You’re not alone if you’ve ever been tempted to invest in stocks or bonds with a credit card. Some people see it as a way to get an investment without paying interest or fees.
However, it does have its pros and cons. Below is a detailed guide on why investing with credit card rewards can be a wise choice.
There are a few reasons why investing with credit card rewards can be a wise choice:
There are a few other ways to pay for investments. For example, you can deposit money into a brokerage account and have the transaction go through on the same day.
The downside of this method is that it takes longer since you have to wait for confirmation of your funds being available in your brokerage account before they can be transferred out again.
You risk losing money when you use a credit card to buy investments. If an investment goes down and you don’t sell it, or if the interest on the investment is greater than its return, then that means you are gradually losing money.
If all this sounds scary, don’t worry—it doesn’t have to be! You can reduce these risks by making sure any investment decisions are well thought out and researched before buying them.
Also, try to pay off monthly credit card bills, so there’s no interest rate attached when using your card for investing purposes only.
Before you begin your journey to buy an investment using a credit card, it’s essential to choose the right card. You’ll need one that has no foreign transaction fees and won’t charge you if you travel abroad while you purchase the investment.
Credit cards with no annual fees are also ideal because they allow you to avoid paying an annual fee for charging small purchases like the ones that are involved when buying investments.
According to SoFi professionals, “Cash back credit cards allow you to earn money back on every purchase, as well as possibly a larger initial bonus.”
If you want to own an investment but do not want to pay cash, then consider using your credit card. For example, you can purchase stocks or mutual funds with a credit card and pay off the balance later.
This can be risky, though, because if the value of stocks decreases after purchase, it will be harder for you to pay off the debt than if there were no fees involved in purchasing them in the first place.
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