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> You simply borrow against your existing holdings and pay that debt back while earning interest on your holdings. This model makes that 1-5% cashback on credit
by vineyardmike 4y ago
> You simply borrow against your existing holdings and pay that debt back while earning interest on your holdings. This model makes that 1-5% cashback on credit cards look like a joke.
You can do this today with existing investment portfolios. If someone is willing to give you an unsecured line of credit -without the risk of margin call- why would you borrow against holdings?
The magic issue is that markets don’t always go up so borrowing against a depreciating asset (even short term) is asking for trouble.
(Also most people don’t have serious investment holdings, and if you live paycheck to paycheck this model doesn’t work. Also you’d need a nearly free interest rate since credit cards have no interest until the bill is due which can be 30+ days after the purchase.)
- latchkey 4y agoYes, there are risks involved. Not saying there aren't. That said, there can be organizations, which are not credit card companies, that buffer that risk. Correct, this model does not work for everyone's financial situation. However, people who are living paycheck to paycheck arguably shouldn't also be floating on debt. This is why credit cards ask for income statements in order to determine how much credit to extend.
- vineyardmike 4y agoI think people have an overly negative view of debt. People without a money buffer benefit from easy revolving credit. The best and only sane use of credit cards is as a float between paychecks. If you need a real loan for long term debt, I agree that people should get one on much better terms than credit card interest rates. Paid on fridays but want to grocery shop on Wednesday? Better hope you have enough in your account on Wednesday.