Borrowing, Credit Cards, Leveraging and Investing – Questions and Answers

Q: John: what do you think about borrowing, credit cards and leveraging:

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A: Ashok: Sometime people get into big debts first borrowing against their credit cards and then against their home equity line of credits. People use credit cards and home equity line of credits to live on. They pay their month to month expenses by credit cards. They end up getting lot of credit cards. They borrow from one and pay off old credit card. End result is one day comes when they reach their limits and credit cards get declined and there is no way to pay debts. As interests and penalties on credit cards are very high once you get trapped heavy into credit card debt and have exhausted your all equities including your home equity line to pay off non producing debts then only alternative left is to go bankrupt and start with a new slate.

On the other hand if your credit is good and you can borrow you have tremendous power to make money, as you can jump into opportunities and use your power of debt to acquire good stocks or real estate at a fire sale price. I know people who have borrowed from credit cards as well as against their home equity lines of credits to put a down payment against investment properties which they had an opportunity to buy at much lower market value now have excellent income producing properties as well as have built lot of equity.

They borrowed money as a bridge financing for few months just to acquire the asset and then refinanced it at a much lower interest rates within months. While lot of homeowners are being foreclosed on their homes because they borrowed money on non income producing big personal homes which really their income levels could not afford.

On the other hand people who invested in income producing houses or apartments assets make money when people are renting then buying.

Q:John: What do you think about getting a good job and staying with it and saving money in the money savings accounts because of these uncertain economy. Or you recommend investing in stock.

A: Ashok Another type of bad financial advice tells us to get a safe job, save money, buy a big house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds OR REAL ESTATE. But according to the Census Bureau, in 1999 the average U.S. income was $49,244. And in 2006, the average income declined to $48,201.

This means that U.S. workers haven’t had a pay raise for seven years, Plus if you had kept your money in the last ten years in a bank in a term deposits for short periods you would have less money as inflation will eat up value of your money ,so leaving money in bank’s is not a good idea.

By Ashok of http://becomerichinfiveyears.blogspot.com



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