When it comes to credit cards, most of us think of them as a way to get things we really want right now. We may not actually "need" these things, but we sure do want them. Whether it's a new couch, a new stereo or even a new wardrobe, we use our credit cards faithfully at the behest of our wanter. However, there is a common issue affecting most people in today's societies. Our "wanters" are out of control and they are wanting the wrong things. There is nothing wrong with having some new clothes, but there is a better way to use your credit cards that can actually result in you having more money.
It's time to take your "wanter" to task and retrain it. Instead of focusing on material things that you cannot do without right now, let's talk about focusing on your financial future. Credit cards can be, when used properly, a way to secure that future and open up new opportunities. Instead of wanting all of the latest gadgets, isn't it smarter to start wanting the things that really matter, such as more income coming in? By using your credit cards as leverage, you can actually start making more money with varing degrees of upside, effort, and risk.
There are numerous stories of film makers that used their credit cards to finance their little independent films. The films made it to the big festivals, got picked up by top distributors and went on to earn millions of dollars. Or better yet, how many Internet startups or online marketplaces have started with a found or three pyramiding their credit cards to retain a larger percentage of their company from the eventual venture capital backing... This is perhaps the best illustration of becoming wealthy using a credit card as leverage -- boot strapping a business venture.
Although not a sure bet that the films or the Internet companies would make it big time, the founders were confident in their vision, and with dedication to the respective businesses and a luck, it paid off. As with all instances of leverage, there is risk. If the business failed or the film flopped the personal credit of the founder would be on the line (with a business there really is no way around putting your personal credit on the line while your cashflow is negligible.)
We're not saying run out and run up your cards financing films or buying inventory for an EBay store. What we are saying is that by using that credit limit (how A Credit Card Limit is determined) wisely, you can start taking the steps towards some pretty nice returns. Pick the opportunities that best suit your skill set and risk aversion level.
A low risk opportunity is low interest balance transfer offers from your exiting credit cards or new solicitations. This is called credit card arbitrage. You borrow money from a credit card at a very low interest rate and you store the money in an interest bearing account. When the low interest period draws to a close you withdraw the money and repay the credit card keeping any interest earned. With interest rates lower than in recent times the amount of money to be made this way is negligible unless you have 50K+ in spare credit card capacity.
This is relatively low risk, assuming you pay the credit card back on-time and make the monthly payments. If you forget and miss a payment then you might lose all of your earned interest in a single rate hike and interest charge.
Buying stock on margin is another form of credit leverage. It uses stocks in your portfolio and line of credit to purchase more stock than could be purchased with just the funds on hand.
The key is finding that balance between willful and negligent spending and spending for the right reasons. If you don't manage your money properly, you're never going to get ahead. You'll always be treading water and trying to make ends meet. By being smart about your credit card expenditures, make more money than you spend. That way you can have the spare balance capacity to make money using credit cards.
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Originally posted 2008-11-27 08:35:00. Republished by Blog Post Promoter
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Financial Security, Leverage, Money, Personal Finance, Stocks, business, credit card arbitrage, credit cards, margin
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2 comments ↓
This seams very risky, credit card companies are there to make money, so there could be hidden fees in arbrataging. Be sure to read all the fine print before you do it
[...] go back to when you first tried to get your credit cards. It was probably pretty frustrating, since you have to have a little debt if you’re going to get [...]
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