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Author: esherrod Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Re: Can it be done . . . Date: 12/10/1999 12:38 PM
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Credit Card Pong! An interesting game . . .

I've played this game myself for years, and it does have some benefits. But BE CAREFUL, since there are also many pitfalls.

Using credit card debt is a bad idea in general. You need look no further than this Board to read the many reasons why. Having said that, I do use my cards at times for quick cash or emergency cash, but there is always one major caveat. The cash must be for SHORT TERM USE ONLY. This is crucial!!

Many cards will indeed waive the __% "transaction fee" which can be high. I've seen 2%, 3%, 5%. Note also that some cards place an upper limit on the fee, usually at $20 or $25. But further note that many cards do not limit the fee. So, if you use the card for a $5,000 "loan", you could pay as much as $250 for the "priviledge" of borrowing the money. Not a very Foolish proposition.

With this in mind, I use the following guidelines for this VERY TRICKY game:

1. Never use credit card debt that can't be repaid short term. If you use one card to pay the other, then you must have a plan for the ultimate payoff of the entire principal. Remember, the low rates are temporary, and if you are not prepared to pay the loan in full, you will be caught paying extremely high rates and/or huge transaction fees to keep rolling the debt over.

2. Did I say only use this for short term cash?

3. Never, ever use a card with no upper limit on the transaction fee. Toss it in the trash! This one will kill you!

4. Did I say only use this for short term cash?

5. Always look at alterante sources for your cash. Bank lines of credit are not hard to establish if you have a good credit rating and a good banking relationship.

6. Did I say only use this for short term cash?

7. Consider your Home Equity line of credit. But again, be very careful. Remember, this places your home ownership in jeopardy if you can't repay the loan. You benefit from a tax deduction on the interest, but the risk may not be worth it. Also note: this form of debt is really just a version of #5. The difference is that you are using your home as collateral.

5. Please remember - short term only!

Credit cards are not meant for long range financing plans. Use your bank or S&L for that. But if you must have cash in an emergency, or if a "must do now" opportunity presents itself, then credit cards can offer you a choice of financing. As I said, I've used them this way for years. But also understand that I consider myself a very sophisticated borrower, and I am also very disiplined in paying back the loans. When I have outstanding credit card debt, I keep meticulous records on the balances, current rates, dates of rate change, new rates when they do change, available credit, comparable bank credit rates and terms, actual interest paid to date, etc., etc., etc. I put all this inforamtion onto a complex spreadsheet in order to keep track of EVERYTHING. Without this kind of disipline and effort, you can find yourself underwater without realizing it.

I will repeat what I said at the top of this post:

-Using credit card debt is a bad idea in general!

If you must do it, use the guidelines above, and add as many more as you need to fit your own situation. Follow the other Fools' advice and read all the fine print. Know exactly what you are getting, because there is no free ride with any type of debt.

With that in mind, sometimes the cost of money is less important that the availability of money. You'll have to make that decision on your own.

Fool On - Hopefully with no kind of debt, credit card or otherwise.

esherrod
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