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A Contrarian View of (Massive) Credit Card Debt

I’ll start with a confession.

I’ve had six figure credit card debt.

$130k, to be exact.

And it didn’t bother me in the least. Even as the bills piled up, I continued as before, blithely spending away on all the things I always spent on – vacations, entertainment, eating out. And I don’t regret it. In fact, I’d happily do it again.

Why?

It was what I like to call “strategic debt”. In this case, I was in the midst of a major renovation of a property I bought with cash. The place was such a wreck that no bank would finance it, so I had to use nearly every cent I had to make the cash purchase. No money remained for all the work that had to be done. That’s where the credit cards came in. I used them in two ways… to buy the fixtures and furnishings, and to pay my contractor (he didn’t take credit cards, so I switched to cash advances on zero percent cards).

Did I run up massive credit card debt? Yes.

Were those beautiful zero percent rates due to expire at some point, converting to 12-24%? Yes

Did I care? Not really

I had a plan in place to pay these off well before I rang up the first dollar: finish the renovation, and go back to the bank once it was a “real” house (e.g., had walls and a roof you couldn’t see through) to get a proper mortgage to pay off all that debt.

Of course there were risks involved – what if I couldn’t get that mortgage? But I covered this by making sure the projected rental payments on the finished house (it was a vacation rental) could at least cover the credit card payments. So even if there was delay, I would still at least be breaking even.

It all worked out pretty much as planned (although it took me longer to get that mortgage than I anticipated!), and the whole process revealed yet another financial “truism” that isn’t always true: never accumulate credit card debt. This is just not universally true.

Not that I would recommend that everyone run out now and buy Hawaiian vacations and SUVs until they hit $130k on their Visa – but there are a few circumstances, IMO, where massive credit card debt is just fine and dandy:

  • When it is being used to create an asset that will generate income – even better, enough income to service the debt
  • When you have a plan to pay it off – no, not by forgoing your morning latte for 40 years… by paying it off in a lump sum, using the cash from the sale of an asset at a significant profit, a lower interest loan, etc.
  • When you know what the payments will be – have you done the math to understand what the minimum payment will be on all the credit cards you’ve invariably collected to reach $100k plus? And what will happen when those 0% cards reset? This is an area where, for me, Excel really came in handy. There’s nothing worse that borrowing 30,000 on a 0% interest loan and getting socked with a $450 interest charge when the “free” period expired (yeah, this happened to me).
  • When it’s the cheapest form of quick cash available: Sometimes, believe it or not, credit cards are the best deal going. I looked at places like iProsper, Lending Tree, etc. as sources, but they all wanted thousands in fees upfront. Hard money loans wanted 10%+ and even more fees than the peer to peer platforms. Credit cards usually don’t charge anything for purchases, and a relatively competitive 4% for cash advances (followed by up to 18 months of 0%).

To sum it all up: I’m not telling you all to run out there and charge to your hearts content – or even that your existing credit card debt is something you should be fine with. But our circumstances are all different. And sometimes, especially when you are using this money to invest vs. spend, credit cards can be a pretty handy and cost effective way to get a hold of some short term funding.

Have any of you used credit cards like this? Would love to hear your stories!

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  1. Nothing better than zero interest credit card debt! Got 40K of it at the moment. So far I’ve not had a problem rolling it to new cards. Might be a bit tougher next time though, the banks are being hard asses.

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