While nearly 80 percent of U.S. consumers have a credit card and roughly 20 billion credit card transactions are made each year, federal regulations limit the extent to which you can make investments with borrowed money. Nevertheless, with a little creativity, it is possible to buy to buy an investment with credit card.
Comparative Credit Card Investment
Free up cash by transferring an existing debt obligation to a zero percent balance transfer credit card. Purchase an investment that does have a prepayment penalty for withdrawing funds prior to the conclusion of your credit card's zero percent period. Continue making monthly minimum payments (which can be as low as 2 percent) and pay down what you owe before the credit card's zero percent term ends.
Create two PayPal accounts -- one linked to a zero percent credit card and another to your bank account -- using different e-mail addresses. Use the account tied to your credit card to send yourself money. Withdraw the funds from your bank account. Purchase an investment with an expected return that is greater than PayPal's credit card surcharge.
Determine whether your credit card company applies a regular interest rate or a cash advance rate to its blank checks. If a regular rate is used, purchase an investment with the check.
Manage your credit card account diligently. Make monthly minimum payments, avoid spending more than your income and debt obligations allow you to afford, and pay off your balance before the end of a zero percent term, if applicable. Otherwise, interest, fees and credit score damage will diminish your capital gains.
- Minimize costs by using credit cards with no annual fees whenever possible. If you have limited or damaged credit, improve your credit standing prior to attempting this process. Build credit by placing a deposit on a secured credit card account and making on-time monthly payments until you begin receiving direct mail credit card offers geared toward someone with good credit. Use a credit card calculator to determine the monthly payments necessary to become debt free before the conclusion of your credit card's initial zero percent term.
Odysseas Papadimitriou is CEO of Card Hub, a credit card and gift card portal, and Wallet Hub, the first personal finance social network. He has covered marketplace development, marketing strategy and other topics for leading publications including "The Washington Post," Forbes.com and The Huffington Post. Papadimitriou holds a MBA from Duke University and a BS from Brown University.