $10,000 on a flat screen TV or take it to the track. But as long as you don’t do that, you can make yourself a tidy little profit.
Remember, as long as you’re paying less to borrow it than you’re receiving by investing it elsewhere, you’re making money.