Great Lakes Secured Investments Blog » Credit Card Investing

Paying off and Making Money from the Plastic

Hanh Brown — Sun, 06 Sep 2009 14:27:34 +0000

Have you wondered if you’ll ever get the hang of making purchases with and paying off the plastic? You’re not alone. Changing times, changing rules and changing interest rates leave a lot of consumers feeling both lost and alone navigating the world of plastic and that uncertainty has led to an amazing turn of tables on the credit industry.

The “season of the staycation” is in full swing. Gone are the days when American families took big vacations financed on credit cards that they planned only to pay off sometime next year. Instead, those same families are rediscovering happiness in their own backyards; skipping extravagant vacations to hang out at home. Even people who are not struggling financially are making adjustments. They’re choosing less expensive vacation locales and cutting extras from their travel packages.

And this fundamental change in spending behavior hasn’t been relegated only to the arenas of travel and luxury either. Americans are spending less in almost all categories. Shopping is no longer a fun weekend pastime; for many it’s a special occasion. One that is often marked by a trepidation that curbs spending even further. What’s better than money in the bank, after all?

In fact, Americans aren’t just spending less to keep their money where it belongs. They’re unloading debt at record pace. In June, Americans paid off $10.3 billion dollars in debt, according to consumer credit statistics from the Federal Reserve. Half of that was revolving debt — mostly credit cards. What makes it incredible: debt and revolving debt usually go up, not down, says Steven Rick, senior economist with the Credit Union National Association. Instead, Americans are paying it off as fast as they can.

Can we blame them? Financial struggle is often cited as a leading cause of stress in adults. Where problems exist marital, familial and health problems often follow close behind. People are unable to sleep, their choices in food often deteriorate and their health follows. Marriages fall apart, families suffer. For most people, money problems start when they lose all or part of an income — job security and a little money in the bank goes a long way in not only ensuring economic health, but overall health as well.

Granted, some of the recently seen debt payoffs could be triggered by changing terms. Higher minimum payments, lower credit limits and the higher bar set to obtain credit in the first place could no doubt be spurring even those in robust financial standing to abandon the debt holding ways of their past. Still, it makes sense that in this economic climate people are pulling back on their own as well.

But is a full withdrawal from investing a good idea, even in this economic climate? Perhaps for a rare few, but for most at least some investment of funds is still in order. Money in the bank may be nice, but there is one thing better – money making money. For these people a Great Lakes Secured Fixed Income is a worthwhile consideration. Great Lakes Secured Fixed Income investments offer risk-shy investors a way to invest without the worry that comes with participating directly in the volatile stock market today. A fixed secured note of $32,000 at 10% APR (interest only) for a 5 term would pay the note holder $267 per month, for instance. This means over the 5 year term the note holder would receive a total of $16,000 in 60 monthly payments. That’s a 50% ROI. Plus, the original $32,000 principle is also returned at the end of the term.

Using Credit Cards or Credit Lines to Create a Fixed Income

Randy Michael — Sat, 01 Aug 2009 23:52:59 +0000

The banker’s traditional lending model pre-dates the history of the United States—in fact, it dates to biblical times at least. That model could be referred to as making money “on margin”.

Essentially, a bank borrows money at one interest rate and, of course, lends it out at a higher rate. If a bank pays you 1% interest for your money in a savings account, but lends it out in the form of mortgages or commercial loans at, say, 7%, it’s clear how they make money. In this example, the six percentage points of “spread” between the cost of their money and what they receive from their borrowers is their margin.

Every American is now aware of the credit crisis currently facing this country. It’s not that banks don’t want to lend money because their spread is too low. They don’t want to lend money period, at any interest rate. Can you see the opportunity for a person with good credit who has the ability to borrow fairly cheaply?

Now, if you had a million dollars of cash to invest that you really don’t need for living expenses right away, you can imagine ways to lend it out for a healthy profit margin just like banks do (or did, at least). But did you ever think that you could “play the bank” even without having a lot of spare cash? You can. I do.

I have bought more than a couple of houses using credit cards or unsecured lines of credit. In recent years, rates on those cards averaged around 8%. But by putting that cash into an appealing rental property, the investment provides up to 20% cash on cash return. After I made my monthly credit card payment, my spread was 12 percentage points. A grand slam by anybody’s standards. If I had used my own money, my return on investment would have been 20%. That means I would get back all the money I invested in 5 years. But because I had to pay the credit card for the use of their money, my return was only 12% (20% minus my 8% cost).

But was it really only 12%? No! My true return was infinite! That’s because I used none of my own money. The investment itself only returned 12% of the capital used. But because NONE of that capital was my own money, my personal return was infinite. I make a small payment, but I receive a big one every month for doing nothing. Powerful stuff.

Now, fast forward to 2009 where credit cards (and debt in general) have gotten a bad name. But that’s all about the “bad” debt that consumers incurred—where they used their credit cards to pay expenses like vacations or buy “assets” like bicycles that obviously provide no cash flow whatsoever. Those people had to pay the 8% or whatever interest rate but how much income did they receive from the thing they funded with it??? Zip, zero, zilch. That’s bad debt and it deserves to have a bad name. That’s not what I’m talking about here.

I’m talking about “good” debt—the banking model. You borrow at one rate, put it into a solid property that will be rented out for a cash flow that is greater than the cost of your debt. Just like banks do.

If you have credit cards or unsecured lines of credit that are not being used, you have two problems. One is that, if you don’t use it you might lose it, even if you have good credit. Credit card companies systematically review accounts and reduce unused credit lines to hedge their risks against people who use them as a lifeline. The other problem is you are not leveraging it to create an income for yourself.

Contact Great Lakes Secured Investments if you would like to explore the opportunity to make money not by using your money—but by using your credit card companies’ money.

The Problem with Treasury Bonds as Fixed Income Investments

Randy Michael — Thu, 16 Jul 2009 03:57:31 +0000

Late in 2008 when the stock market was plummeting, government bonds were considered one of the few safe assets around. As a result, yields—the amount of income the bondholder receives—went down. The demand for what was considered a safe, secure investment was so high that our government didn’t need to offer them much of a return in exchange. Investors became conservative all of a sudden. They would settle for a low yield just to know the price of the assets didn’t drop.

But now, money is flowing out of government bonds and into riskier assets once again, meaning yields are going back up. The yield on 10-year Treasury notes has nearly DOUBLED just since December.

The problem is what those higher yields do to the underlying face value of your bond—the bond price goes down. In fact, the benchmark 30-year U.S. Treasury bond has tumbled over 10 percent since April. The price of long-term government bonds has already plunged more quickly than at any time in history. The Treasury bond market is crumbling and looks like it will for some time to come! Scary as it may sound; perhaps someday the government will be unable to sell its long-term notes and bonds at ANY price.

Most non-political types would say the federal government’s increased spending and interest rates are the reason. Federal borrowing has soared to unbelievable levels. Nearly $100 billion in bonds, notes, and bills are being offered at each weekly Treasury auction — the most in our nation’s history. Interest rates are rising. None of that money is going into the housing industry to provide mortgages and re-stabilize the real estate market. It’s all going into subsidizing federal spending.

If I were, saying, over 55 years old and thinking about long-term retirement income, and did so almost exclusively in Treasury Bonds, I’d be terrified at the thought of my wealth evaporating so quickly. You figured you could settle for low yields in exchange for no volatility. Steady, albeit low income—you thought—would work, as long as it was “safe”. And what could be safer than investing in the US government, you thought. But now you can’t even count on your portfolio of US treasury bonds to hold its value either?

Unfortunately, in my opinion, NO. You can’t.

Please re-think your portfolio and how it will be affected by this new paradigm of high government spending and higher interest rates. Consider re-allocating it to smarter, more profitable, and more worthy causes.

As I write in mid 2009, the US mortgage industry has nearly shut down. Most good people are unable to get a mortgage, no matter what you hear on the news. It’s as simple as that. Surely you have a niece, cousin, brother-in-law, co-worker, or friend who can attest to their inability to qualify for a mortgage to buy a new house.

Consider an investment in something that provides a much more secure fixed income, such as a real estate Note, secured by somebody’s home. And in the process you’ll make much higher income than with those traditional investments such as treasury bonds.