Should Credit Cards Be Used To Buy Cryptos?
Please be warned: This article discusses using debt as a wealth-building tool. It may alter your understanding of debt and credit card usage. You’ve been WARNED!
Look, I recognize that many people were taught to think of debt as a bad word. However, this article strives to paint a clear picture that it’s not debt that’s bad; it’s the misuse of debt. In fact, as you’ll see, the financially educated use debt as a tool to get rich!
Getting right to the point, the reason that people believe that debt is bad is because most people use debt to buy things that make them poorer, like television sets, stereos, and tennis shoes, for example. In the world of personal finance, these things are called liabilities. Liabilities are things that take money out of your pocket. The middle class grows poorer because people attempt to look rich by buying liabilities. This is largely why debt gets a bad name.
The Rich Use Debt to Get Richer!
The problem with this is the rich use debt to make them richer! You read that right! The rich actually use debt to grow even richer. How? By purchasing assets. Assets are things that put money in your pocket. In other words, assets make you money – instead of making you poorer. Examples are stocks and bonds, real estate, businesses, and precious metals. However, there’s a new entry into assets: digital assets – also known as cryptocurrencies!
This article addresses whether it’s wise to purchase cryptocurrencies using debt (i.e., with a credit card).
And the answer is really quite simple: It depends on how good a person’s financial education is. If an individual knows how to manage debt and understands a digital asset’s profit potential, then debt usage could be a great idea. Here’s an example. In 2017, Ethereum, one of the top 3 cryptocurrencies, had a return of over 5700%! This means that the price of Ethereum grew by over 57 times. A $1,000 investment a year ago would be worth over $57,000 today! Sounds great, right? Well let’s say a person didn’t have $1,000 at the time, but they did have a credit card. Most importantly, they were able to make the monthly credit card payments with ease. Also, if the investment turned South and moved against them, they had an exit strategy. Once the $1,000 was earned through cryptos, the credit card could be paid off.
Debt is Leverage
Using debt in this manner may still seem abnormal to some people. But investors use debt all the time to become richer. When someone buys a rental property, the bank loan (mortgage) they receive is debt. When a stock investor buys shares on margin, it is a type of loan. As you can see, the rich use debt all the time to leverage assets. Ultimately, it’s about an individual’s financial education. How well can they manage debt? How disciplined are they with money? How well do they know their investment? In the case with Ethereum, the use of debt would have been a brilliant play.