Doctor leverage credit cardsJosh Mettle: Well, so the next blog I read at your site was this really funny name and I thought, “What in the world is this all about?” The title was “All the Right Plastics in All the Right Places”. As a guy, I had to read that, I just had to know what it was about. So anyway, it obviously is a play on words and it talks about how you leverage credit card debt, a thing that most people are – it’s probably got to be like tarantulas, black widows, and credit card debt in terms of fear. But you’ve actually leveraged that to build your net worth and pay down your student loan debt. So tell us a little bit more about this strategy and how in the world did you come up with it?

Amanda Liu: Okay, again it came out funny way. Most of my life’s success came out of some sort of failure in the past whether it’s a failure on my part or failure from my parents’ mistakes, or someone else’s. So what happened is, when I immigrated to America when I was 16, my dad was already 50 and so he started a government job and he started using credit card, too. But he is very energetic like me and sometimes he could have all sort of energetic vectors running him in all directions and he’d be a little bit lost. So what happened is he fell behind on his credit card payments. His credit card interest rate was 30 percent.

Josh Mettle: Wow!

Amanda Liu: When I got that phone call as a second year at UC-Berkeley, I panicked. I panicked really bad and I picked up seven odd jobs while going to school fulltime and for a year and a half, I was sleeping 4 hours a day. I was trying to do everything I could to squeeze out any penny I have to send home to pay off this credit card debt. That actually started my deep-seated almost hatred towards credit card companies.

Josh Mettle: Sure.

Amanda Liu: Then I think so starting before medical school, I also had gone through some financial crises of my own. And so, I had some credit card debt but I was very vigilant, so none of my credit card debt ever had interest rate greater than 2.5 percent, and I used that to help me pay my car loan, which was 7.99 percent. In my scheme of things, basically it was just a buildup and practice of always leveraging debt in the sense that I’m perfectly fine with owing $50,000 on credit card as long as it’s 0 percent or in some of my posts I’ve explained it’s negative interest, literally negative interest not 0 percent.

I’m okay with that but I’m totally not okay with even $20,000 or $30,000 of student loan debt at 7 percent because it just doesn’t make number sense to me. So what happened in medical school is we have our financial aid office talk to us and say, “You know what, if you guys need money, just write us a little email, shoot a line to how much you need, and the money will be there in 30 days.”

I realized why are they so eager to lend us money? Why is the monopoly money so readily available? I know (1) we’re not big banks who can borrow and walk away at 0 percent and not knowing when to pay back. We’re just little people and why are they doing that, and I looked at the numbers. Of course, 4 percent origination fee, 7 to 9 percent interest rates. Who wouldn’t want to lend to us, right? I looked at it and say, “Okay, I’m going to try to avoid, minimize, delay the origination fee and interest rate for as long as possible.”

So what I did is every 4 months, each semester we would be paying about $16,000 just in tuition, then of course there’s living expenses and all the other stuff. So we can run like this parallel experiment. Basically what happened is a majority of my classmates would take out $90,000 of student loans day 1, first day of medical school, and they’ll put it their savings account, bearing 0.01, 0.1 percent interest, or they’ll put it in their liquid checking account. On the other hand, what I do ‑ and then they’ll pay everything with it – their tuition, their living expenses, all that stuff with that money sitting there that they borrowed.

What I would do instead is I would take out a credit card and use that credit card that has 18 months 0% interest on purchases and charge my $15,000, $16,000 of student loan on it.

Josh Mettle: Wow!

Amanda Liu: And so – yeah! So instead of writing $90,000 of debt, with 4 percent origination fee, well 4 percent is the highest origination fee. There was like 1 percent. You know it’s all gradient but so, just for an example, instead of doing that with that upfront fee that starts rolling on principle plus 7 percent to 9 percent. Grad PLUS was 9 percent I believe, and just letting it right snowballing starting day 1 of medical school, I was rotating, using all sorts of credit cards. And then what happened is, as I seemed to be a big spender and then I paid off with a different card and seems off to be responsible and pay off everything, all these big banks started competing for my business, helping me pay for my medical school.

Then I got more and more offers and I just never really needed to take out student loans until like the very, very last chance and the last draw I just need cash fold, and that’s when I do it. I did some calculations. Conservatively just by doing this, not even counting all the cash back that I get, all the free mileage, all the rewards, I saved $60,000 just in interest during 4 years of medical school.

Josh Mettle: Wow!

Amanda Liu: Yeah, and then so part of me just said right back at you, credit card companies, you eat off of on us people’s backs like my parents. It’s time for me to get some of that interest-free dollars that you borrow from taxpayers.

Josh Mettle: Wow! I love it. Okay, a couple of thoughts.

First, brilliant. I mean you looked at the black widow tarantula fear right in the face and you figured out how do I reverse engineer this thing to make it work for me. If any of our listeners haven’t read the blog, she goes into greater detail, so go do that. Read the blog, and it’s very analytical. There’s spreadsheets. There’s dates due. She’s got all this master planned.

But what I think is so beautiful here is that there’s a financial strategy called the carry trade and carry trade is very simply the strategy that most investment banks use where they’ll borrow from the Fed. They’ll get the Fed funds rated at you know 0.25 percent or whatever it is, then they turn around and then they use that to lend out and they get mortgages, commercial loans, cars, student loans, credit cards, and as you just heard Amanda say, some of that money was going out to her parents at 30 percent interest. You borrow at 0.25 percent, and you lend out at student loans between 7 percent and credit cards at 30 percent and that’s why Wall Street is Wall Street, right? That’s a pretty good spread.

Well, you did that. You employed the carry trade strategy. You borrowed at zero to negative because of your rewards. You utilized that capital, and saved yourself all that interest, so you borrowed at a low, and deployed what would have cost you more and that spread is called the carry trade. It’s just that you don’t usually see everyday folks use that kind of a strategy because there’s this fear of debt. Well debt can be bad unless you’re making more money than it costs to service the debt. That’s what you figured out that I can borrow between strategically, intentionally between zero and negative cost with my points back, and I can deploy and save myself 7 percent or your car loan and your student loan debt, so beautiful. I applaud you.

Second, I think it’s so cool that you’re now bringing this strategy to folks that can use the same thing if they go about it intentionally.

Amanda Liu: Yeah, I hope people will open up a little and give it a try because honestly some of my friends, they’re pretty scared just like you said about this big black tarantula. But the truth is, if you think about it, it’s not even that much effort. All you need to do is have an Excel sheet, know your due dates, and a month before your due dates, write another balance transfer check to yourself or open a new credit card. When you open a new credit card in the frequency that is between 18 months to 21 months, all it does is to boost your credit score, really.

Josh Mettle: That’s correct.

Amanda Liu: A lot of people are concerned, right? And so like for me, over the times of kind of practicing and using my financial muscle and borrowing power, I mean I’ve only had $60,000 of annual income, but I have $250,000 of credit limit. That allows not only for a buffer let’s say because of let’s say – what do I want to do with $30,000? Let’s say I put $30,000 in retirement. Right now I’m at zero consumer debt, zero credit card debt right now, but let’s say I just went ahead and will use a Chase Slate card and open, use that and write myself a $30,000 check to fund my retirement or Ella’s 529 this year, and so also I have $30,000 of revolving debt at zero percent for 15 months on that card.

Now it would look really bad if I only have $30,000 of credit limit and it completely maxed out at 100 percent credit utilization. However, $30,000 out of $250,000 is a low credit utilization, which will not hurt much of my credit score.

Josh Mettle: Well and the thing is that the other credit card companies don’t know that you’re carrying all that credit card debt with zero interest. All they see is she has credit card debt, she pays on time, she’s a doctor, let’s give her more credit.

Amanda Liu: Yeah, exactly.

Josh Mettle: And you’ve just figured out the system, so beautiful. This kind of enabled you then, to have you save $60,000, which by the way, $60,000 in saved interests, when you start to pay that back once you’re an attending, don’t forget that you got to earn $100,000 as an attending. You have to save $60,000 because you’re going to pay taxes on all that money.

Amanda Liu: Yeah.

Josh Mettle: That $60,000 in interest that you save really equated to saving yourself $100,000 in income as an attending.

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