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Credit Card Deals and Crazy Card Purchases

2007-12-21

Do you know the difference between the bad and good credit card debt? It might be a strange thing to hear but there is such a thing as a good debt and you accrue it when the value of the purchase on the does not depreciate faster than you pay it off.

Buying a car on a plastic officially belongs to the category of bad debt purchases, you can actually make a good deal, staying away from debt and earning rewards at the same time. Why do then some experts refer this deal to the range of crazy things ever bought with a credit card? Let's dig into the contradiction.

We have asked a number of people who have ever ventured buying an auto with their credit card whether the deal was a success. Naturally enough, the group under the survey embraced customers with good credit scores and solid payment history - those who owned high limit rewards credit cards.

Out of their experience, they claim it is generally a good idea and the deal often implies gain with regard to points and other rewards offered by the card. But their experience also prompts that one has to be very careful when using a credit card for a car purchase as there are some things that can spoil the deal, making it a good start for amassing unmanageable credit debt.

First, make sure that you pull out your credit card for such an expensive purchase purely for the sake of earning rewards. If you actually do not have the cash to buy the car, then you do not have the sufficient income to pay credit card bills in full and on time.

Do have the cash and discipline to back up the purchase and only then work out a plan to reap all the possible benefits from making the deal. In this case, the best option would be a rewards credit card like cash back, reward points or airline miles rewards credit card.

Paying with an airline miles credit card, you earn yourself a free flight which is a wonderful complement to your new sparkling auto. Then, even if your cash back credit card gives you only 2% back, it can save you a good amount. It's easy math. You buy a new vehicle for, say $25,000, and get $500 back. The deal is worth while, isn't it?

Then, set a goal of finding a 0% credit card for the car purchase and make sure that it doesn't start accruing interest straight off. How can you benefit from it? First, you pay less in interest and second you can repay the debt as soon as in 1 year.

How can you possible fix it up? Well if you have the cash the price of your car and a credit card with %APR for 1 year, you can play it this way. Invest your, say $30,000 in a one year CD with 5% and earn $1500 on that. At the end of the year you receive $31,500 with which you can immediately pay off your car.

Thus, you make a really good debt as you will most likely drive your car much longer than just 1 or 2 years.

And the last important thing: try to get the dealership to accept the card. In fact, most of the dealers will refuse to take a card as a payment from because a bank will charge the merchant certain fee for processing the transaction.

One of the car buyers told us that his attempt to put the entire purchase on his American Express card failed and he had to call the bank for help. The dealer then accepted the card for the fear that American Express would stop cooperating with them which would have inevitably reduced the sales.

With all this in mind, you can make a really profitable deal. Only make sure that you don't use your plastic because you simply do not have cash to pay for desired auto.

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