Question: My husband is very worried about President Trump crashing the economy. We have no more debt, having paid off our mortgage last year. We have only one credit card that we pay off each month. But we’re on a tight budget now that we’re retired.
My husband has this bright idea: Sign up for credit cards that come with no interest for a year and a half, then use them to buy gold. By the time President Trump is halfway through his term, business will be bad and gold will be worth more. Then we sell the gold and make a tidy profit.
My husband won’t listen to reason. Can you please tell him this is the dumbest idea you’ve ever heard? I don’t think anything else will convince him.
— Anita in Utah
Howard Dvorkin CPA answers…
I don’t know if this is the dumbest idea I’ve ever heard — I’ve been a financial counselor for more than two decades and have come across a lot of cringe-worthy concepts. However, it ranks right up there.
Let me explain what your husband is thinking. He wants to take advantage of what’s known as a zero-percent APR promotional financing offer. As Debt.com has detailed, these offers are ideal for getting rid of high-interest rates on your credit cards, at least for a little while.
Here’s how they work
You roll over your high-interest balances onto a credit card that waives all interest charges for a certain length of time, usually 18 months. The logical question here is: Why would a credit card company give up all the money it can make from those interest rates?
The answer is depressingly simple: Many people who transfer their balances and think they’ll pay them off within those 18 months don’t actually do it. Instead of using those interest-free months wisely, they rack up more charges with the money they’ve saved.
So what happens after 18 months? Wham, you’re hit with interest charges, sometimes higher than you paid on your old cards.
Your husband is angling to use these interest-free offers as a way to invest instead of pay down debt. Needless to say, it’s a risky move.
First, 18 months isn’t a long time in the investment world. That’s more akin to gambling than investing. You can easily get caught in a down market.
Second, if you’re going to “time the market,” gold is a dangerous commodity to try it with. Over the past three years, gold prices have fluctuated wildly — up nearly 8 percent in 2016, down more than 11 percent in 2015, up less than 1 percent in 2014. No one can predict the price of gold 18 months from now.
Third, you should only invest money you can afford to lose. From what you’ve described, Anita, you’re on a “tight budget.” How will you recover from losing thousands of dollars?
If this doesn’t convince your husband, tell him to contact me directly here. I’ll be glad to repeat these same points in a stern voice!
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Email your question to email@example.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.