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Old Jan 18, 2014, 8:14 pm
  #33  
Andy2
Original Member
 
Join Date: May 1998
Posts: 1,139
Originally Posted by sgideons
The problem with any scheme that doesn't involve bankruptcy (AND the ones that do) is that from any reasonable point of view MS is ALREADY insanely lucrative: if you're buying at 1 cent per dollar (high) and redeeming at 2 cents per dollar (low) every month, then you're already invested in the best vehicle in the western world. Return on invested capital is -infinite- since you're playing with the house's money. $10k per month, which is small change for many here, nets you minimum $1,200 per year, so $12k over the 10 year bankruptcy cooling-off period.

So take someone with a 100k total credit limit. At 10k per month (I know, low, but it's a round number) it'll take 10 months to turn it into cash, average balance 50k means over those 10 months they'll pay ~$5k in minimum monthly payments.

In month 11 they buy a $100k house with the cash.

Then for propriety's sake they wait 26 months, making only the minimum payments on the $100k in credit card debt (out of current income, presumably). That'll cost an additional $26k (my minimum payments are typically about 1% of my balances).

In month 37, they declare bankruptcy and successfully have 100% of the credit card debt discharged.

They now have an asset worth $100k, free and clear. But they've paid $31k in interest, and given up 26 months + 10 years in manufactured spend. 146 months, at $100 per month, adds another $14.6k.

So you'd pay $45.6k for a $100k asset.

Now, these numbers are conservative and many of us have much bigger monthly numbers than this. But that actually strengthens the point: the better you are at MS the MORE you pay in opportunity cost to forego those months of MS.
Your well reasoned and impressively analytical post is why this will soon end now that it is catching on with more people. It is too easy to earn cash and it will ultimately be easy to shut down. I will be sorry to see it go.

I can never get my costs to 1 cent though. When I calculate liquidation costs and car costs at 56 cents per mile, I always get 1.5 cents, which makes it a great deal on 5% cards, but marginal on everything else.

Last edited by Andy2; Jan 18, 2014 at 8:57 pm
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