Hobofinance

An all too common method among the rich to create wealth is through the use of debt.  And among entrepreneurs and small businessmen, credit card debt can be the missing piece of the wealth creation puzzle, as it allows them to acquire assets today that with time will appreciate in value.  How can we, the hobo financier use credit card debt to attain financial independence?  Let’s look at a few examples.

Charles Ponzi, that most venerable of schemers, has shown us the way to generate investment capital without work. Ponzi, in the 1920’s went from rags to riches in a staggering 7 months by luring investors to invest in foreign postal coupons with a guaranteed return of 100% in 90 days. Naturally, these coupons did not exist and the bonds he sold investors were worthless promises. This didn’t stop him however from paying off these bonds when they came due…with the money he’d received from a second round of investors.

As word spread of this unbelievable investment with astronomical returns, investors flocked to Ponzi with larger sums of money for him to put to work…which he’d reimburse in due course with interest he acquired from yet another round of investors. 7 months later and $10,000,000 dollars richer, Ponzi realized his practice was unsustainable and stopped accepting new deposits. This scam ended as most do, with the schemer in jail and his investors irate. Nevertheless, Ponzi is a hobo inspiration for his ingenuity and courage.

While Ponzi’s methods are illegal, we can do the same with trusting investors and/or credit card debt to collect enough money to invest by establishing trust. A credit score, in principle, represents the reliability of a borrower, an image we can all develop. Most people will discourage you from considering the use of credit card debt as investment capital, but most people are not hobos and never will be. I have done this myself and while it has considerable risk and the act of borrowing itself can be frightening, it is the essence of the entrepreneurial spirit to take educated risks. (A note: I had no other debt prior to taking an investment loan, and I highly recommend paying off your debt prior to adding to it in this way.)

Credit cards, as everybody knows, have credit limits. What you may not know is it often takes little more than a phone call to raise that limit considerably, assuming you have good credit. If you have not yet established credit, this can also be an effective method to do so. It is not advisable to apply for several cards at once because all companies receive that information. Instead select 2 or 3 cards that offer balance transfers or personal use convenience checks. Pay all of your expenses with credit cards for six months and pay them off on time or early.

Every few months call your card provider and ask for an increase of credit. Aim high; if your limit is 5K, ask for 15K, if it is 10K, ask for 20 or 25K. Each of these requests runs a credit check so don’t do it frequently or you’ll be declined. Open a separate bank account that you will use only for managing borrowed money when your limit meets your investment requirements. Don’t mesh this money with your savings or incoming/outgoing expenses; it ought to be treated as your own business account.

Many credit card companies still offer 0% interest balance transfer or convenience checks for a 6 month or one year period to people with decent credit (these checks can cost you approximately $200 each, relatively cheap for a $10,000 loan). I consider a 7% or less APR a functional rate to borrow at. This is how I’ve built a stake. If you decide to purchase stocks or futures options and believe that you’ll need to hold your position for at most one year, make sure you leave enough of your loan in the separate account to make regular monthly payments. You also need to make sure that this investment capital, or the part of it you’ve set aside to maintain the loan payments are not needed to sustain your own lifestyle for the duration of the loan.

If you can secure a $20K personal loan, have no outstanding debt and can reduce your monthly expenses to a modest cost of living, you can leave 5K in the bank to pay monthly credit card fees for 10 months, 5K to live off of for a year, with 10K left over to invest. This money, if leveraged and intelligently allocated, can produce a considerable return in a short time. At present there are countless foreclosed properties that one could bid on and purchase (as a rental property) for less than 10K all around the USA, or commodities which have bullish supply and demand fundamentals. Both of these methods require considerable research, but can be highly lucrative if done well. Research, simplify, and borrow, and do something creative with your credit card debt.