Physicians: Did you ever play the zero percent interest game?

Back in 2001, we paid off our last personal loan, our home mortgage. At that time, we decided to begin investing in real estate with the money that used to go towards digging us out of our personal debt. Our real estate was held in an LLC, and we acquired loans to purchase these properties. In fact, most of our real estate was purchased with 100% financing.

In 2002, the credit card companies went through a phase of offering 0% interest for a select period of time on balance transfers and cash advances. There were no fees associated with these transfers. They sent three checks to use to pay off other credit cards, make new purchases, or spend on anything that you wished. No interest would be charged until a given date in the future. My mailbox was flooded with these offers. I found a way to take advantage of their deal and made more than $36,000 off of these companies over the subsequent five years.

Up until this point, we never carried a balance on any of our credit cards. We only used credit cards for convenience and never paid any interest. Each zero percent offer was from either a card I already had that wanted me to transfer a loan to them, or from a card I did not have that wanted me to apply for their card and transfer a loan to them. There was no loan origination fee and no interest for their specified time frame.

The credit card companies were betting that if I transferred my loans to them, interest-free for six months, that at the end of the six months I wouldn’t have the money to pay them back. I would then begin paying them interest at 20%. They would hook me with some free money and then reel me into their high-interest rate.

At that time, the outstanding real estate loans in my LLC were all at 8% interest. I just needed a system to pay off those 8% loans with the 0% credit card offer for me to make a nice guaranteed 8% return.

There were so many offers in my mailbox every week that juggling these loans became quite easy. I would simply fill out the check they provided and use it to pay down a mortgage loan. Then in eight months, or whatever period they gave before the loan would start charging interest, I wrote a check from another credit card to pay off the last credit card. This leapfrog approach worked quite nicely.

Since I had great credit and no outstanding personal loans, I was able to get some large available credit limits. The largest check I was cleared to write was $48,000. The smallest one I wrote was for $2,000. The longest time period I was given the money interest-free was fifteen months, and the shortest period was two months. Over the course of five years, I wrote 31 checks moving money back and forth between these credit cards. Some cards required a small monthly payment while they carried a balance, and some did not even want payments until the interest-free period ended.

The total amount of money I saved in interest, the 8% differential on the current outstanding balance, was $36,189. That is not bad for writing 31 checks on twelve credit cards. Each card offered me the same deal again immediately after I paid off the loan. To apply for these credit cards, all I needed to do was give them my name, address, household income, and signature on a postcard-sized form.

Assuming I spent fifteen minutes reading and filling out the information to get the twelve cards, that would come to three hours of my time. If I spent another ten minutes writing each balance transfer check and putting it into the envelope and mailing it, that would be another five hours of my time to write and send the 31 checks. If I threw in another seven hours of my time to track the outstanding loans, that totals about fifteen hours of my time.

It took an estimated fifteen hours for me to earn $36,189, which works out to $2,412 an hour for my time. I thought I was making out pretty good.

I did goof up once and had to pay one month’s interest. I should have paid the loan off that month but sent in the usual low monthly payment by mistake.  The interest amount was minimal, as I paid it off the next month, but it made me pay closer attention to my juggling act.

I would have loved to continue this process, but all good things have to come to an end. In 2007, the credit card companies started charging a 3% transaction fee that occurred at the time I wrote the check. I was not willing to pay any fees, as that would defeat the purpose. A 3% fee on a balance transfer that is interest-free for six months, is the equivalent of paying 6% interest on the loan.

Once the fees started, I paid off all the loans as they came to the end of their zero percent period, and the juggling process came to an end. During this five-year period, we were putting all the real estate profits into an account to pay off these loans eventually. So actually, we made a little more money on the interest that account made, but I left that out of the calculations.

It was fun while it lasted. I was happy to use the credit cards’ zero percent money to pay down my real estate loans to receive a guaranteed 8% return. I also had some emergency funds in the bank to use in a pinch, if there was ever a time that I didn’t have a new balance transfer check to use to pay off an older loan when the interest-free period ended.

Shortly after this period, the mortgage banking system had its big meltdown. I wonder how much these zero percent credit card loans contributed to that meltdown, as I’m sure there were many people who did not pay off the loans at the end of the interest-free period. It was pretty tempting to take that money, even if you can’t afford to pay it off when the interest rate increased, and that is exactly why the credit card companies made these offers. I was not the client they were looking for.

Today I still get occasional offers from credit card companies for no interest for a few months, but when reading the fine print, there is always a fee involved that is not called interest. The hidden fee blows the zero percent concept. Maybe they will go back to this offer again someday, and if they do, I just might take advantage of them once again.

How about you? Did you ever play the zero percent interest game with the bank? Did you win or did the bank win? This game is a bit dicey if you don’t play it well.

Cory Fawcett is a general surgeon and can be reached at his self-titled site, Dr. Cory S. Fawcett.  He is the author of The Doctors Guide to Starting Your Practice RightThe Doctors Guide to Eliminating Debt, and The Doctors Guide to Smart Career Alternatives and Retirement.

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