using credit cards to invest

Discussion in 'Credit Talk' started by dave, Feb 14, 2001.

  1. dave

    dave Well-Known Member

    This would be interesting:

    Take out a cash advance on your cards for $10,000 or whatever other amount you want. On $10K, you will pay a transaction fee of $300 with most banks. Don't worry about the 20% APR for cash advances because you'll be moving the money anyway.

    Transfer the $10K balance on your card to other cards with teaser rates of 1.9-3.9 for at least 6-9 months. When the rate expires, find another teaser rate and balance transfer it to the new account.

    Put the cash advance into a margin account. This gives you $20,000 of investment leverage. You'll pay 10% margin interest on the whatever you borrow from the broker if you want to use this extra buying power.

    Make minimum monthly payments and take the excess that you would have paid toward the balance on the credit cards if you were paying standard rates and add that to your investment account. The buying power of this money is doubled if you're using margin.

    It takes some audacity to jump into the market right now but the herd has been overselling and the stock prices of some very good companies are extremely cheap. These have got to go up. It is certainly possible to make a 15-20% return in the next year with money that you are paying 2-6% to borrow if you make decent investment choices. On the other hand, using this strategy might cause you to lose your ass. Just don't blame me. I didn't tell you to go out and do this.
  2. Chet

    Chet Well-Known Member

    RE: using credit cards to inve

    I have a margin account which I use to invest.

    When your making money your making twice as much, but when your losing money your "losing" twice as much!

    I would only recommend this strategy for those who are *very* familiar with the markets!

    Imagine buying those high flying Internet stocks last March (when they were at their all time highs) on margin!

    You would probably be living on this board!
    - They repoed your car!
    - They forclosed on your house!
    - Missed every payment in the last 9 months!

    Example: CMGI around $165 in March, now around $6.


    Risky strategy.

  3. Saar

    Saar Banned

    RE: using credit cards to inve

    I hear ya.

    You can avoid or minimize cash advance fees by registering the transaction as a PURCHASE (Yahoo's Paydirect, PayPaling the money to a friend, etc.)

    You can also opt for more solid investments (CD's, gov't treasuries or bonds) that are risk-proof, and still make some money. As long as APY>APR, you're the one making money. Even solid investments yield a higher interest rate than most introductory card rates. If you act right, you can earn interest on money you don't even have.

  4. marvin

    marvin Well-Known Member

    RE: using credit cards to inve

    Buying on margin is risky to begin with, and to do this with money that was borrowed from a credit card? I would have to advise against it, but that is my opinion. If you don't have the money to do the investing without borrowing from a credit card, then you probably don't have the backup funds required if you're plan backfires.
  5. Ender

    Ender Well-Known Member

    RE: using credit cards to inve

    You must also consider the taxes and how those short term gains will affect you as well.. you are only going to be able to keep about 60% of what you make on the market anyway..

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