WHEN FREE MONEY HAPPENS TO SILLY PEOPLE

One version of the American dream has it that everyone has the opportunity to work his or her way from rags to riches. But some readers who have observed friends raking in a few extra bucks by taking advantage of debatable opportunities have questioned whether, in their effort to prosper, these friends have crossed a line.

"To make a little extra money, some friends of mine bought computer parts on sale through a discount Web site and then resold them at a slight profit through eBay," writes J.M. of Malden, Mass.

Even though the original sellers didn't explicitly prohibit reselling, the practice makes J.M. "a little uneasy."

It shouldn't. J.M. may believe that somehow the original sellers are being taken advantage of by her friends who are able to eke out a few more dollars from the items, but they're not. Those original sellers got the price they were looking for. If her friends are industrious enough to find another buyer who is willing to pay a higher price, more power to them.

D.R. from Orange County, Calif., also is uneasy about a friend who told her that she has found a way to make "free money."

The friend "works over 20 credit cards at one time, transferring balances from one card to the other, and then invests the `free money' from the credit-card companies in high-yielding certificates of deposit."

If I'm understanding this correctly, what D.R.'s friend is doing is this: She gets a cash advance from a credit card, which ordinarily she would have to pay off by the end of the month or incur monthly interest. Instead, however, she uses a second credit card to pay off her first card, transferring the new balance to that second card. A month later she uses a third card to pay off the second card's balance, and so on and so forth.The goal is to keep the balance owed moving so fast that it never sits on one card long enough for her to have to pay interest on it.

Meanwhile she takes the actual cash and invests it in a high-yielding certificate of deposit. Ultimately she plans to cash in the CD, pay the last credit card's balance and pocket the CD's interest for herself.

It's a foolhardy investment strategy, though. When she reaches the end of her chain of credit cards, she's going to have to either pay off her balance or begin paying interest on what she owes. That interest rate maybe in the high teens, depending on which state the credit card was issued from.

But what if she can successfully put off that day for, say, three years, juggling 36 credit cards and never slipping up and incurring any interest? How much does she stand to make? A three-year high-yielding certificate ofdeposit pays only 3.6 percent interest at banks in her area. If the CD compounds interest daily and she starts with a cash advance of $1,000, all of that work, every month for three years, will yield her ... $114.

If she cashes in the CD before the three years are up, though, she'll be assessed a penalty that likely will cost her whatever interest she earned. And if she misses a single payment along the way, her costs will likely outweigh whatever little bit she might have earned. That's a great deal of risk for not much reward.

Does that make D.R.'s friend unethical? No. Using a credit card to payoff the balance on another credit card is not prohibited, and one is free to use a cash advance for any legal purpose one sees fit. This strategy is unwise, but not unethical.

The lesson: Not everything that's ethical is intelligent. In chasing your piece of the American dream, the right thing to do is not only to do what's right, but also to take every precaution to make sure that you aren't walking into a potential nightmare.