As global cryptocurrency markets endure through their first ever prolonged bearish streak, many of the perilous behaviors long associated with this segment have mellowed down. Just a few months ago, however, it wasn’t uncommon to see budding investors bet their 401Ks, their kid’s college tuition, or even their house on an up-and-coming altcoin with the aim of striking it rich.
Even amongst this madcap breed of reckless gamblers, there is one group that stands out — those who borrow money to invest. Often, using quick credit sources that don’t ask too many questions, such as payday loans, hard money lenders, and even credit cards, tens of thousands of individuals have done what has long been considered the personal finance equivalent of a DUI to make it in this new frontier of the global financial system.
However, given the exceptional rates of returns offered by many leading altcoins and assets exceeding 1,000%, 5,000%, and even 20,000% in a single year, such endeavors are far from insane. After all, if investing $1,000 gave a chance to make $1 million within a year, or a loss of the total amount, it would still be a risk worth taking, even if you have to borrow the money to take that bet.
To answer the question — yes, buying and trading crypto with credit cards are definitely worth the risk, provided you know what you are doing, and have a clear picture of the underlying terms, fees, and APRs associated with such transactions, not to mention the long-term impact on the personal credit scores. In this article, we examine this topic further in-depth, to offer better insights covering all you need to know about buying crypto with a credit card.
- Understanding Fees, Terms & Restrictions
Using a credit card for investing, or gambling of any kind is often considered to be on the same lines as a cash advance, and as result, comes with certain special fees, fines, charges, and interest rates that you need to be aware of.
This is why it remains pertinent to first get an understanding of your credit card and go through the fine-print in-depth on how transferring funds to a crypto exchange will be treated.
You can either refer to your credit card agreement or call up a representative to discuss the same with more clarity. Make sure to note down the exact terms, and fees associated with such a transaction in order to perform a thorough cost-benefit analysis.
- Ascertain The Overall Charges Involved
Once you have a clear picture of the type of fees, and the amounts you will likely be charged, make sure to put them all together, and come up with the overall transaction fees involved.
There is also a foreign exchange conversion rate if your credit card is in a non-US dollar denominated currency, and needs to be converted.
Such expenses are likely to pile on requiring substantial gains on your investments to breakeven but given the volatility, and high beta nature of this segment, many investors feel that it might still be worth the cost.
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- Know The Damage To Credit Scores
Cash advances in general tend to have a pernicious effect on personal credit scores, especially when being used for investing, business expenses, or worse, for gambling. This is not what your credit card was intended for and as a result, does not represent prudent personal financial management, or the fruitful use of credit facilities.
A cash advance of this nature is likely to result in a spike in utilization rates, taking your credit scores lower. It will then be an uphill battle to work your way back to higher scores, requiring lots of time, and extensive planning.
- Pay-off Balances Right Away
Since cash advances often accrue substantially higher rates of interest, it makes sense to pay off your debts as soon as possible. Failing to do this, you will be charged sky-high APRs, reaching all the way up to 33%, in line with most payday loan providers with the potential to cripple you financially over time.
The biggest risk in this regard is making use of credit cards as a source of funding, rather than a convenient mode of payment. Even though many investors have struck paydirt with cryptocurrencies despite such reckless approaches, many more have lost their shirts trying to do so.
So yes, buying crypto with your credit card is definitely worth the risk, provided you know what you are doing, and stay on top of the fees, charges, APRs, and more than likely continue to pile on over time.
As of now, there are a number of credit cards particularly aimed at crypto purchases and transactions, but they mostly make up for the lack of excessive fees by charging exorbitant interest rates, which eventually boils down to a similar cost structure.