I’m going to use a real life example that occurred to me recently.  I am a proud home owner (perhaps a good piece of investment advice I’ll offer if the traffic keeps on flowing for the boring money talk), and while I would have liked to have purchased it with a single loan (30 year fixed rate), like many first time home buyers, and especially home buyers in high priced markets like Hawaii, I had to get a second home loan; called a Home Equity Line of Credit, or HELOC.  The nice part about this line is unlike a fixed loan, there is no penalty to withdraw money from it as long as you have good credit.  Which means, whenever you have spare cash paying down your HELOC with it is an amazing investment, not paying interest is the same as earning it, and your money remains as liquid as it was in your checking account, minus perhaps a slight delay to transfer it back over.   The downside is this interest rate is variable, meaning that the rate of interest fluctuates daily with the prime lending rate.  The loan I have is a pretty decent 1/8 of a percent less then prime.  Although it’s a little lower now, for the sake of this example and to make the numbers nice, I’ll be assuming prime will average to around 7 1/8% next year, leaving my Equity APR at 7%.  (Side note, remember the credit game?  Think of how much you earn/save with an APR of 7% instead of 2.5%).

Yesterday my credit card company (Wamu) sent me a flyer in the mail with blank checks advertising “1.99% interest rate through April 2009″, good towards the balance on my second credit card, which I don’t normally use (another no annual fee’s card, I wouldn’t recommend having more then 2 credit cards).  The first thing I then proceeded to do was to read the small print for the catches, and there are a couple.

• 1 time per check fee of 5% of the balance, or $150 whichever is less – Okay, because my limit is $8,000 and I’ll likely use the whole thing as this is an unused card I will end up paying $150, so I will consider this a cost of the investment and subtract it from my earnings later on.  Also important because it means an early full payment would probably mean I’ll lose money (as I hadn’t given the investment time to mature) so I made sure I can change my autopay type on that card from being “balance in full” to “monthly 
• If not payed off by April the balance shifts to being 15% + Prime (around 20%, OUCH!) - Wamu allows you to schedule payments, so I can automatically schedule my payment for a safe date before the bad interest comes in and steals all my profits away.
• Can’t be used to pay off other Wamu debt - Since I’ll be using this to pay off my equity line, (check the rules for your equity lines as some don’t allow for this sort of hijinks) and not another Wamu debt.  I’m in the clear.
• Limit is spending cap on card, and there are penalties for going over your limit. - Easy enough as I don’t use this card for other purposes normally, I’ll write the check for $8000 minus fees ($150), or $7,850.
• Must continue to make minimum payments on credit card while going - Ugh.  Makes the math more difficult, but you can see my spreadsheet below.

So in my example, for the work and the risk I make $223.  Not bad for maybe a half hours work.  :)  Your mileage may vary.