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Investing with credit

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Brownsfan2k5
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Investing with credit  Reply with quote  

I just got a credit card offer for 18 months no APR. Would it be wise to use these credit card offers for a cash advance and invest the free capital during the 18 month period?

* of course paying them off before the period is up. Maybe maxing my 2014 Roth IRA upfront?
Post Mon Nov 25, 2013 12:34 am
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Radix3d
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They charge you for cash advances. Read your credit card agreement cash advances are not the same as regular credit care usage. Credit card companies anticipate stuff like that.
Post Mon Nov 25, 2013 12:52 am
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coaster
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Depends how you view it.

1) Investing: no, not wise. Over that short of a time period, the chances your invested money will be worth less when payback time comes is probably in the neigborhood of 45%. Whereas the chances you'll be paying back 100% of the money borrowed is guaranteed to be exactly 100%.

2) Speculating: eh, that's the definition of speculating: play the odds with borrowed money. Fine if you understand you may need to dig into your own financial resources to pay back what was borrowed because you didn't make a profit, and you're able to do that without infringing on anything else you'll need to spend your money on. It is actually possible to make a profit losing 55% of the time. Done it. Laughing

~Tim~
Post Mon Nov 25, 2013 3:29 am
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Brownsfan2k5
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I planned to max out my Roth IRA with this money upfront instead of making monthly payments and instead save up those monthly payments to pay off the card in the end. Wouldn't that just be a safe bet to try? Either way I have the money I'm just maybe going to make a little more.
Post Mon Nov 25, 2013 4:51 am
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oldguy
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I did that about 10 years ago when the 'zero cc' offers also had the zero BT offer. I borrowed $15k and put it into the SP500 Index. Each year I applied for a new cc, transfered the remaining balance, and re-borrowed what I had paid in payments (to get back to $15k). I did that for 3 or 4 years - then the zero BT offers stopped so I paid off the balance and quit.

The cc companies offers were exactly as promised - my cost was absolutely zero, no fees, no interest, etc. (I was pleasantly surprised, I was prepared to get screwed and quit immediately.)

The $15k (in the SP500 Index) grew to about $22k - so it was worth doing.

But it was pure speculation. Very Happy
Post Mon Nov 25, 2013 1:31 pm
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littleroc02us
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What gaurentee do you have that you can pay them off in 18 months? Anything can happen during that period, emergencies have their way of coming up when you least expect them. I wouldn't take the risk. Try saving up some money and use that to invest with, the cost is 0% and there isn't any risk because you didn't borrow.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Nov 25, 2013 2:49 pm
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Brownsfan2k5
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I am not worried about not having the cash flow to pay it back. I am in the military and receive a constant paycheck. Although, can someone help me understand how 0% credit cards work? Do I have to pay back the balance each month? Or is it no payments at all until the promotion period is over? Also, is there anyway of receiving a bigger lump sum from your credit card right away besides using a cash advance? Otherwise I would have to just use it for my daily purchases and it might take 1 year to reach the max level, essentially slowing my investment power, correct?
Post Thu Jan 02, 2014 10:17 am
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oldguy
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quote:
Although, can someone help me understand how 0% credit cards work? Do I have to pay back the balance each month? Or is it no payments at all until the promotion period is over? Also, is there anyway of receiving a bigger lump sum from your credit card right away besides using a cash advance?


With the ones I had, I had to pay monthly minimums. To get the cash for investing, they sent promotional 'blank checks' with the offer, you could write a check for $15,000 cash. Each year, I applied for a new 'zero', wrote a 'check' to get my loan back up to $15,000, and left my $15k invested. After 3 or 4 years, the zero interest, zero BT offers dried up, so I cashed out and paid off the $15k loan. (Had about $22k in the account).
Post Thu Jan 02, 2014 3:20 pm
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Brownsfan2k5
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Oldguy I don't think they do the blank checks anymore Sad also, didn't carrying a balance hurt your credit score?
Post Thu Jan 02, 2014 9:28 pm
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coaster
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Chase Bank periodically sends me blank checks for my credit card account with them. Of course, they go straight into the shredder here. But I thought I'd mention it if you're looking for an account that still provides blank checks for cash advances.

~Tim~
Post Fri Jan 03, 2014 5:28 am
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oldguy
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quote:
also, didn't carrying a balance hurt your credit score?


Theoretically it would. But I didn't notice it, it was probably just a few points. As I recall, it stayed above 800 - I did a refi/cash-out on one of our rentals in that same timr frame, that passed OK.
Post Fri Jan 03, 2014 1:27 pm
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Radix3d
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The credit utilization ratio that determines your score doesn't care what utilization you have for one card, but all your credit cards combined. And credit utilization is only part of your score it can't exceed a certain percentage. Plus its only temporary, lower your balances and your score goes back up.
Post Sat Jan 04, 2014 4:20 am
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Brownsfan2k5
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So I got the card in the mail today and it did come with blank checks. It said they were for balance transfers for a 3% fee and 0% for 18 months. Can I use the blank checks for investing right unto vanguard? Is there a strategy that I could use here? I have a $7,000 limit.
Post Sat Jan 04, 2014 9:43 pm
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Wino
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quote:
Originally posted by Brownsfan2k5
So I got the card in the mail today and it did come with blank checks. It said they were for balance transfers for a 3% fee and 0% for 18 months. Can I use the blank checks for investing right unto vanguard? Is there a strategy that I could use here? I have a $7,000 limit.


That means it costs you $210 up front for the money (7000.00 * 0.03 = 210.00). Assuming 2% inflation, your profit will be about market gains minus 5%. Note that if "market gains" is less than 3% plus inflation, you are losing value.

Why take this risk? I don't understand why you are gambling $210 that the next 18 months will see more than 3% gains. We just had 26% gains in the last 12 months. We average 11%. We could easily lose 20% this year. We could also go up 40%. No one knows.

Why not just stick to the 15% of your paycheck into the market, and accept the long-term gains? Why do you have to gamble for short-term gains now?

Oldguy's method is fine AFTER you have money or equity that you're using. If you've got nothing behind the investment, you're gambling. Oldguy's method has the added "security" that he could SELL the house he has the loan on if he needs the money.

What would you do if you lost your income and the market was down? Where would you get the money to "pay it back?"
Post Wed Jan 08, 2014 2:35 pm
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