Credit Cards - The Bright Side of Credit Card Debt
The Bright Side of Credit Card Debt
The Bright Side of Credit Card Debt by Tom Fazio
In most social circles debt has a very bad connotation. But among educated investors and speculators, debt is the substance of wealth creation. We're taught from early on that debt is evil and binding. But the wealthy use this evil burden to purchase appreciating assets, which in time not only cover the original debt obligation plus interest, but also adds a few zeros to the equity statement.
For those not born to the wealthy few, credit cards have provided access to capital for small business men and investors for years. They've allowed capitalism to progress, the economy to grow, and individuals to make new lives for themselves. But as we all know, investments don't always turn out well, and sometimes the daring entrepreneur winds up in a mound of debt.
Given our current economic and financial crisis, it isn't a very good time to be burdened with credit card debt. Especially now that interest rates are on the verge of rising and access to capital is tight. But there is an interesting flip side to this equation, and it lies in the poor money management of our faithful leaders. Our government loves to spend. They live on credit just as all of us live on credit. The US government is burdened with debt, owed primarily to China, Japan, and the American tax payer, and the economy at present is not helping to pay it off.
But our government has a few tools that we as individuals don't. Our government has the magic ability to create more money, from nothing. And that is exactly what they've been doing. The reason for this is two fold. The first is to provide support to a crashing economy, creating works projects and holding up banks by the bootstraps, or noose. And the second reason is because the more money they create, the less each dollar that currently exists is worth, thus making their burden of debt a little less burdensome. The consequence of all this is hyper inflation and asset values rising tremendously.
For those of you who think like the herd, this is and should be a scary thought, because it implies the evaporation or pillaging by the government of all the wealth you've created throughout your life. For those of you who think outside the box, this is a great time to accumulate debt, so long as it finds a soon to be appreciating asset. Because as soon as inflation takes hold, asset values rise but your debt remains constant, and therefore your equity grows significantly.
For those with less risky blood, there is a conservative benefit of this ridiculous government spending. Your current debt, assuming your income keeps pace with inflation or you currently own a house or other long term tangible asset, will gradually fade away into oblivion. Remember how your grandmother used to tell you what she could buy for a penny? Yes, I know she was crazy, but she was also telling the truth. A penny used to mean more than good luck. And in 20 years we may look back and reminisce about all a dollar could buy.
So for those of you burdened with credit card debt, find some way to pay if off with passive income. It won't burden you forever as it does today. And for those of you looking to invest, do your research, find a good credit card with a low APR and a long term payment plan, borrow, invest, and cross your fingers. This should go without saying, but consult your accountant before you do any of this. Or your priest.
Tom Fazio is an independent investor and investment author who writes on credit card debt, secured credit cards for people with bad credit, and 0 interest credit cards.
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