By Dee Dee Sung
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Q: I have a one year interest free credit card. Should I take a cash advance and use it to invest in the stock market, mutual funds or possibly use it as a down payment on an investment property?
A: A lot of people ask me this question. My answer is very simple. Never invest money that you can't afford to lose! All too often a projected return on an investment can be very tempting, especially where there's money to be made. There are so many promises of surefire investments, huge returns and small fortunes being made overnight. Every offer seems to come with a great sense of urgency and often you must come up with the cash in a moment's notice. For example, there's the stock that's "guaranteed to double in a short period of time; there's the house that's greatly undervalued and with a small down payment and some sweat equity, it can be fixed up and flipped for a significant profit. I'm sure you've heard many of these seductive promises before. While some of the opportunities may be bona fide, there are never any guarantees and it's always a case of "caveat emptor" or "buyer beware." If you have the cash readily available and don't rely on that amount to live on, or basically can afford to lose it; then at best, proceed with caution and certainly do your homework prior to investing and parting with your hard earned cash, or in this case, your "borrowed" cash.
With regards to taking a "cash advance," be it for an investment, to pay bills or for other reasons, here is what you need to be aware of, especially when the ability to access cash off your card is so readily available.
¥ Extra fees apply when consumers want to take cash advances. For example, they carry a higher interest rate than regular card charges. They can carry an up front fee up to 4 percent of the amount advanced. They carry no grace period and many issuers require that balances for purchases are paid down prior to you paying down the higher-interest cash advance balance. A simple calculation will show that this can be a costly exercise.
¥ The fees can also vary by the type of card you have as well as your credit rating. This can mean that there may well be different rates and fees that apply for various cards within the same lending institution.
¥ It's of vital importance that you not only read the credit card agreement carefully, but that you ask questions about the terms and conditions you don't fully understand. If you aren't satisfied with the answers you receive, keep shopping around for a card issuer until you're comfortable.
Always keep in mind that credit card cash advances are NOT FREE MONEY and with respect to any investment, no one has a crystal ball to guarantee the future or the success of any investment. With any investment you participate in, do your homework up front and enter with your eyes wide open!
Metro Detroit speaker, author and syndicated radio personality Dee Dee Sung is the founder and creative director of The Debt Free Diva with a mission to educate, entertain and inspire people in reinventing their relationship to money. Be sure to listen to Magic 105.1 every Sunday at 7:30 a.m. for "The Debt Free Diva" talk show. To learn more, visit www.debtfreediva.com.
