You Can Make Money With Borrowed Money

August 27, 2008 By Debbie Dragon

The wealthy people of the world get wealthier from “free” money - the interest their account balances and investments earn over time. There are ways the rest of us can earn a little extra money from borrowed money - and if done correctly, we won’t be charged more in interest than the amount earned on the money borrowed, either!

Home Owners

If you own a home, you might consider taking out a low interest home equity loan. Place the loan into a high interest account that is FDIC insured to eliminate risk, and let it grow. ING is a good example of a high interest account; either savings or checking, and you can withdraw the money if you need to in order to make a payment on the loan. If you are considering this route, you’ll want to weigh the fees of obtaining the loan with how much the money will earn you while in the savings account.

Credit Cards

You can actually make money with your credit cards. Look for offers for 0% balance transfers or 0% cash advances, preferably for twelve months or more. Instead of using the card to make purchases, simply deposit the amount into your high interest account where it will earn money interest free for the year. When the 0% interest period has ended, you can withdraw the money to pay it back, and keep the interest it’s earned.

Deposit $10,000 from a 0% credit card offer for 12 months in a 4.25% APY account, and you’ll have $425 at the end of the year. Yes, you have to pay taxes on it as “earned income”, but it’s still money you wouldn’t have had otherwise. If you did this every year, you could increase your earnings substantially - simply by adding money from new 0% offers into your account, and leaving your earned interest in the account. So the second year, maybe you would qualify for $15,000 from a 0% credit card offer instead of $10,000 since you paid it back on time; and you already made $425. You are then earning interest on $15,425. That year you’ll earn over $650 in interest. After you pay back your $15,000 loan, you would have around $1075 in interest from the two years of making money off borrowed money. You can decide whether or not to continue these methods of earning from borrowed money; or to move your $1000+ earned interest into a different investment or savings vehicle for long term growth.

Special Considerations

Whenever you consider ways of making money from borrowed money, you need to keep in mind that if you aren’t paying attention to the details of the loan, you can easily make a mistake that causes you to pay finance charges or interest. If you are paying money on the borrowed money, you are probably not going to earn much (if anything at all) from the interest you can earn.

Additionally, when you borrow money, there is always the chance your credit score will drop temporarily. This is because you’ve increased the amount of credit you are using, and decreased the amount of your available credit. Once you pay off the borrowed money your credit score should return to normal, but it’s important to consider that effect in case you have a need to borrow additional money during the time you’ve got your 0% credit card offer or low interest home equity loan earning interest for you.