A while back, I posted about credit card debt and how it's bad financial management to carry a balance and get hit with the absurd interest which is often 16-24% APR. Recently, I have made an interesting discovery which I thought I should share with the world. Credit card debt is only bad if you are irresponsible and do not manage your finances correctly.

There's a well concept called the "Time Value of Money" and it's a basic financial concept that suggests a dollar today is worth more than a dollar a year from now.

The reason the time value of money exists as a concept is due to interest rates. If I have $100 today and invest it into the market then a year from now, assuming a 7% yearly return, I will have $7 worth of interest so $100 today is $107 a year from now. Pretty simple concept, right?

Many credit cards have 1.5-2 year introductory periods with 0% interest on your purchases. The credit card issuer wants you to spend money and wants to reward you for your spending with rewards, points, cashback, etc. They will charge you 16-24% interest APR after the introductory period expires, so you will need to be careful if you choose to carry a balance at 0% APR. Also, after the introductory period ends make sure the entire balance on the card is paid off or the credit card issuer may charge you interest from the starting date of your issuance. Each month, all you need to do is make the monthly minimum payment to keep the account current. If you fail to make the minimum payment each month, you will be charged interest at a penalty rate so make sure to pay the bill!

I am currently doing this with 2 credit cards, an American Express and a Chase Freedom card. I have invested money into the market and over a year from now when the bill becomes due I plan to sell some of the investments to pay off the credit card bill. Hopefully, if the market performs then I will have made the credit card issuers wait for the money, and they will be receiving money that's less than it's worth because of the time value of money.

Let's hope the market performs in 2018; Otherwise I'll have to shell out cash from savings to pay the bill off. Either way, manage your risk well and you'll do well financially.

Update (2/22/2018)
As much as this strategy involving time value of money makes sense, it is a risk that one takes if they work in professions not considered "secure". For example, a University Professor with tenure certainly will not lose their job unless the university itself goes under and continues to receive their salary without interruption; Thus, a typical software engineer or financial analyst whose jobs are subject to the cyclicalities of the economy would not be immune and disruption in personal cash flow (ie. income) would render this strategy null and high risk. In essence, you are opening a long term "accounts payable" with the credit card company and paying it off in the future, but who knows what the future holds?