The concept is simple. Take advantage of the free 0% cash advance or balance transfer offers, get a pile of money, and invest it in high yield savings accounts. The result is a decent return, almost entirely risk free on borrowed money. A small, but growing group of people have been doing this and App O Rama (often referred to as AOR) is the phrase that has been coined to describe it. There is even a site that helps you do it - App O Rama.
How It Works
Apply to as many credits card as possible at the same time. The credit cards should have generous 0% cash advance offers, ideally with no transfer or cash advance fees. Applying simultaneously will prevent the banks from seeing the other apps and maximize your chances of being approved for more offers. Once you receive your offers, take the cash and invest it in the highest yielding FDIC insured savings account you can find. BestCashCow has a good list of them.
Then, each month, pay the minimum balance on the credit card while the 0% introductory offer is still good. The difference between the interest you pay and the interest you earn if your profit.
How much can you make? Thousands. For example, if you could borrow $50,000 at 0% and invest it in IndyMac at 3.85% APY, you could make approximately $1,900. That's $1,900 you've made with other people's money and it's the same techniques the hedge funds and investment banks make to earn huge returns. Making money with other people's money is called leverage.
Things to Consider
Before you rush out and start applying, be aware of several drawbacks to App O Rama.
- For each credit card application you make, there will be a pull on the credit bureaus. This will lower your credit score temporarily until the loans are paid off. If you plan on borrowing money for a mortgage, card loan, etc in the near future it may not be a good idea.
- If you miss a monthly payment, rates on your card will spike, potentially wiping out all of your gains.
- You should be organized and methodical or you will most likely earn nothing for a bit of work.
But, if you are organized and are willing to put in a bit of work, you can earn a nice vacation, new regrigerator, etc. on the banks with App O Rama.
Related Articles:
Credit card defaults are on rise by soczie - Aug 27, 2007
Citibank and Other Credit Card Companies Raising Interest Rates by Sam Cass - Nov 14, 2008
New York Times article on rate chasing by ktexas - Oct 13, 2007.
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